ASIL Insight

More than seven years after its adoption, the Kyoto Protocol finally entered into force on February 16, 2005, thus marking the beginning of a new era in global efforts to combat climate change. [1]   While international agreement for action on global warming was first reached in the Framework Convention on Climate Change in 1992, this failed to set clear targets for the abatement of greenhouse gas emissions. [2]   In adopting the Kyoto Protocol, however, the international community agreed on quantified emission limitation and reduction obligations. 

These obligations are imposed by article 3(1) of the Protocol. Under this provision, the states listed in Annex I of the Framework Convention, being developed countries and countries undergoing the transition to a market economy, are obliged to limit and reduce their greenhouse gas emission levels to their respective assigned amounts, as specified in Annex B of the Protocol, with a view to reducing their overall emissions by at least 5% below 1990 levels in the first "commitment period" of 2008-2012.  Participation by Annex I states in the Kyoto Protocol is crucial, as its environmental effectiveness would be greatly diminished without the involvement of those states chiefly responsible for global warming.  This was recognized in the Protocol's entry into force provision: it could only enter into force after 55 states parties had deposited their instruments of ratification, acceptance, approval or accession; in addition, those 55 states parties had to include states which "accounted in total for 55% of the total carbon dioxide emissions for 1990" of Annex I states. [3]   To date, the Kyoto Protocol has been ratified by almost all Annex I states, the most notable exceptions being the United States and Australia. [4]  

In determining the emission limitation and reduction obligation for each Annex I state, the principle of "differentiation" was applied.  In other words, there is not a uniform target for each Annex I state; rather, the Protocol takes into account issues such as each state's ability to reduce its greenhouse gas emissions in light of the probable impact on its economy. [5]   Under the limits agreed in Annex B of the Protocol, three countries are actually permitted to increase their 1990 emission levels.  These are Australia (108%), Iceland (110%) and Norway (101%).  Several other states were permitted to limit their greenhouse gas emissions to 100% of 1990 levels: New Zealand, the Russian Federation, and the Ukraine.  The member states of the European Union, in contrast, agreed to limit their emissions to 92% of 1990 levels. [6]   

An interesting feature of the Kyoto Protocol is the principle that Annex I states can meet their obligations not just "individually," but also "jointly." [7]   In other words, Annex I states can, in addition to making domestic efforts to reduce their emission levels, also meet part of their obligations together with other states.  This concept of "joint implementation" recognizes that climate change is a global problem, and that it is therefore immaterial where emissions reductions are achieved.  The Protocol facilitates the application of this concept by providing for three innovative "flexibility mechanisms."  These are found in article 6 (known as "joint implementation," or "JI"), article 12 (the "clean development mechanism" or "CDM"), and article 17 ("emissions trading").  The modalities, rules and guidelines for participation in transactions under the flexibility mechanisms are known collectively as the "Marrakesh Accords," and these were agreed by the states parties to the Framework Convention in 2001. [8]  

While there are many conditions for transactions under the flexibility mechanisms, a brief description can be provided as follows.  Under article 6, Annex I states can supplement domestic actions by engaging in emissions reduction projects in other Annex I states. [9]   As an example, Germany might facilitate clean power generation in Romania by introducing energy efficiency technologies; Germany would then be able to claim any emissions reductions achieved towards meeting its own target.  Under article 12, Annex I states can contribute to compliance with their targets by engaging in emissions reduction, afforestation or reforestation projects in non-Annex I states. [10]   CDM projects should also assist non-Annex I states in achieving sustainable development. [11]   Finally, under article 17, Annex I states can supplement domestic actions by trading part of their allocated emissions allowances, or their "assigned amounts." [12]   So, if a state has been allocated more emissions allowances than it needs in order to meet its target, it can sell the excess allowances to other states. 

