Should NonKyoto Parties be Allowed to Trade

1
Should Non-Kyoto Parties be Allowed to Trade?

• CATEP Workshop
• Budapest
• February 8, 2003
• Erik Haites
• Margaree Consultants Inc.

2
Should Non-Kyoto Parties be Allowed to Trade?

• Answer
• Purchases by entities in Non-Kyoto Parties are
  possible under current rules and would be very
  difficult to prevent by changing the rules
• Sales of non-Kyoto units to Kyoto Parties are not
  possible under current rules and changes to the
  rules to allow such sales are extremely unlikely.

3
Trading vs Compliance

• A non-Party entity can buy and sell Kyoto units
  by establishing an account in the national
  registry of a Kyoto Party
• Incorporate a related company in the Kyoto Party
  to operate the account or use an account with a
  broker
• Issue is use of Kyoto units for compliance with
  regulatory obligations in a non-Party

4
Using Kyoto Units for Compliance

• For compliance by an entity with domestic
  emissions trading program obligations, a
  Non-Party could decide to accept Kyoto units
  transferred into a cancellation account
• Integrity improved if non-Party regulator has
  account in a Kyoto registry and Kyoto units are
  transferred there and cancelled

5
Using Kyoto Units for Compliance

• To preclude compliance use by non-Party entities
  rules would need to be changed to prevent direct
  or indirect (through related companies) ownership
  of Kyoto units
• That will be impossible in practice
• Kyoto units would be used for compliance only if
  price is lower than for domestic units

6
American Proposal

• McCain-Lieberman bill proposes to establish
  domestic trading program for GHG emissions
  beginning in 2010
• downstream participation for entities with
  emissions over 10,000 tCO2e per year
• upstream coverage for transportation fuels, HFCs,
  PFCs and SF6
• limit at 2000 emissions in 2020, 1990 emissions
  in 2016

7
American Proposal

• Bill would allow use of Kyoto units for
  compliance up to 15 (10 after 2015) of total
  emissions if
• Secretary of Commerce certifies other nations
  system is complete, accurate and transparent
• other nation has enforceable limits on GHG
  emissions and trading is used to meet the limits
• the US entity certifies that the units have been
  retired unused in the other nations registry

8
Sales of Non-Kyoto Units

• Kyoto Parties can not use non-Kyoto units to
  help meet their Kyoto emissions limitation
  commitments
• Therefore, Kyoto Parties unlikely to allow use
  non-Kyoto units for compliance
• Therefore, sales of non-Kyoto units to Kyoto
  Party entities unlikely except for speculative
  trading

9
Sales of Non-Kyoto Units

• Rules on use of non-Kyoto units by Kyoto Parties
  are extremely unlikely to change because
• this would allow net flow of funds from Parties
  to non-Parties thus rewarding non-ratification
• it would reduce the flow of funds to developing
  country Parties

10
Summary

• Non-Party entities will be able to trade Kyoto
  units (and vice versa)
• A non-Party will be able to allow its entities
  to use Kyoto units for compliance, but this will
  be attractive only if the price of Kyoto units is
  lower than that of domestic units
• Non-Party units are extremely unlikely to be
  accepted for compliance by Kyoto Parties

11
Contact

• Erik Haites
• Margaree Consultants Inc.
• Toronto
• Tel [phone]
• E-mail EHaites_at_netcom.ca