Review of Kyoto Protocol and Its Impact on India

The Kyoto protocol is an international agreement linked to the United Nations Framework Convention on Climate Change. The major feature of the Kyoto protocol is that it sets binding targets for 37 industrialized countries and the European community for reducing greenhouse gas (GHG) emissions. These amount to an average of five percent against 1990 levels over the five year period 2008-2012. The major difference between the Protocol and the Convention is that while the Convention encouraged industrialized countries to stabilize CHG emissions, the Protocol commits them to do so 1.

Recognizing that developed countries are principally responsible for the current high levels of GHG emissions in the atmosphere as a result of more than 150 years of industrial activity, the Protocol places a heavier burden on developed nations under the principle of “common but differentiated responsibilities (Kyoto Protocol, 2012).

The Kyoto Mechanisms

Under the treaty, countries must meet their targets primarily through national measures. However, the Kyoto protocol offers them an additional means of meeting their targets by way of three market-based mechanisms. The Kyoto mechanisms are:

1.Emissions Trading:

Parties (countries) with commitments under the Kyoto protocol have accepted targets for limiting or reducing emissions. These targets are expressed as levels of allowed emissions or “assigned amounts” which are further divided into “assigned amount units” (AAUs) 2.

Emissions trading allows countries that have emission units to spare – emissions permitted to them but not “used” – to sell this excess capacity to countries that are over their targets. Thus, a new commodity was created in the form of emission reductions. Since carbon dioxide is the principle green house gas, people speak simply of trading in carbon. Carbon is now tracked and traded like any other commodity. This is known as the “carbon market” (Emissions Trading, 2012).

The other units which may be transferred under the scheme, each equal to one tonne of CO2, may be in the form of:

•A removal unit (RMU) on the basis of land use, land-use change and forestry activities such as reforestation •An emission reduction unit (ERU) generated by a joint implementation project •A certified emission reduction (CER) generated from a clean development mechanism activity

In order to address the concern that parties could “oversell” units and subsequently be unable to meet their own targets, each party is required to maintain a reserve of ERUs, CERs, AAUs and/or RMUs in its national registry. This reserve known as the “commitment period reserve” should not drop below 90 percent of the party’s assigned amount or 100 percent of five times its most recently reviewed inventory, whichever is lowest (Emissions Trading, 2012).

2.Joint Implementation:

Joint implementation allows a country with an emission reduction or limitation commitment under the Kyoto protocol (Annex B Party) to earn ERUs from an emission reduction project in another Annex B Party, each equivalent to one tonne of CO2, which can be counted towards meeting its Kyoto target. It offers Parties a flexible and cost-efficient means of fulfilling a part of their Kyoto commitments, while the host Party benefits from foreign investment and technology transfer 3.

3.Clean Development Mechanism:

The Clean Development Mechanism (CDM) allows a country with an emission-reduction commitment under Kyoto Protocol (Annex B Party) to implement an emission-reduction project in developing countries. Such projects can earn saleable CER credits, each equivalent to one tonne of CO2, which can be counted towards meeting Kyoto targets. It is the first global, environmental investment and credit scheme of its kind, providing a standardised emissions offset instrument, CERs 4.

To participate in the mechanisms, Parties must meet among others, the following eligibility requirements: •They must have ratified the Kyoto Protocol.
•They must have calculated their assigned amount in terms of tonnes of CO2-equivalent emissions. •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 5.

Review of the Kyoto Protocol

The main aim of the Kyoto protocol is the stabilize GHG emissions. Let us review how effective Kyoto has been. Consider the positive aspects of the protocol.

Firstly, I think the CDM mechanism of the Kyoto protocol is very good concept for both developed countries and developing countries. The developed countries set up emission reduction projects in developing countries. The success of a particular emission reduction project depends on a variety of factors. Certain countries enjoy a competitive advantage and are more suitable for particular projects. For example, Germany (developed country) may plan to set up an emission reduction project in India (developing country) because the climate in India is more suitable for it and also because India enjoys competitive advantage in terms of cheap labour and raw materials. Thus, it gives Germany more flexibility to achieve it Kyoto targets. At the same time, India receives the technological know-how, infrastructure and most importantly foreign investment. It also results in the creation of new jobs. Thus, CDM helps smoothen the transition of the developing economies towards developed economies and also helps stabilize GHG emissions.

