In order to be able to take part in the flexible mechanisms of the Kyoto Protocol (International Emissions Trading – trading AAUs, CDM and JI) Annex I parties have to meet certain criteria called the eligibility criteria, as follows:
- They must have ratified the Kyoto Protocol.
- They must have calculated their assigned amount in terms of tonnes of CO2-equivalent emissions (i.e. their target number of emissions for the First Commitment Period 2008 to 2012).
- They must have in place a national system for estimating emissions and removals of greenhouse gases within their territory.
- They must have in place a national registry to record and track the creation and movement of ERUs, CERs, AAUs and RMUs and must annually report such information to the secretariat.
- They must annually report information on emissions and removals to the secretariat.
Some countries have struggled with meeting these requirements. Those that fail will be picked up on by a process of expert review. They then have to face the wrath of the Compliance Committee, which comprises two branches. A Facilitative Branch, which aims to advise parties on how to comply, and an Enforcement Branch which determines whether or not a party is in compliance with its obligations under the Kyoto Protocol, and imposes sanctions if the party is not in compliance.
Since 2008 six Annex 1 countries have been sanctioned for failing to comply with the eligibility criteria – in five cases it is to do with not having adequate systems for estimating and reporting their national emissions. These countries failed to put in place the right procedures and systems, provide enough resources or train up people adequately for preparing the inventory accurately and in good time. The sixth case of Croatia relates to a technically complex issue of calculating of its base-line year emissions in 1990 which was before the break-up of formerYugoslavia.
Source: www.unfccc.int
Losing eligibility is not just a rap on the knuckles. It has serious financial implications for both the government and companies in that country. Governments are unable to transfer AAUs to other countries and are also unable to issue ERUs from Track 1 Joint Implementation projects. Suspended countries have watched while the carbon prices have collapsed in recent months, unable to salvage value from their holdings of AAUs.
Where the country is an EU member state and included in the EU Emission Trading Scheme, without eligibility it is not possible to transfer EUAs in and out of the country. This puts a halt to most spot trading of EUAs except for internal trade or for those governments or installations which had the foresight to establish arrangements outside their own country. Before its recent suspension, for example, Lithuania, transferred some of its holding of EUAs out of the country so that it would be able to auction them during the period of suspension.
A relatively small investment in people and systems would avoid the substantial losses and inconvenience which can result from suspension of eligibility.
