Background

The ultimate success and credibility of the Kyoto Protocol, or any future climate agreement, will depend on whether most, if not all Parties, meet their greenhouse gas emission reduction commitments. By seeking to curtail the net production of greenhouse gases, which are endemic to most human industrial activities, the Protocol promises to be among the most complicated and far-reaching of environmental treaties to date. A critical factor will be establishing a system that is able to identify, sanction and also deter non-compliance. Parties need reassurance that their efforts to fulfill their obligations will be met by similar efforts by Parties with similar obligations. Because the scope of the Protocol is unprecedented, its success may hinge on a new compliance system.

Kyoto Protocol Article 18 calls on the COP/MOP to approve "procedures and mechanisms" to determine and address cases of non-compliance, including the development of an indicative list of consequences taking into account the cause, type and frequency of non-compliance. It also requires that any procedures entailing binding consequences shall be adopted by means of an amendment to the Protocol.

Negotiating History

The negotiations over the establishment of a compliance system find their roots in the process leading up to COP-3 in Kyoto, where the adoption of Article 18 provided the legal basis for the current work on the issue. At COP-4 in November 1998, governments established a joint working group (JWG) to develop a compliance system, with a view to adopting a decision at COP-6. Under the Protocol, Article 18 transfers the task of adopting these rules to COP/MOP-1. Each individual signatory nation is liable for implementation of its responsibilities. Parties may form regional blocs under "Joint Fulfillment" (Article 4) within which they may redistribute their commitments. However, in the event of regional non-compliance, each signatory will be held responsible separately.

Governments have expressed diverging views on many elements of Article 18, such as whether the need to take "into account the cause, type, degree and frequency of non-compliance" is compatible with the provision of automatic sanctions, and how the requirement that "any legally binding consequence shall be adopted by means of an amendment to the Protocol" will have an impact on the formal steps needed for adoption. Much of the discussion has related to complex "post-Kyoto" issues pertaining to emissions trading. Regarding the consequences of an Annex I Party failing to meet its target in the first commitment period, some commentators have suggested that the amount by which the Party has exceeded its target should be transferred to the following commitment period. Other proposals have included payments into a fund that would be used to assist developing countries most adversely impacted by climate change. Still others have proposed an international "compliance fund" to ensure that every country is able to meet its reduction levels by the end of the first commitment period.

COP-6 Part II

At COP-6 Part II in July 2001 in Bonn, the compliance debate focused on three areas: functions of the compliance bodies; penalties for noncompliance; and the legally binding nature of the agreement.

Delegates agreed that a "compliance committee" will be established, and that it will have a facilitative branch and an enforcement branch. The composition of each branch seeks to ensure a balance between industrialized and developing country members:

"One member from each of the five regional groups of the United Nations and one member from the small island developing States, taking into account the interest groups as reflected by the current practice of the bureau of the Convention;

Two members from Parties included in Annex I; and

Two members from Parties not included in Annex I."

The membership of the facilitative and enforcement branches of the compliance body is based on the UN regional basis of representation (i.e. developing country majority). The agreement, however, addresses the industrialized country insistence on control of the enforcement branch by requiring a majority of both industrialized and developing countries for any decision. Appeal to the COP/MOP will be available if a Party believes it has been denied due process. A three-quarters majority will be needed to overturn an enforcement branch decision.

Under the Bonn Agreement the enforcement branch will determine compliance with the following provisions of the Kyoto Protocol:

• emissions targets (Art. 3.1),
• methodological and reporting requirements (Art. 5.1, 5.2, 7.1 and 7.4), and
• eligibility requirements for participation in the mechanisms (Art. 6, 12 and 17).

The key constraint for most industrialized countries will be compliance with emissions targets. However, some economies in transition might be in danger of non-compliance with methodological and reporting requirements, which in any case are linked with eligibility to participate in the mechanisms. There is likely to be some flexibility accorded to economies in transition with regards to methodological and reporting requirements.

Regarding the consequences or penalties for non-compliance, the enforcement branch of the compliance committee will impose a penalty on Parties that are out of compliance with their emissions target. These Parties will have to pay back their excess emissions with an interest penalty, which was set at a rate of 30 per cent. That is, 1.3 tonnes CO₂ equivalent must be paid back for each excess tonne of emissions. Parties out of compliance will have to pay the penalty in the second commitment period, develop a compliance action plan that gives priority to domestic policies and measures, and submit the plan to the enforcement branch for assessment, but not approval. In addition, they are suspended from selling credits under emissions trading until they return to compliance (but there will be no restrictions on buying credits). Some countries consider that any rate greater than 1.0 is, in effect, punitive in the context of rising carbon prices, meaning that the cost of compliance will rise with time anyway so Parties have an economic incentive to comply sooner rather than later, if they intend to comply at all.

