International Framework and Kyoto Protocol

UNFCCC Conference of the parties (annual meeting) –Review implementation –Consider new needs –Subgroups Creates Kyoto Protocol in 1997 – COP 3 COP 6 – no credit for forestland in closed cap and trade

Kyoto Protocol Highlights Binding Emissions Limitations for Certain Developed Countries – Annex I –Prize for list of Annex B countries (diff?) Based on historic (1990) emissions 2008 first commitment period Basket of Greenhouse Gases (US) – open? Land Use Disfavored Commitment Period – average Particularly Advantageous for Russia, former Eastern European Countries

Kyoto Flexibility Mechanisms International Emission Trading (IET) Clean Development Mechanism – (CDM) Joint Implementation – (JI)

International Emissions Trading Can Trade if Annex B – meet rules –Important for US? Post-Kyoto? Kyoto Units – AAUs, ERUs, CERs, RMUs Can’t trade more than 10% of budget Only “supplementary” reductions –Practice on this evolving Trade vs. Transfer Temporal – Bank only 2.5%

CDM and JI CDM – projects in non-Annex I Kyoto Protocol parties Must Have National Authority to Provide Oversight - ??? Limitations on nuclear and certain “sinks” Registered and Certified by CDM Executive Board Process – page 643 Generally Open to players (project participants) – US market Timing – CDM (2000) – JI (2008)

Additionality and Leakage Alternatives Scenarios Investment Analysis Barrier Analysis

EU – Emissions Trading System Derived from Kyoto Permission from Kyoto to vary individual countries as basket Countries have own internal rules Registry is nation based Trading between EU entities Starts with CO2 only (in trade part) Allows CDM offsets –additional certification(?)

Phase I (BEFORE Kyoto Commitment) Voluntary Reporting of Baseline European Commission Reviewed NAPs General giveaway - (at least 95%) – almost NO auction Only partially covered Power Sector bears shortage No Banking – Why? Price Collapse

Phase II Formula for Allocation – NAPs – not negotiated Banking between Phase II and Phase III –Target of 20% reduction by 2020 influence Some Auction

Lessons and Phase III Transition Initial Allocation and Measurerment Important Massive Fuel Switching – coal to CH4 – affect on price – moving back – imperfect information with volatility No significant outflow of business yet