The Kyoto Protocol MEMO/06/74. What is the Kyoto Protocol? Brussels, 15 February 2006

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1 MEMO/06/74 Brussels, 15 February 2006 The Kyoto Protocol What is the Kyoto Protocol? The United Nations Framework Convention on Climate Change (UNFCCC) and its Kyoto Protocol provide the international framework for combating climate change. The UNFCCC, the first international measure to address the problem, was adopted in May 1992 and came into force in March So far 189 governments - almost all governments in the world - have ratified it. It obliges its Parties to establish national programmes for reducing greenhouse gas emissions and to submit regular reports. It also requires the industrialised countries among the Parties - but not developing countries - to stabilise their greenhouse gas emissions at 1990 levels by the year By differentiating between industrialised and developing countries, the UNFCCC recognises that industrialised countries are responsible for most of the current buildup of greenhouse gases in the atmosphere. And hence should lead in reducing emissions. The UNFCCC Parties meet annually to review progress and discuss further measures, and a number of global monitoring and reporting mechanisms are in place to keep track of greenhouse gas emissions. When they adopted the UNFCCC, governments knew that the commitments would not be sufficient to seriously tackle climate change. On 11 December 1997, they took a further step and adopted a protocol to the UNFCCC in the Japanese town of Kyoto: the Kyoto Protocol. Building on the UNFCCC framework, the Protocol sets legally binding limits on greenhouse gas emissions from originally 38 industrialised countries and the European Community (the EU-15). It also introduces innovative market-based implementation mechanisms - the so-called Kyoto flexible mechanisms - aimed at keeping the cost of curbing emissions low. Under the Kyoto Protocol, industrialised countries are required to reduce their emissions of six greenhouse gases (CO 2, which is the most important one, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride) by around 5% below the 1990 level during the first Kyoto Protocol commitment period from 2008 to A five-year commitment period was chosen rather than a single target year to smooth out annual fluctuations in emissions due to uncontrollable factors such as weather. There are no emission targets for developing countries. The Kyoto Protocol entered into force on 16 February The rules for its entry into force required that at least 55 Parties to the UNFCCC ratify the Protocol and that those include industrialised countries accounting for at least 55% of the industrialised countries' CO 2 emissions in The first threshold was achieved as early as On 18 November 2004, Russia ratified (responsible for 17.4% of the industrialised countries' emission in 1990), which guaranteed the 55% emission threshold. The Protocol entered into force 90 days later. This meant that the commitments taken on by its Parties became legally binding.

2 As of 6 February 2006, 160 countries and the European Community have ratified the Protocol. Three countries that originally signed the treaty have not ratified: the US has rejected the Protocol, whereas Australia has decided not to ratify it, and Monaco has not yet ratified. This means there are 35 developed countries and the European Community that are obliged to reach their Kyoto targets. What new came out of the UN conference in Montreal in 2005? During this conference, taking place between 28 November and 9 December 2005 in Montreal, Canada, two meetings were held simultaneously: the 11th Conference of the Parties to UNFCCC (COP-11) and the first ever meeting of the Parties to Kyoto Protocol (COP/MOP-1). With some 10,000 participants, it was the largest intergovernmental climate conference since the Kyoto Protocol was adopted, and a historic event. Governments took more than 40 decisions that will strengthen global climate change efforts. This package of decisions, also referred to as the Montreal Action Plan, reinforce the Kyoto Protocol and open the way to a new international framework to tackle climate change after the Protocol s first commitment period ends in In Montreal, the Kyoto Parties adopted the so-called 'rule book' of the Kyoto Protocol that establishes detailed rules that will make sure that the Protocol operates smoothly. They decided to streamline and strengthen the 'Clean Development Mechanism', one of the Protocol's innovative mechanisms that became operational when the Protocol entered into force. To this end, developed countries committed an additional 7 million in funding, including 3.7 million from EU Member States and 850,000 from the European Commission. The Parties also launched the 'Joint Implementation' mechanism and agreed on the compliance regime, which will not only deal with non-compliant countries, but also provide assistance to countries that have difficulties to meet their obligations and decide on the eligibility of countries to participate in the Kyoto flexible mechanisms. Most importantly, the Parties to the Kyoto Protocol agreed to start discussing, without delay, new emission targets for industrialised countries, to succeed the current targets that have to be met by In parallel, the 189 UNFCCC Parties, including those that are outside Kyoto such as the US, agreed to conduct, over the next two years, a dialogue on long-term cooperative action against climate change. These discussions should lead to a further international framework to tackle climate change. EU commitments under Kyoto and progress towards meeting them Under the Protocol, the EU-15 (the 15 countries that were Members of the EU at the time of ratification of the Protocol) is committed to reducing its greenhouse gases emissions by 8% below 1990 levels during the first commitment period from 2008 to This target is shared between the 15 Member States under a legally binding burden-sharing agreement, which sets an individual emissions target for each Member State. Of the ten Member States that acceded on 1 May 2004, eight have individual reduction targets of 6 or 8% under the Kyoto Protocol. Only Cyprus and Malta do not have Kyoto targets. In 2003, the most recent year for which data is available, the EU-15 had reduced its emissions by 1.7%. EU-wide emissions were down by 8%. Projections show that additional policies and measures planned by the Member States but not yet implemented and use of the Kyoto flexible mechanisms will take EU-15 emissions to 9.3% below 1990 levels by more than enough to meet the 8% reduction target - while EU-25 reductions will reach 11.3%. Only six Member States were not on track to meet their targets: Denmark, Ireland, Italy, Portugal, Slovenia and Spain (see annex for details). 2