Secondly, the emissions trading mechanism of the Kyoto protocol has resulted in the creation of carbon market where carbon is traded like any other commodity. As the carbon markets are evolving rapidly around the globe, they have become an important source of income for the companies in the private and public sectors. Companies in these sectors have been held responsible for damaging the environment through business activities which results in the abuse of natural resources and contributes to the emission of GHG. Carbon markets provide these companies an opportunity to get engaged in climate change mitigation. The carbon credits earned are then traded by the companies in the carbon market which serves as a source of income for them. Thus carbon markets satisfy dual benefits for companies.

The Kyoto protocol also has some flaws. Firstly, it is a protocol with a narrow and short vision for a period of five years from 2008-2012 6. Although it is the first protocol of its kind to tackle carbon emissions in the atmosphere, its term of five years is not enough for the Parties to properly plan out their emission reductions. Also, there is uncertainty about future climate changes and therefore there is uncertainty in the way in which the protocol will change in the future commitment period. Thus, a protocol with a long term vision would have been more effective.

Secondly, the United States of America has not ratified the Kyoto protocol 7. I think this is a big blow for the effectiveness of the protocol and it won’t be able to sustain for long. The US is one of the most industrialized and developed nation in the world and it dominates the global economy. As mentioned earlier that the Kyoto protocol recognizes developed countries as principally responsible for current high levels of GHG emissions in the atmosphere, it can be implied that the contribution of the US to the GHG emissions is significant. Although US is included in the Annex B Parties, a contributed effort from each member Party is necessary for the protocol to be most effective.

Thirdly, the Kyoto protocol’s emission obligations do not include international aviation and marine transport emission. This means that international flights by airlines such as British Airways, KLM, United, and American Airlines are exempted from controls. Also, these emissions increased by about 10 percent from 1990 to 1995, one of the largest rates of increase for any category 8. Thus, by not including the international aviation and marine transport emissions, the respective Parties to which these belong enjoy an unfair advantage. As a result of this exclusion, these Parties report lesser emissions whereas the overall emissions in the atmosphere are increasing.

Fourthly, the Kyoto protocol involves the issue of ‘hot air’ credits. For example, many eastern and central European economies suffered economic decline as a result of communism collapse and transition to market economies. This resulted in the GHG emissions in these regions to be significantly below the levels that they were during the Kyoto protocol base year 1990. This has resulted in a situation where several Annex B Parties could sell so called ‘hot air’ credits without taking any further action to reduce GHG emissions 9. Again here, Annex B Parties with hot air credits enjoy unfair advantage compared to other Parties. Parties with hot air credits thus result in the overall emissions in the atmosphere to increase, reducing the effectiveness of the Kyoto protocol.

Impact of Kyoto Protocol on India

India is a developing country. It is not obligated to reduce emissions as per the Kyoto protocol under the principle of “common but differentiated responsibilities”. However, as seen earlier, the CDM mechanism permits developed countries to implement emission-reduction projects in India. Let us evaluate India’s approach towards CDM.

The Government of India was initially reluctant to join activities implemented jointly (AIJ). Later, however, it set up the AIJ Working Group under the Ministry of Environment and Forests (MoEF) and issued a set of guidelines for submission of AIJ projects to the government. After lengthy debate since 1997 on the issues and options, a broad consensus seems to be emerging in regard to operationalizing the CDM. The Indian government has emphasized on the development of cleaner and more energy-efficient technologies. According to a joint statement by India and the United States in March 2000, by 2012 Government of India hopes to increase the renewable energy share to 10 percent of capacity addition in electricity generation. India also set up its own designated national agency cell in 2003 called the National CDM Authority within the MoEF. This agency is responsible for attracting CDM projects by way of building awareness through various workshops 10.

CDM potential in India

Let us consider the CDM potential of India with respect to cement and renewable energy sector. The population of India has increased at a steady rate. In order to support the needs of an ever increasing population, there is a huge demand for infrastructure projects in India. This may result in an increased growth in the cement capacity and production levels. As such the share of cement industry to the total CO2 emission is also expected to increase. Thus, CDM has the opportunity to tap the cement sector to reduce GHG emissions. This can be done by the usage of technology in the cement industry that enables the use of less energy-intensive materials. Generally, less energy-intensive techniques are more labour-intensive. India is a country where cheap labour is available on a large scale. Thus, CDM projects in the cement sector can help reduce GHG emissions and also generate employment in India (J Parikh and K Parikh, 2004).

