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JI's tricky tracks
By Catrinus J. Jepma
All of a sudden, JI, the option of project cooperation among Annex I Parties, seems to have regained the attention of policy makers and private sector participants. This is not typically due to the lack of success of the other project-based Kyoto mechanism, the CDM, but rather because the upcoming COP/MOP1 will have to take decisions on the operationalisation of the main JI body, the Supervisory Committee (SC).
Only after such decisions will have been taken, JI can really be officially activated. It is about time to do so, because JI emission reductions can be used for compliance as of 2008, while setting up projects can easily take some years.
The SC will consist of 3 Members from Annex I Parties; 3 from Parties included in Annex I that are undergoing the process of transition; 3 from Parties not included in Annex-I; and 1 Member from the small island developing States. The SC carries a huge responsibility, namely to turn the JI option into a success. It seems therefore somewhat pitiful that the process of nomination of SC candidates remains a bit fuzzy. Such decision-making is particularly important because, according to the Marrakesh text, 3 of the 10 SC Members can block SC decisions. To function successfully, it is therefore essential that the SC operates in good harmony and with a clear sense of direction.
Probably the best guarantee for a successful start of the SC is to avoid the ‘mistakes’ (which, admittedly, may be a bit of strong wording) that have been made by its CDM equivalent: the Executive Board (EB). Such ‘mistakes’ are: the introduction by a non-controllable sub-body of a project additionality test that clearly violates the KP’s intention and which has added lots of red tape to the already cumbersome procedure; the lack of sufficient resources and secretarial support for the badly paid EB members; and the continuous attention for all kind of details already controlled elsewhere.
It looks like the JI procedure is going to be more streamlined than the CDM procedure has been so far. First, there is the fundamental distinction between Track-I and Track-II Parties. In the first category, Parties have basically demonstrated that their national inventories are sufficiently reliable, so that JI projects initiated by them do not need extensive external control. If national inventories are good enough in both the investor and host country of a proposed JI project, the credit trading between them does not inflate the overall Annex I assigned amount. Why strong external interference with trading based on a zero-sum game?
But even as far as Track-II JI projects are concerned, the foreseen procedure seems pretty fast. JI proposals submitted can in fact be assessed by the SC within 75 days. During the first 30 days of this period, the proposal is open for public comments that can be taken into account by: the SC, the involved countries’ governments and the validator. Once the proposal is validated, it will be accepted within 45 days unless three SC Members or the countries involved see clear reasons to resist. In other words, it looks like the validator will get a stronger role in the overall assessment than in the CDM procedure where many things have thus far seemed to boil down to control, rather than trust the validators.
It still remains the question how many countries in the assumed JI host category - most likely mainly in Central and Eastern Europe - will satisfy the Track-I criteria (let’s assume most accession countries will). The result of this ‘Track-I or II exam’ is not only relevant for the JI procedure as sketched, but also for the issue of assigned amount trading under KP art. 17. After all, only Parties that satisfy the so-called eligibility criteria of the Marrakesh Accords as indicated under KP art. 5 and 7, will be entitled to trade under KP art. 17. For example, if Russia or Ukraine did not satisfy the Track-I requirements, those countries would not be able to sell any potential assigned amount surpluses to other Parties and could only sell credits via JI projects. Since a number of potential JI host Parties also likely dispose of substantial assigned amounts surpluses, the decision on their status may thus have a far reaching impact on the overall functioning of the KP and its credits market.
In fact, there seem to be two possibilities: either a potential host country gets the Track-I status or the Track-II status. In the first case, the country will not face strong external surveillance of its credit trading and it will be free to choose to sell credits either as AAUs via KP art. 17 or as ERUs via KP art. 6 (JI). Another possible option under this regime is some kind of combination of the two, i.e. credits can be sold through the so-called Green Investment Schemes whereby AAUs are sold under the condition that the receipts are reinvested in green projects.
In case a potential host country only gets the Track-II status, the credit world looks much more grim: the only serious option to sell credits is via the JI procedure involving serious external control. This may explain why in September 2005, two top firms in Russia released a joint statement to the Russian Prime Minister, Mikhail Fradkov, to express their concern about the lack of progress in “preparing the rules and procedures for….projects, especially….Joint Implementation projects.” If Russia would not get the Track-I status, JI is effectively the only way to attract foreign activity under the KP. Russian industry’s concerns are thus understandable.
The odd implication of the Track-I/ Track-II distinction could therefore be that the use of JI will be larger if more countries would not satisfy the eligibility criteria. If the SC aims at an easy life, it would certainly favour successful Track-I applications.
Catrinus J. Jepma
Chief editor
Previous Notes from the Editor
July 2005
April 2005
December 2004
October 2004
July 2004
March 2004
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