3 What will happen if a country misses its target? The compliance regime for the Kyoto Protocol is among the most comprehensive and rigorous in the international arena. If a Party fails to meet its emissions target, the Protocol requires it to make up the difference in the second commitment period (after 2012), with an additional 30% penalty. It must also develop a compliance action plan, setting out the actions that it will take to meet the target and the timetable for doing so. In addition, its eligibility to sell under the Protocol s international emissions trading system will be suspended. However, for the EU-15 Member States, the Kyoto Protocol compliance procedures will only apply if the EU-15 as a whole misses its 8% reduction target. Should this occur, then each Member State will be held to its target under the EU's burdensharing agreement, and the EU as a whole will be in non-compliance with its obligation to reach the -8% target. On top of that, the European Commission can decide to start infringement procedures against EU-15 Member States that miss their targets under the burdensharing agreement. The remaining eight Member States with Kyoto targets (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia) are bound to their individual targets as set out in the Kyoto Protocol, both under the Kyoto Protocol s noncompliance procedures and under EU law. Kyoto s market-based mechanisms The Kyoto Protocol envisages three market-based mechanisms, known as the Kyoto flexible mechanisms: emissions trading between governments with Kyoto targets, the Clean Development Mechanism and Joint Implementation. These will allow industrialised countries to meet their targets cost-effectively by trading emission allowances between themselves and gaining credits for emission-curbing projects abroad. The rationale behind these three mechanisms is that greenhouse gas emissions are a global problem and that the place where reductions are achieved is irrelevant in scientific terms. In this way, reductions can be made where costs are lowest. Detailed rules and supervisory structures have been set up to ensure that these mechanisms are not abused. Emissions trading Emissions trading can take place between countries with Kyoto targets. Each country will be assigned a fixed maximum amount of emissions that it may emit over the commitment period ( ) to comply with its target. Countries that emit less can sell the unused quota to others that emit more. This will allow reductions to take place where they are cheapest, reducing compliance costs. Inspired by this system, the EU has developed and implemented its own emissions trading scheme, which operates at company level. This system, which started on 1 January 2005, covers all 25 EU Member States and is the first multi-national emissions trading scheme in the world. Under the EU scheme, EU Member States have set limits on CO 2 emissions from close to 11,500 energy-intensive plants (steel factories, power plants, oil refineries, paper mills, and glass and cement installations), which together account for almost half of the EU's CO 2 emissions. They have done this by issuing emission allowances to the companies, which determine how much CO 2 the plants are allowed to emit during a first trading period. 3