Although the obligations under the Protocol are imposed on states, these will be passed on to industry in domestic legislation.  An early example can be found in the EU Emissions Trading Scheme, which commenced on January 1, 2005. [13]   Under Directive 2003/87/EC, "operators" of "installations" engaging in the activities listed in Annex I of the Directive (which include energy activities, the production and processing of ferrous metals, activities undertaken in the mineral industry, and the production of timber pulp, paper, and board) are allocated "allowances" which must be surrendered each year against their emission levels. [14]   Those "installations" that fail to do so will be required to pay a penalty; this penalty is set at €40 per ton of carbon dioxide equivalent emitted during 2005-2007, and rises to €100 per ton of carbon dioxide equivalent during 2008-2012. [15]   

In seeking to comply with obligations under domestic implementing legislation, private entities are able to take advantage of the "flexibility mechanisms," if they have the approval of the states parties concerned.  Such participation is clearly envisaged in the Kyoto Protocol, and was confirmed in the Marrakesh Accords. [16]   Many private entities have already started participating in such transactions.  Carbon trading has been going on for some years; in light of the uncertainty that prevailed until recently concerning whether the Kyoto Protocol would ever enter into force, many of the earlier transactions were forward contracts.  Activities under the project-based flexibility mechanisms have also commenced.  The CDM Executive Board - a supervisory body established under the Protocol - has already registered two projects: a landfill gas project in Brazil, and a small-scale hydroelectric power project in Honduras.  In addition, more projects are in the process of being developed. [17]   Participation in JI projects is not as far advanced, although developments are likely to occur more swiftly now that the Protocol has entered into force. [18]  

The Kyoto Protocol is of interest not only in terms of its contribution to international environmental law, but also from the perspective of how disputes arising under the Protocol are to be settled.  Under the Protocol's dispute settlement provision, states are free to settle disputes by negotiation or by other peaceful means of their own choice. [19]   If the dispute is not settled by negotiation, and if the parties have not agreed to submit the dispute to the International Court of Justice (ICJ) or arbitration, either party may request the convening of a conciliation commission, which can give a non-binding recommendation. [20]   In addition, states parties have negotiated a "non-compliance procedure" to the Kyoto Protocol. [21]   These two mechanisms relate to interstate disputes.  Disputes arising in the course of flexibility mechanism transactions, however, are likely to involve private entities and fall outside these provisions, unless a private entity successfully seeks the diplomatic protection of its state.  Such disputes are likely to be contractual in nature, although it is also possible that claims may be brought under an international investment agreement, if it is alleged, for instance, that a host state has expropriated a JI or CDM project.  The forum for such disputes will depend on any agreement reached between the contracting parties.  Given the international nature of flexibility mechanism transactions, and the technical complexity of the requirements set forth in the Marrakesh Accords, international arbitration is likely to be the preferred method of settling such disputes. [22]  

In addition to the issues presented by the applicable dispute settlement procedures, there are many questions that remain to be resolved at the intergovernmental level, of which only a few can be mentioned in this ASIL Insight. [23]   One concerns the way in which the international community can best mitigate and adapt to the effects of climate change.  The costs of adaptation are steep, and those countries most directly affected by climate change - small island developing states and least developed countries - are generally those least able to meet such costs.  Reaching agreement on financial assistance for such countries is therefore crucial.  Another challenge is how states that are not party to the Kyoto Protocol can be encouraged to engage in the process.  As the United States is reported to be responsible for around 25% of global greenhouse gas emissions, [24] securing its participation would greatly advance the Protocol's aims and objectives.  A further issue concerns whether developing countries with high levels of greenhouse gas emissions should agree to emission limitation and reduction obligations.  To date, only Annex I states have such commitments; this accords with the principle embraced in the Framework Convention which recognizes that developed countries should take the lead in combating climate change. [25]   Yet another outstanding issue is the question of commitments post-2012, as the Kyoto Protocol only makes provision for the first "commitment period," being 2008-2012. [26]   Faced with such challenges, the process of regime-building under the Framework Convention and Kyoto Protocol promises to be an interesting one to watch in the coming years. 

About the author:

Chester Brown, an ASIL member, is an Associate in the International Law and International Arbitration Group, Clifford Chance LLP, London.  The views expressed in this ASIL Insight do not necessarily reflect those of Clifford Chance LLP.