Kyoto Protocol, Emissions Trading and Reduction Technologies for Climate Change Mitigation

TABLE OF CONTENTS

Foreword

Chapter 1: Climate change and Green House Gases Emissions
Introduction
World scenario on GHG emissions
Key drivers of emissions from energy use
Energy supply sector
SMEs and GHG emissions

Chapter 2: Kyoto Protocol and GHG emissions reduction
Introduction
The Protocol
Flexible mechanisms

Chapter 3: Emissions trading
Introduction
Basic types of emissions trading programs
Other features of emissions trading programs
Implementation issues

Chapter 4: GHG emissions estimation and inventory
Introduction
GHG inventory concepts and objectives
Estimation of GHG emissions from industrial processes and product use
GHG estimation methods
Emission estimation for facilities
Emission factors
Estimation of GHG from the energy sector
Categorization of sources

Chapter 5: GHG emission reduction technologies
Introduction
GHG reduction technologies
How energy efficiency can lead to CO2 reduction
Barriers
Energy efficiency
GHG reduction technologies for industries
Residential, institutional, and commercial buildings (infrastructure sector)
Water heating
GHG reduction technologies for the transport sector

Notes

Annex I – The Kyoto Protocol

Foreword

Global warming is now universally accepted as being the greatest environmental threat to mankind in the current century. The impacts are staggering. Antarctic ice is thinning at increasingly rapid rates, with correspondingly massive influxes of fresh water into the world’s oceans. Siberia has warmed 3°C as compared to 1960.

All these changes are due mostly to human activities, particularly in raising the levels of CO2, a major greenhouse gas (GHG). Atmospheric concentrations of CO2 have risen 35% since the Industrial Revolution. This increase is primarily due to anthropogenic activities such as the burning of fossil fuels and deforestation. Reducing the rate of GHG emissions will be an enormous challenge for everyone throughout the world which must be fought on many fronts.

This work broadly analyses the main issues and subjects concerning the main devices and laws for climate change mitigation.

Dr. Nicolás Fernández-Quesada

Chapter 1: Climate change and Green House Gases Emissions

Introduction

Climate change is one of the most critical global environmental, social, and economic challenges of the century that the entire world is facing. The Earth’s average surface temperature has risen by three-quarters of a degree Celsius since 1850. The latest events have clearly demonstrated our growing vulnerability to climate change. Climate change is not only an environmental problem but also a developmental problem. Its adverse impacts will disproportionately affect developing countries with their most vulnerable populations and their least adaptive capacity. In other words, those who have contributed the least so far to this problem and also do not have the financial and technological resources to deal with it will be the most affected. Within developing countries, as well, the poorest citizens living on marginal land and who are most reliant on their direct natural environment will be the ones most at the receiving end of climate change impacts such as droughts and floods.

According to the United Nations Framework Convention on Climate Change, “without further action to reduce greenhouse gas (GHG) emissions, the global average surface temperature is likely to increase by a further 1.8–4.0 deg C this century1”. This report further projects that at least the lower end of this range would be almost a certainty since pre-industrial times it has risen above 2 deg C, the threshold beyond which is irreversible and possibly catastrophic changes become far more likely.

Unmitigated climate change beyond 2 degrees Celcius will lead to accelerated, irreversible, and largely unpredictable climate changes2.

Most of the changes in our climate have been brought about by anthropogenic activities; that is, they have been caused by human influences. The activities of people that contribute to climate change include, in particular, the burning of fossil fuels, agricultural practices, and land use modifications such as deforestation brought about by the spread of ever-increasing populations. These activities result in the emission of carbon dioxide (CO2), a major greenhouse gas and the main gas responsible for climate change, as well as other “greenhouse” gases (i.e., gases that trap heat in the atmosphere). In order to bring climate change to a halt and save our planet, it is imperative to reduce greenhouse gas emissions significantly.

In 2005, the European emissions trading scheme commenced while in 2006 the Kyoto Protocol came into effect, with Russia joining. At the same time, rising oil prices due to the impending “oil peak” provided financial incentives for alternative fuels.

World scenario on GHG emissions

GHG emissions have risen steadily since pre-industrial times – by 70% between 1970 and 2004 (IPCC, 2007). The largest growth has been observed in the energy supply sector (an increase of 145%) followed by the transport sector at 120% within this period.