4 Another round of allocations, for the trading period, is being decided in Companies that emit less than the number of allowances they receive can sell the surplus to companies that have problems staying within their limits, or for which emissions reduction measures are more expensive than buying allowances on the market. Any company may also increase its emissions above the level of its allowances by acquiring more allowances from the market. This scheme requires companies to fully integrate the costs of CO 2 emissions in their decision making. It induces them to make emission cuts where they are cheapest, thereby ensuring that reductions are made at the lowest possible cost to the economy. It also fosters innovation - companies have an incentive to improve their energy efficiency and invest in climate-friendly technologies. The EU has indicated its willingness to link the EU scheme to similar trading schemes in other countries. Clean Development Mechanism and Joint Implementation The Clean Development Mechanism (CDM) and Joint Implementation (JI) will allow industrialised countries to achieve part of their emission reduction commitments by conducting emission-reducing projects abroad and counting the reductions achieved toward their own commitments. JI will allow for projects in other industrialised countries with Kyoto targets, while CDM projects are carried out in countries without targets, i.e. developing countries. The two mechanisms will lower compliance costs, transfer advanced technologies to developing countries and foster cooperation between countries with Kyoto targets. CDM credits can be generated retroactively, from 2000 onward, while JI credits must be generated during the period. CDM is therefore already operational. A condition for the issue of credits in respect of the reductions achieved is that the projects result in real, measurable and long-term climate change benefits that are additional to what would have happened without the projects. The EU Emissions Trading Scheme is linked to CDM and JI. Companies covered by the EU emissions trading system can use credits from CDM projects (from 1 January 2005) and from JI projects (from 1 January 2008) towards meeting their commitments under the trading scheme. EU action to combat climate change The fight against climate change is one of the priorities of the European Commission. It is one of the main commitments under the EU s sustainable development strategy, and the first of four priority policy areas under the 6 th Environmental Action Programme ( ). The backbone of the Commission s effort to implement the Protocol is the European Climate Change Programme (ECCP), which was launched in March Under this umbrella, the European Commission and a wide range of experts and stakeholders have developed cost-effective measures that will help the EU meet its 8% emissions reduction target. So far, some 35 such measures have been implemented. They include the EU Emissions Trading Scheme, legislation to promote renewable energy sources for electricity production and bio-fuels in road transport, as well as legislation to improve the energy efficiency of buildings, to promote combined heat and power generation and to control the powerful fluorinated gases. The Commission has also negotiated agreements with European, Japanese and Korean carmakers to cut CO 2 emissions from new cars by an average of 25% below 1995 levels by 2008/2009. The second phase of the ECCP was launched in October 2005, to identify further cost-effective measures to reduce emissions post The focus is on reviewing and strengthening the implementation of the ECCP I measures, on carbon capture and geological storage, emissions from road vehicles, aviation and strategies to adapt to the unavoidable effects of climate change. 4

5 Impacts of climate change The effects of climate change are already manifest and are expected to become stronger as temperatures rise further. Over the 20 th century the global average temperature rose by about 0.6 C and the mean temperature in Europe increased by more than 0.9 C. Globally, the 1990s were the warmest decade since 1861 when temperatures started to be measured, and the 10 warmest years on record have all occurred since According to NASA, 2005 was the hottest year recorded, followed by 1998, 2002, 2003 and The Intergovernmental Panel on Climate Change (IPCC), which brings together the world's leading experts in this field, projected in its Third Assessment Report in 2001 that the globally averaged surface temperature will increase by between 1.4 and 5.8 C from 1990 to 2100 under business-as-usual, and that sea levels will rise by between 9 and 88 centimetres over the same period. If nothing is done to prevent or limit these changes, they will have major environmental, economic and social consequences. These consequences will include geographic shifts in the occurrence of different species and/or the extinction of species. Changes in rainfall patterns will put pressure on water resources in many regions, which will in turn affect both drinking water supplies and irrigation. Extreme weather events - storms, floods, droughts and heat waves - will become more frequent and cause human suffering and economic damage. Warm seasons will become dryer in the interior of most mid-latitude continents, increasing the frequency of droughts and land degradation. This will be particularly serious for areas where land degradation, desertification and droughts are already severe. Developing countries will suffer particularly, and tropical diseases will extend their geographic range. The IPCC s findings were reinforced by a report by the European Environment Agency issued in August 2004, 1 which concluded that Europe is warming faster than the global average. The temperature in Europe is projected to climb by a further C this century as emissions of greenhouse gases continue building up. The report identifies a broad range of current and future impacts of climate change in Europe, including the following: - Almost two out of every three catastrophic events since 1980 have been directly attributable to floods, storms, droughts or heat waves. The average number of such weather and climate-related disasters per year doubled over the 1990s compared with the previous decade. Economic losses from such events have more than doubled over the past 20 years to around 8.5 billion annually. This is due to several reasons, including the greater frequency of such events but also socio-economic factors such as increased household wealth, more urbanisation and more costly infrastructure in vulnerable areas. - The annual number of floods in Europe and the numbers of people affected by them are rising. Climate change is likely to increase the frequency of flooding, particularly of flash floods, which pose the greatest danger to people. - Climate change over the past three decades has caused decreases in populations of plant species in various parts of Europe, including mountain regions. Some plants are likely to become extinct as other factors, such as fragmentation of habitats, limit the ability of plant species to adapt to climate change. - Glaciers in eight of Europe's nine glacial regions are in retreat, and are at their lowest levels for 5,000 years. 1 Impacts of Europe's changing climate, EEA Report No 2/2004, available through: 5

