www.unfccc.int UNFCCC secretariat

1. Session 4 Meeting eligibility requirements First UNFCCC workshop on implementation of Article 6 projects under the Kyoto Protocol Moscow 26-27 May 2004 www.unfccc.int UNFCCC secretariat

2. Overview of presentation Eligibility requirements safeguard the integrity of • the Kyoto Protocol • JI projects and their credits • the underlying carbon market Three linked questions to be examined here • What do Annex B Parties require for JI eligibility? - regarding emissions - regarding assigned amounts • How do JI credits fit into the targets of the Kyoto Protocol? • How is the compliance of Parties with targets verified?

3. Crediting JI projects • Conversion (“issuance”) of existing units of the host Partyto emission reduction units (ERUs) based on the project • ERUs are transferred to investing Party/entity • ERUs may be used by Annex B Parties for compliance • ERUs differ from CDM credits, which are newly generated units AAU ERU for emission reducing projects RMU ERU for LULUCF projects

4. Compliance with Annex B targets Mechanisms acquisitions LULUCF activities < = > Final emissions Projected emissions Annex B assigned amount Emissions side Assigned amount side

5. Verifying compliance with the targets National systems National registries Annex I Party systems Reporting process Emissions inventories Assigned amount info Review, adjustment, compliance processes Secretariat compilation and accounting database Kyoto Protocol Compliance Committee Assigned amount 2008 - 2012 Emissions 2008 - 2012 >= <

6. a. Party to the Kyoto Protocol b. Assigned amount calculated c. National system in place for estimating emissions/removals d. National registry in place for tracking assigned amount e. Submission of most recent required emissions inventory f. Accurate accounting of assigned amount and submission of information Eligibility requirements for JI Track 2 a. Party to the Kyoto Protocol b. Assigned amount calculated d. National registry in place for tracking assigned amount Track 1 (full eligibility)

7. Issuance, transfer and acquisition No eligibility Cannot issue or transfer ERUs Track 2 Can issue and transfer ERUs  only after verification of the project and reductions by the Article 6 Supervisory Committee Track 1 (full eligibility) Can issue, transfer and acquire ERUs  May verify the project and reductions by its own procedures All Annex B Parties may develop and run JI projects  eligibility relates to ERU issuance, transfer and acquisition

8. Reporting and review processes relating to eligibility

9. Key points on reporting/review procedures • Determination of eligibility requirements is normal outcome of reporting, review and compliance procedures • All Annex I Parties report and are subject to review annually • All review reports considered by the Compliance Committee • 2 phases - Initial reporting and review calculates and records assigned amount under 3.7 and 3.8 and determines eligibility - Ongoing (annual) reporting and review maintains or suspends eligibility during commitment period • Compliance Committee makes determination of eligibility

10. Initial reporting and review Initial report and review is “to facilitate calculation of assigned amount and demonstrate capacity to account for emissions and assigned amount” • GHG inventory focus on base year (1990 or other) • National system • National registry • Calculation of initial assigned amount under Articles 3.7/8 • Calculation of commitment period reserve • Selection of sinks activities under Article 3.3/4

11. Annual reporting and review • Annual greenhouse gas inventory • Annual assigned amount information • Changes in the national registry • Changes in national system • Calculation of commitment period reserve Information recorded in the compilation and accounting database of the secretariat after review and consideration by Compliance Committee

12. Compliance Committee Facilitative Branch • Considers questions related to reporting and accounting prior to commitment period • Can provide advice, and facilitate financial and technical assistance Enforcement Branch • Can apply adjustments to inventories • Make corrections to Party’s accounting • Suspend and reinstate eligibility to participate in mechanisms

13. Requirements relatingto the emissions side

14. Key points on the emissions side • Reliable inventories are fundamental for determining compliance of Parties with their Kyoto targets - calculation of assigned amount under Articles 3.7/8 - maintaining mechanisms eligibility - end of commitment period compliance test • Difference between track 1 and 2 hinges on ongoing provision of annual inventory that meets requirements • Initial inventory with full time-series is important for calculation of assigned amount under both track 1 and 2

15. National systems for estimating emissions Institutional, legal and procedural arrangements necessary to prepare national greenhouse gas inventory in accordance with 7.1 • Single national entity • Planning (define responsibilities, choice of methods and data) • Preparation (Use of good practice, inventory estimation, documentation) • Quality assurance and quality control procedures • Archive inventory information Requirements are functional • Flexibility for national circumstances • Compliance depends on ability of system to produce reliable inventory

16. National GHG inventory requirements • All gases and sources LULUCF removals not required for base year • Full geographic coverage • Complete time-series All years from base year (1990 or other) up to most recent available • Use of methods that are consistent with IPCC methodologies and Good Practice Guidance • Common Reporting Format Standardized electronic reporting tables • National inventory report Description of methods used, data sources, etc.

