Introduction
The Kyoto
Protocol and the Three Mechanisms
[1] On December 11, 1997 in Kyoto, the 3rd Conference
of the Parties to the United Nations Framework Convention on
Climate Change (COP3 of UNCCCF) adopted the Kyoto Protocol. The
Protocol imposes legally binding and quantified targets for
reduction of greenhouse gases (GHGs) emissions on the 38 Annex I
countries. This was really a significant first step towards
possible prevention of global warming.
[2] One of the significant features of the Kyoto Protocol was
that it has established three international mechanisms to enable
Annex I countries to achieve their reduction targets with the
minimum possible costs. They include emissions trading
(Article 17 of the Protocol), projects aiming at reducing GHGs
emissions by human activities (Article 6 of the Protocol,
hereinafter, we call those projects as joint implementation),
and the clean development mechanism (Article 12 of the
Protocol): namely, projects aiming to assist non-Annex I
countries to achieve sustainable development. These
international mechanisms were first named generically as flexible
mechanisms, but after the Buenos Aires conference (COP4)
renamed as Kyoto mechanisms.
[3] As for design and operation of Kyoto mechanisms, it may be
safely said that any definite and concrete design of mechanisms
has not yet been systematically proposed. The Buenos Aires
conference finally agreed upon the Plan of Action that
requires the Subsidiary Body for Implementation (SBI) and of the
Subsidiary Body for Scientific and Technological Advice (SBSTA)
to design details of mechanisms concretely enough at latest
before the COP6 being held in the year 2000. At the sessions of
the SBI and SBSTA held in Bonn in June 1999, considerable amount
of discussion took place on mechanisms as well as on non-compliance
measures. Most of them, however, were left unsolved and
postponed to the Bonn conference being held from late October to
early November 1999.
[4] In this paper we will examine how Kyoto mechanisms should be
designed and operated. As for domestic measures to prevent global
warming, they should be entirely left to each country's
government instead of
international
settlements. To put it differently, each country's
government should explore its optimal
system of domestic measures, taking into account its domestic
constraints and feasibility as well as cost-effectiveness of
various measures. International standardization on domestic
measures should be kept to minimum to avoid unnecessary
interference in the domestic affairs by international
organizations. Careful attention should be, however, paid to how
the existing diversity in each country's
domestic measures influences the
effectiveness and the feasibility of international mechanisms.
Flexibility
of Kyoto Mechanisms
[5] The three international mechanisms examined here are all cost-effective
in the sense that they enable each Annex I country to achieve its
reduction target at the minimum possible cost. To put it
differently, each Annex I country can attain a given reduction
target as flexible as possible by adequately combining the three
international mechanisms with its domestic measures.
[6] In his speech at the high-level segment of the COP3 on
December 8, 1997, Vice President Gore of the United States stated
that he would instruct the U.S. delegation to show increased
negotiating flexibility, if a comprehensive plan with market
mechanisms, among others, were put into place. What he meant was
that the U.S. Government was to commit itself to higher reduction
target of some degree, so long as the three international
mechanisms would be introduced by the Protocol. It turned out
that the final conclusion of the Kyoto conference had been quite
finely summarized by Gore's
statement
cited above.
[7] The Kyoto Protocol requires the 38
Annex I countries to
reduce the total GHGs emissions at least 5% below the 1990 level.
The reduction target for each country was differentiated as
follows: 8% for European countries, 7% for the United States, 6%
for Japan, 0%for Russia and Ukraine, and so on. These relatively
higher reduction rates were agreed upon, because the Kyoto
mechanisms were introduced. Otherwise, each Annex I country is
obliged to attain her reduction target all by herself, and hence
reduction targets must be necessarily far lowered.
[8] Kyoto mechanisms were strongly
recommended and supported by
the U.S., but they are also beneficial for Japan, because
Japanese firms own various advanced energy-saving technologies
that are certainly useful for successful operation of joint
implementation (JI) and the clean development mechanism (CDM). By
transferring advanced energy-conservation technologies to other
developed and developing countries, Japan will be able not only
to contribute to prevention of global warming through reduction
of CO2 emissions, but also to lower the cost required to achieve
its own reduction target.
Desirability
of the Mechanisms
[9] As was mentioned earlier, Kyoto
mechanisms still remain to be
elaborated. Let us consider about the conditions that have to be
satisfied by desirable mechanisms. We propose the following four
principles. First, they should be really effective: that
is to say, they should contribute to achievement of GHGs emission
reduction commitments by Annex I countries, and sustainable
development of non-Annex I countries. Second, they should be impartial:
that is to say, they must be equitable and fair to all member
countries. Third, they should be transparent: that is to
say, information concerning emissions trading, JI and CDM should
be in principle disclosed. Fourth, the mechanisms should be cost-effective.
In order to attain cost-effectiveness, the market mechanism
should be properly utilized: namely, excessive regulation must be
avoided.
[10] The purpose of this paper is to
identify desirable
mechanisms that meet the above four principles. There may be,
however, no desirable mechanisms that perfectly meet all
of the four principles, and desirability often depends
on assumptions. Moreover, there is no guarantee that such desirable
mechanisms are in fact feasible.
[11] In order to minimize the total
cost of achieving the
reduction target 5% on the whole for 38 Annex I countries, the
reduction target for each country should be differentiated rationally
so that marginal reduction costs be equalized among Annex I
countries. If the differentiation is rational in the above sense,
introduction of emissions trading is unnecessary, because each
country's
cost-minimizing
behavior results in attaining her target solely by domestic
reduction. In reality, however, it is almost infeasible to
estimate the marginal cost curves respectively for the 38 Annex I
countries, and hence the reduction targets have been
differentiated on ad hoc bases. Therefore, the reduction
targets assigned to Annex I countries might be far from rational.
This is the reason why Kyoto mechanisms play an essential role in
minimizing the total abatement cost as much as possible.
Trading
Emission Rights
[12] The Kyoto Protocol obliged Japan
to reduce the average
amount of GHGs emissions for the period from 2008 to 2012 at
least by 6% less than that in the year 1990. To put it
differently Japan was assigned emission rights equaling
five times as much as 94% of total GHGs emissions in 1990, which
will be effective during the five-year commitment period. The
total amount of emission rights assigned to the 38 Annex I
countries amounts to 94.8% of the total emissions in 1990 by the
38 countries. Commitments by the Annex I countries may be
relaxed, i.e., fulfilled with lower costs, through purchase of
emission rights from other countries.
[13] It should be borne in mind,
however, that the Kyoto Protocol
clearly states that emissions trading and JI should be supplemental
to domestic measures. One of the most controversial points with
regards to Kyoto mechanisms is what is really meant by "supplemental"
The European Union claims that in
order for mechanisms to be really supplemental the amount of
emissions trading should be limited numerically somehow or other,
while the US and Japan oppose that such limitation would harm
precious cost-effectiveness of emissions trading and JI.
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