The issue of legally binding compliance nearly deadlocked the negotiations at COP-6 Part II, and it appears that this issue has not been clearly resolved. Some Umbrella Group members objected strongly to the binding nature of the agreement. Some cited sovereignty issues that could prevent the ratification of an amended Protocol by their parliaments, while others were also said to be in favor of pushing the question of legally binding compliance rules until a later date. Most other Parties countered that to be effective the Protocol required legally binding compliance provisions and penalties for Annex I Parties.

If the agreement were to contain binding consequences, it would have to be adopted as an amendment to the Kyoto Protocol, which in effect would require Parties to take additional domestic action to ratify the compliance procedures. If it will not contain binding consequences, it could be adopted as a decision of the COP/MOP. A decision of this nature would apply to all Parties to the Protocol. This conflict was overcome by applying a two-part approach:

• Having the Parties agree to include compliance procedures and consequences of noncompliance as specified at COP6-bis under the Bonn Agreement.
• Formally adopting the compliance procedures and consequences as an amendment required under Article 18 of the Protocol at the first meeting of the Parties to the Protocol, once the Protocol enters into force.

Following adoption of the Bonn Agreement, delegates returned to negotiating groups to continue elaborating decisions for adoption. However, delegates discussing compliance disagreed on the legal and political interpretation of key issues in the Bonn Agreement, particularly how much more work remained to be done at COP6bis. The COP took note of the draft decision on compliance based on the Co-Chairs' non-paper (FCCC/CP/2001/CRP12/Rev.1), and decided to forward it to COP-7 for completion.

COP-7

Parties are still debating the legally binding nature of the compliance agreement, and this needs to be further defined at COP-7 in Marrakech, Morocco. The draft decision forwarded to COP-7 contains a draft COP decision, including a draft COP/MOP-1 decision, and an annex. The draft COP decision:

• decides to adopt the procedures and mechanisms on compliance under the Protocol annexed thereto;
• recommends that COP/MOP-1 adopt such procedures and mechanisms in terms of Protocol Article 18; and
• recommends that COP/MOP-1 adopt the following draft decision:

Under the COP/MOP decision, COP/MOP-1 would confirm the COP decision and bring the procedures and mechanisms on compliance under the Protocol into operation.

The annex constitutes the procedures and mechanisms on compliance under the Protocol and includes the elements of the Bonn Agreement on compliance outlined above. Other key elements of the text include:

• the Compliance Committee shall take into account any degree of flexibility provided by the COP/MOP to the Annex I Parties undergoing the process to a market economy;
• members of the Committee will act in their individual capacities;
• the Compliance Committee shall apply the guidance received from the COP/MOP and the COP/MOP shall consider the report of the Compliance Committee;
• the facilitative branch shall promote Parties' compliance with their commitments, taking into account Parties' common but differentiated responsibilities and respective capabilities;
• submissions to both branches may be made by any Party with respect to itself or any Party with respect to another Party;
• the facilitation of financial and technical assistance by the facilitative branch shall take into account UNFCCC Article 4.3 (financial resources), 4.4 (costs of adaptation) and 4.5 (technology transfer); and
• in case of non-compliance with Articles 5.1, 5.2, 7.1 or 7.4, the consequences to be applied by the enforcement branch are-declaration of non-compliance; and development of a plan analyzing the causes of non-compliance, measures to remedy non-compliance and a timetable for the implementation of such measures.

Readings on Compliance

Climate Action Network (CAN) on Compliance Issues of the Bonn Agreement, July 2001

Promoting Meaningful Compliance with Climate Change Commitments, The Pew Center on Global Climate Change, Eric Dannenmaier of the North-South Center and Isaac Cohen from Inverway, LLC.

"Avoiding a Lemons Market by Including Uncertainty in the Kyoto Protocol: Same Mechanism, Different Rules", International Institute for Applied Systems Analysis (2000)

"Defining Kyoto Protocol Non-Compliance Procedures and Mechanisms", Tim Hargrave, Ned Helme, Suzi Kerr and Tim Denne, Center for Clean Air Policy, October 1999. See

"Responding to Non-Compliance Under the Climate Change Regime," Jake Werkesman OECD Information Paper (1999)

"COP-6 Viewpoints: Ensuring Compliance with the Kyoto Protocol's Article 3 Commitments," Ned Helme and Tim Hargrave, Center for Clean Air Policy.

"The Compliance Fund: A New Tool for Achieving Compliance Under the Kyoto Protocol." Center for International Environmental Law

"UNFCCC Workshop on Procedures and Mechanisms Relating to Compliance Under the Kyoto Protocol (March 2000)", The Earth Negotiations Bulletin Report.