1. 1 Joint Implementation: A Credit Blueprint for Europe? Dr. Moritz von Unger Roundtable: Domestic Offsets under Article 24a EU ETS Brussels, 1 March 2010

2. 2 Offsetting in the EU ETS Today Offsetting = Reducing emissions in a non-capped environment in exchange for a right to pollute in another capped environment (in Europe: EU ETS); the tradable right to pollute is the offset credit. Currently the EU ETS recognizes two offset credit types: –Certified Emission Reductions (CERs) from the CDM –Emission Reduction Units (ERUs) from JI Article 24a mechanism as of 2013? Future of intra-Community JI?

3. 3 JI and CDM in numbers Joint ImplementationClean Development Mechanism ProjectsMillion ERUs up to 2012 ProjectsMillion CERs up to 2012 Pipeline 28585 Pipeline 4.926>2.900 Projects with final determination 17261 Registered 2.0591.755 Issued 545.1 Issued 650372 Source: UNFCCC and UNEP RISØ, February 2010

4. 4 Offsetting under Kyoto and the EU ETS Global greenhouse gas emissions UNFCCC Annex 1: capped emissions Kyoto Protocol Non-Annex 1: emissions not capped European Union EU emissions ETSNon ETS Emissions from Parties to the Kyoto Protocol JICDM EU Member States Operators of installations under the EU ETS Art 24a

5. 5 JI Transaction Structure Member State Project Buyer LoA ERU Transfer Operator

6. 6 24a Transaction Structure Member State Project Buyer LoA Credit Transfer Operator

7. 7 Common Aspects: JI and 24a Both JI and the 24a Mechanism feed into the EU ETS from within Europe (JI having an int’l sting, too) Other than CDM, JI and the 24a Mechanism operate under nation-wide caps: –JI: ERUs are converted AAUs; –24a Mechanism: Annual Emission Allocation (Effort Sharing Decision, ESD) to be adjusted “in accordance with” the credits issued under Article 24a Thus, the additionality perspective differs from CDM: The stricter the cap is, the stricter the enforcement of additionality

8. 8 What is different? 24a Mechanism concerns EU Member States only The country caps (ESD measures mainly against GDP/capita) are more homogenous than the Kyoto country caps; surplus allocation being largely absent Independent governance of Article 24a from the international regime Int’l credits are capped, Article 24a credits are not (yet) Article 24a allows domestic credit generation, JI does not

9. 9 JI and European Domestic Offsets JI is not a domestic in the sense of unilateral; JI is (treated as) bilateral mechanism “Domestic JI” has, however, its advocates; and several countries practice a light bilateral version only (cf. France) An EU offsetting scheme (Article 24a of the new EU ETS) offers the opportunity for pure domestic action The bilateral requirement has arguably been one of the reasons why JI had such a shaky start

10. 10 Can Article 24a learn from JI? Despite its slow start, JI has achieved a lot: – A substantial number of projects (285 by February 2010); –Offsetting potential (5.1 mERUs by 2012); –Project approval procedures in almost all Member States; –Validation and know-how infrastructure; –Despite the laisser-faire Track 1 a broadly homogenous offsetting standard; the JISC acts as standard-setter for project types, additionality, baseline & methodologies and validators

11. 11 Where JI is better… 2 tracks: JI allows an flexibility by recognizing a 2 Track- national-and-int’l governance Homogenous credits with Article 24a handing out a carte blanche to Member States to unilateral measures Under the Kyoto Protocol, double-counting is not a problem. The equivalent, a EU ETS covering 100% of emissions not being feasible, the system has to deal with this bug

12. 12 JI as a blueprint? There are good reasons for Europe to take on board the undisputed achievements of JI and to respond to the harder lessons learnt, too. Start with a JI evaluation under Kyoto and Marrakesh Make use of the developed framework as much as it is helpful Use existing standards and credit credentials Learn from JI’s standard setting governance: consider two-track approach and stimulate harmonious practices Establish clear guidelines for the avoidance of double- counting Coordinate Article 24a and future developments of JI

13. 13 The Future of European Offsetting Depending on the expansion of the EU ETS, Article 24a may assume an important role in European mitigation action and emissions trading Article 24a may also contribute to the expansion of the EU ETS by bridging the path from non-capped to capped sectors Article 24a EU ETS and JI can generate synergies for the establishment of common offsetting schemes. Knowledge, standards and infrastructure can be shared and/or exchanged Pilot for sectoral crediting? Credit linkage between national or supranational cap- and-trade schemes worldwide?.

14. 14 Contacts For more information: Dr Moritz von Unger Senior Legal Counsel Climate Focus +31 20 262 10 37 E-mail: M.vonUnger@climatefocus.com