17. Inventory adjustment procedure • Identification of problem during individual review - Opportunity for Party to correct problem - Review team calculates and recommends adjustment based on technical guidance - Party has opportunity to accept or reject adjustment • If Party does not accept adjustment, Enforcement Branch of Compliance Committee determines whether to apply it • Adjustments can be removed later during commitment period if inventory problem is corrected - Not for base year, since initial assigned amount fixed

18. Inventory adjustments • Intended to correct inventory problems for purpose of accounting for emissions and assigned amount • Adjustments are conservative - Estimates adjusted downwards in base year - Upward for year of commitment period • Applied only after Party has had opportunity to correct problems • If adjustment applied, then adjusted estimate is recorded in compilation and accounting database Adjustments allow Party to remain in compliance with inventory and eligibility requirements in event of minor inventory problems

19. Recording assigned amount (Articles 3.7/8) Based on reviewed initial GHG inventory • Assessment of consistency with the IPCC methodologies and Good Practice Guidance (GPG) • Review of entire time-series • Adjustments recommended to base year inventory if GPG not correctly applied Assigned amount recorded only after review and consideration by the Compliance Committee • AA based on adjusted base year, if applied • Once recorded, is fixed for entire commitment period

20. Failure to meet annual inventory requirements Decision on Article 7.1 of the Kyoto Protocol defines • Complete annual inventory (both Common Reporting Format and National Inventory Report) not submitted within 6 weeks of due date • Omission of large key source that accounts for 7% or more of annual emissions • Total adjustments in any year greater than 7% of submitted inventory • Sum of the total adjustments for any years of commitment period exceeds 20% of submitted emissions • A key source that accounts for 2% or more of emissions is adjusted in three consecutive years

21. Requirements relatingto the assigned amount side

22. Key points on the assigned amount side • National registries to be established by all Annex B Parties • Registries to interact with other registries and the transaction log • Accurate accounting in accordance with Article 7.4 • Reporting of additions and subtractions to assigned amount

23. National registries established by Annex B Parties Electronic databases for tracking the - issuance and holdings of units - transfers of units under the mechanisms - replacement and cancellation of units - retirement of units for compliance purposes - carry-over of units to the next commitment period Accounts for governments and entities Independent transaction log established by the secretariat Checks transactions when they are proposed against rules Ensures the integrity of transactions before completion What national registries have to do

24. National registry accounts Issuance of AAUs and RMUs Czech registry Canadian registry Transfers Party account Party account Legal entity a/c Legal entity a/c AAU RMU Retirement (for compliance) Legal entity a/c Legal entity a/c ERU CER tCER lCER Retirement a/c Retirement a/c Cancellation a/c Cancellation a/c Cancellation (not for compliance) Replacement a/c Replacement a/c

25. Registries, the ITL and STLs Supplementarytransaction log1 Supplementarytransaction log2 Supple-mentarychecks Independent transaction log Basechecks Communications hub Virtual private network NR1 NR2 NR3 NR4 CDM-R

26. Sufficient harmonization International rules define • Basicregistry requirements (decision 19/CP.7) Parties have significant scope to implement as they wish • Basicdata exchange standards (decision 24/CP.8) Recognized that exact technical specifications are needed Detailed specifications of the data exchange standards • Define how registries enact the mechanisms • Being developed by the secretariat, with registry developers • Version 1.0 to be completed by July 2004 • To be enhanced through registry administrator cooperation

27. Data exchange standards • Management of secure communications over the Internet • Transaction and reconciliation sequences • Serial numbers, account numbers and transaction numbers • Transaction log response codes • Message formats to ensure all communications can be read • Processes for initializing registry activities with the ITL • Change management procedures for the data exchange standards

28. Annual electronic reporting Aggregate registry information on holdings and transactions LULUCF accounting under Article 3.3 (mandatory) LULUCF accounting under Article 3.4 (optional) Reporting at end of the commitment period Additions and subtractions to assigned amount Total retirement for compliance purpose Units available for carry-over the next commitment period Assigned amount info in reporting Accurate accounting of additions and subtractions to assigned amount required for continued eligibility

29. In conclusion

30. Eligibility requirements for Annex B Parties are integral to the system to safeguard the integrity of the Kyoto Protocol Parties are to meet requirements for the following prior to 2007 (or one year after entry into force of the Protocol for the Party), National system GHG inventory Calculation of assigned amount under Articles 3.7/8 National registry Notification of Article 3.3/4 information Selection of Article 3.4 activities Timing … when is it all to happen?