India is recognized as a leading country in the world for the development and utilization of renewable energy, particularly wind power (J Parikh and K Parikh, 2004). India has good availability of other renewable energy resources such as solar, biomass and hydro energy. The energy needs and consumption is India is expected to increase with the increasing demands of the ever increasing population. Thus, this is another sector which can benefit CDM projects.

Issues with CDM in India

1.Commercial Paradigm:

Firstly, the entire responsibility of proposing CDM projects is on India. Through these projects, India can generate CER credits which it can then sell to developed countries. The idea of CDM was to help developed countries use a cost-effective way to set up emission-reducing projects in developing countries. However, in reality, the entire burden of developed countries has been transferred to developing countries like India.

Secondly, India has to reveal all their information including costs to the CER buyers from developed countries. But, the developed countries are not at all bounded to reveal any information to India. Thus, there is an absence of a fair and efficient market. Also, the information revealed by India makes India’s position vulnerable and CER sellers in India are often subject to exploitation (J Parikh and K Parikh, 2004).

2.Baseline Setting:

Since India is a developing country, it does not have GHG emissions reduction obligations. A hypothetical baseline is used to measure any emission reduction that qualifies for trade. This baseline is closely related to transaction costs. As the complexity of the baseline increases, the associated transaction costs also increase. This, in turn, reduces the incentive to invest in CDM projects (J Parikh and K Parikh, 2004).

3.Perverse Policy Incentives:

As per Kyoto, only those reductions qualify that are not a part of the policy of a country. Thus, if there is a policy in India which states that renewable energy should account for 8 percent of new power generating capacity, then the renewable power plant will not qualify as a CDM project. However, if the same plant is present in another country and if such a policy doesn’t exist there, then the plant can earn CER credits for it. Thus, India is discouraged to follow an environment-friendly policy and it might encourage India to indulge in manipulation of CDM projects (J Parikh and K Parikh, 2004).

4.Technology Transfer:

There is a huge scope for technological development in India and establishing CDM projects in India can serve this purpose. However, India faces problems in matching its needs with appropriate technological solutions that reduce GHG emissions. This problem is magnified even further in the presence of uncertain trends in technology development and corporate secrecy. Initially, India focussed mainly on reducing excessive costs of technology transactions and the restrictions imposed on their use. However, India’s focus has shifted to the creation and maintenance of technological capabilities within India. Thus, if India doesn’t learn to match its needs with technology, it faces the risk of technological transfer that is more supplier-driven and geared more towards what is available rather than towards what is needed (J Parikh and K Parikh, 2004).

Conclusion

Although the Kyoto Protocol is for the betterment of the environment, it is not free from loopholes. There is an urgency to address these loopholes before the start of the next commitment period. The effectiveness of the protocol depends on the combined efforts of all the Parties and for this it is extremely necessary that a big player like the United States ratifies the protocol.

References

1.“Kyoto Protocol”, 2012. http://unfccc.int/kyoto_protocol/items/2830.php (29 Mar. 2012) 2.“Emissions Trading”, 2012. http://unfccc.int/kyoto_protocol/mechanisms/emissions_trading/items/2731.php (29 Mar. 2012) 3.“Joint Implementation”, 2012. http://unfccc.int/kyoto_protocol/mechanisms/joint_implementation/items/1674.php (29 Mar. 2012) 4.“Clean Development Mechanism”, 2012.
http://unfccc.int/kyoto_protocol/mechanisms/clean_development_mechanism/items/2718.php (29 Mar. 2012) 5.“The Mechanisms under the Kyoto Protocol:

Emissions Trading, the Clean Development Mechanism and Joint Implementation”, 2012. http://unfccc.int/kyoto_protocol/mechanisms/items/1673.php (29 Mar. 2012) 6.Michael Zammit Cutajar, ‘Reflections on the Kyoto Protocol – Looking Back to See Ahead’, International Review for Environmental Strategies (2004) 7.“Kyoto Protocol”, 2012. http://unfccc.int/kyoto_protocol/items/3145.php (30 Mar. 2012) 8.Bill Hare, ‘Undermining the Kyoto Protocol: Environmental Effectiveness versus Political Expediency?’, Greenpeace International (Jun.,1999) 9. Kati Kulovesi, ‘The Private Sector and the Implementation of the Kyoto Protocol: Experiences, Challenges and Prospects’, (2007) 10.Jyoti Parikh and Kirit Parikh, ‘The Kyoto Protocol: An Indian Perspective’, International Review for Environmental Strategies (2004)