Joint
Implementation
What is
Joint Implementation?
[38] Suppose that any two Annex I countries, say A and
B, can implement a joint project contributing to abatement of
GHGs emissions including enhancement of sinks. If the joint
project is recognized as joint implementation (JI), then the host
country, i.e., the country A, in which the project is
implemented, can transfer a certain amount of emission rights to
the investor country, i.e., country B, which provides funds and
technologies necessary for the joint project. The amount of
transferred emission rights from A to B would be agreed upon, on
the basis of prediction of how much emissions reduction will be
attained during the commitment period from 2008 to 2012, and to
how much extent the country B contributes to the project.
[39] Generally speaking, countries having opportunities to reduce
GHGs emissions with the lower marginal abatement cost will play a
role as the host country, while a role as the investor country
will be played by countries whose marginal abatement cost is
relatively higher, but who have advantages in funding and
technology.
[40] In addition to abatement of GHGs emissions, JI provides a
variety of benefits to the host country. For example, power plant
construction projects are inherently beneficial in that they
enhance the power supply capacity of the host country. Public
transportation network improvement projects enhance passengers
and freights transportation capacity. On the other hand, the
investor country's
benefit is
only limited to obtaining credit, i.e., emission rights
generated by JI, whose average cost might be expected to be less
than the marginal abatement cost in the investor country:
otherwise, no incentive to JI is expected. Since emission rights
are commodities, joint projects that bring reduction of GHGs
emissions but have been unprofitable so far would become
profitable by the so-called additionality of JI.
[41] JI may be regarded as one version
of emissions trading,
since it entails the transfer of emission rights among the Annex
I countries. However, JI has its own purpose, i.e., it
facilitates the project-oriented trading as mentioned above. JI
is limited only to the Annex I countries, while joint projects by
an Annex I country and a non-Annex I country is called CDM and
distinguished from JI. It should be noted that the total amount
of emission rights is unchanged before and after JI. Thus JI may
be managed more flexibly than CDM, since specification of the
baseline is entirely left to the two countries concerned.
Participation
by the Private Sector
[42] The private sector actually
possesses technologies
necessary for GHGs emissions reduction, and also provides funding
in most cases. Therefore, it is extremely important for the
success of Kyoto mechanisms to facilitate the private sector to
take an initiative in JI and CDM. Even in case when private firms
in the investor country participate in JI or CDM, a certain
amount of emission rights is transferred from the host country's
government to the private firms in
the investor country. The private firm can sell emission rights
thus obtained to their own government or in the market.
[43] It should be noted that the total
assigned emission rights
to the Annex I countries do not increase nor decrease by JI even
in case when the private sector participates in emissions
trading. The host country of JI obtains actual emission
reduction, while the investor country obtains emission rights,
which is often called credits from the host country. The
provision of credit should be regarded as the transfer of
emission rights from the host country to the investor country.
Baseline and
Additionality
[44] To calculate the GHGs emission
reductions due to
JI, i.e. the amount that is additional as provided for
in the Protocol, it is necessary to identify the baseline,
or the amount of GHGs that would have been emitted during the
commitment period if the JI project were not carried out.
[45] For a JI project in which a coal
thermal power plant is
replaced with a natural gas thermal power plant or in which
leakage of natural gas from pipelines is mended, the baseline,
namely, the amount of emissions reduction by the projects may be
easily as well as definitely settled. For a JI project in which a
natural gas thermal power plant is newly established, however,
the baseline cannot be assessed in a consistent manner, but would
involve certain arbitrariness.
[46] If it is one of the preconditions
of JI to establish a
definite rule to numerically specify the baseline, its difficulty
might hinder the progress of JI. If the establishment of baseline
under a joint JI project between two Annex I countries is
entrusted to them, then JI will be further facilitated.
Naturally, this does not mean that the two countries are not
obliged to notify the administrative body of the agreed baseline
and the transferred amount of emission rights. Such procedure is
indispensable for the administrative body to fulfill its duty to
track all transfers of emission rights among the Annex I
countries.
Conclusion
[47] If we dare to
discuss future prospects, we can write the following scenario as
one of the most likely scenarios. In terms of emissions trading,
the countries will reach a consensus at the future COPs. With
regard to JI, the countries will reach a consensus at the
COP/moP1 to be held after the Protocol becomes effective. Soon
after the Protocol becomes effective, government-driven or
private-driven JI or CDM projects will commence and the emissions
trading market will be formed to deal with credits generated by
such projects.
[48] The process of forming the
marketplace for emissions trading
will vary greatly depending upon to whom emission rights are
transferred, governments or private firms. If they are
transferred only to governments, it is unlikely that the
marketplace is autonomously formed before the beginning of the
commitment period. This is because governments, which have been
assigned emission rights, do not need to exchange them for money
in advance. If JI led by private firms is limited to a certain
range, private firms will prefer transferring credit to their
governments so as to save transaction cost. In such a case, there
will be little motivation to create the marketplace for emissions
trading. If, however, JI led by private firms is widely promoted,
the marketplace for emissions trading will be automatically
created.
[49] If the marketplace for emissions
trading is created and if
the market price of emission rights is high enough, then
governments or private firms having excess emission rights will
be motivated to supply them to the market. If such countries are
facing economic depression or suffering from huge budget deficit
as well as trade deficit, it is very likely that they will supply
a large amount of emission rights to the market. As is already
mentioned, since uncertainties with regard to the price of
emission rights is one of the most conspicuous factors to hinder
the promotion of JI, the marketplace for emissions trading had
better been created so that the price of emission rights may be
predicted at an early stage.
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