6 - Sea levels in Europe rose by mm per year in the last century. The rate of increase is projected to be 2-4 times higher during this century. - Projections show that by 2080 cold winters could disappear almost entirely and hot summers, droughts and incidents of heavy rain or hail could become much more frequent. Which position does the Commission take with regard to the talks on future action against climate change? At the UN climate change conference in Montreal, EU Member States and the European Commission, represented by Environment Commission Stavros Dimas, pushed for the launch of talks on further action. The EU's target, reconfirmed at the EU Summit in Brussels in March 2005, is to limit the increase in global average temperature to 2 C above the pre-industrial level - an increase believed to be within our adaptive capacities. This requires deep cuts in global emissions in the next few decades and the prompt start of discussions how they can be achieved. The EU was encouraged that all its partners at the Montreal Conference agreed to launch these talks. They will now take place on two parallel 'tracks' - the Kyoto track (Kyoto Parties will discuss further commitments for industrialised countries) and the UNFCCC track (Parties will conduct a two-year dialogue on long-term action) - and begin in May 2006 in Bonn. The EU is determined to play a constructive and leading role in the talks, working closely with our partners to ensure a truly cooperative effort. The key principles to underpin the EU position are outlined in a policy paper published by the Commission in February 2005, "Winning the Battle against Global Climate Change". 2 They include five elements: - Broad participation by all major emitting countries - inclusion of all emitting sectors, including aviation, maritime transport and forestry (due to deforestation) - increased research and development and uptake of low-carbon technologies, - continued use of market mechanisms to keep reduction costs low - adaptation to the impacts of climate change since some effects are unavoidable The EU Summit in Brussels in March 2005 affirmed these principles and initiated an intensive outreach effort, engaging the EU in dialogues with a range of countries on the further action on climate change. It also invited other countries to jointly explore strategies for achieving necessary emission reductions, including emission reduction pathways for the group of developed countries in the order of 15-30% by 2020, compared to 1990 emissions, as well as emission reductions for beyond Further information about future action against climate change can be found in MEMO/05/42 and about emissions trading in MEMO/06/2 and MEMO/05/84 Comprehensive information about EU climate change policies is available at: Information about the UN framework can be found at: 2 See 6

7 Annex: Greenhouse gas emissions in 2003 and projected emissions in compared to base year Target Emissions in with existing policies & measures (PAMs) with additional PAMs and/or Kyoto mechanisms EU % -1.7% -1.6% -9.3% EU % -5.0% -11.3% Austria* -13.0% 16.6% 8.7% -18.1% Belgium* -7.5% 0.6% 3.1% -7.9% Czech Republic -8.0% -24.3% -25.3% -26.5% Denmark* -21.0% 6.3% 4.2% na Estonia -8.0% -50.8% -56.6% -60.0% Finland* 0.0% 21.5% 13.2% 0.0% France* 0.0% -1.9% 9.0% -1.7% Germany* -21.0% -18.5% -19.8% -21.0% Greece* 25.0% 23.2% 34.7% 24.9% Hungary -6.0% -31.9% -6.0% - Ireland* 13.0% 25.2% 33.4% na Italy* -6.5% 11.6% 13.9% -3.7% Latvia -8.0% -58.5% -46.1% -48.6% Lithuania -8.0% -66.2% -50.6% - Luxembourg* -28.0% -11.5% -22.4% na Netherlands* -6.0% 0.8% 3.5% -8.5% Poland -6.0% -32.1% -12.1% - Portugal* 27.0% 36.7% 52.1% 42.2% Slovakia -8.0% -28.2% -19.7% -21.3% Slovenia -8.0% -1.9% 4.9% 0.3% Spain* 15.0% 40.6% 48.3% 21.0% Sweden* 4.0% -2.4% -1.0% - United Kingdom* -12.5% -13.3% -20.3% - Notes: 1) Under the Kyoto Protocol, the 15 Member States (marked with *) that made up the EU until its enlargement to 25 Member States on 1 May 2004 have to reduce their collective greenhouse gas emissions by 8% below 1990 levels during This target is shared among the 15 Member States under a legally binding burden-sharing agreement (Council Decision 2002/358/EC of 25 April 2002). Most of the ten Member States that joined the EU on 1 May 2004 have individual targets under the Kyoto Protocol. The exceptions are Cyprus and Malta, which have no targets. 2) Nine EU-15 Member States (Austria, Belgium, Denmark, Finland, Ireland, Italy, Luxembourg, the Netherlands and Spain) plan to use Kyoto flexible mechanisms and have allocated financial resources for this ( billion for the 5-year period). 7

8 3) Existing policies and measures are those for which one or more of the following applies: (a) national legislation is in force; (b) one or more voluntary agreements have been established; (c) financial resources have been allocated; (d) human resources have been mobilised; (e) an official government decision has been made and there is a clear commitment to proceed with implementation. Additional (planned) policies and measures are options under discussion with a realistic chance of being adopted and implemented in future. 3) For countries not providing scenarios with additional policies and measures the scenarios for existing measures are taken for the overall figures for projections (EU-15, EU-25). 4) Data exclude emissions and removals from land-use, land-use change and forestry. Projections for Poland cover only CO 2 and N 2 O. Projections for Spain cover only CO 2. 5) Further information can be found in the 2005 Monitoring Report and the 'Demonstrable Progress Report" at 8