Many analyses of GHG emissions trends and projections focus solely on CO2, as CO2 is the largest source of GHG, accounting for 77% of all such emissions. The next most important GHG directly emitted through anthropogenic processes are methane and nitrous oxide. Further, future projections and trends are based on CO2 emissions in view of the accuracy of data on CO2 emissions from the use of fossil fuels. According to the IPCC, carbon dioxide concentration has achieved unprecedented levels in the atmosphere greater than any time in the last 650,000 years. Thus it has become a major and the fastest-growing factor in climate change (IPCC, 2007).

According to the Energy Information Administration of the U.S. Department of Energy (EIA, 2007), global carbon dioxide emissions have been projected to rise from 26.9 billion tons in 2004 to 33.9 billion tons in 2015, and 42.9 billion tons in 2030, at an average growth rate of 1.8% per year.

Key drivers of emissions from energy use

The key drivers of emissions from energy use are:

- activities such as total population growth, urbanization, building and vehicle stock, commodity production;
- economic factors such as total GDP, income, and price elasticity;
- energy intensity trends, e.g., energy intensity of energy-using equipment, appliances, and vehicles; and,
- carbon intensity trends; i.e., the amount of carbon released per unit of energy use. (This indicator depends on fuel mix and emission reductions derived from fuel switching.)

These factors are, in turn, driven by changes in consumer preferences, energy and technology costs, demand for goods, settlement and infrastructure patterns, technical development, and the overall economic scenario of the nation (IPCC, 2000).

Energy use produces emissions depending on how assumptions relating to the four main factors vary, that is, activity level, structure, energy intensity, and fuel mix. Altering any of these factors, alone or in combination, can influence emission levels. A simple model can be used for representing the interactions between these four factors and their impact on CO2 emissions: the farther one drives a car (activity), the more CO2 emissions will result. However, fewer emissions will result if the car is more energy efficient (energy intensity), and emissions might be avoided entirely if the car is operating on a zero-carbon fuel such as hydrogen (fuel mix).

Alternatively, one might choose to ride the bus instead of driving (changing the structure of the activity), which would also alter the CO2 emissions (Pew Center, 2004).

Energy supply sector

It is evident from the above that energy is the primary source of GHG emissions that are being generated during the combustion of fossil fuel.

Hence, the energy sector is one of the most important of all sectors as far as GHG emissions are concerned. It has been estimated that in 1990 about 6 GtC was released from energy consumption. Out of this, about 72% was delivered to end users, accounting for 3.7 GtC while the remaining 28%, amounting to 2.3 GtC, was used in energy conversion and distribution.

In order to focus on major GHG emission sources, this manual pays particular attention on the estimation of GHG emissions from the industrial, infrastructure, and transport sectors. The energy sector is common in all, as energy is an essential component of every activity.

Since small and medium enterprises (SMEs) in Southeast Asian countries contribute the most to GHG emissions, focus has also been laid to discussing the technologies for GHG emission reduction particularly in the SME sector. This manual therefore presents examples of GHG emissions estimation and case studies on GHG emission reduction technologies.

SMEs and GHG emissions

SMEs are an important sector serving as the engine of growth in virtually all developing nations. They are the main driver for industrialization and a key channel for absorbing most of the country’s labor. SME expansion boosts employment more than large firms as they are more labor intensive. SMEs enhance competition and entrepreneurship and thus have external benefits to economy-wide efficiency, innovation, and aggregate productivity growth. They contribute, in general, to around 30-60% of East Asian region GDP and up to 70% of the region’s total employment. In India, the MSME (micro, small, and medium enterprises) sector accounts for 40% of exports, 45% of industrial production, and 8% of total GDP (SME Times, May, 2008).

At the same time, Indian SMEs are more responsible for causing global warming or pollution due to a lack of basic infrastructure, accessibility, and affordability of high tech production technologies and hampered by inefficient mechanisms to safely discharge effluents. Of course, SMEs are important in providing a flexible skilled production base that attracts foreign direct investment (FDI) to boost the economy of the nation.

Despite their positive aspects, SMEs consume more resources per unit of product and generate more pollution compared to large industries, thus contribute to environmental pollution to a great extent. Generally, SMEs put about 65% of the total pollution load on the environment. This has been attributed to low skill levels, technological status that is typically just conventional, financial constraints, weak entrepreneurship, etc. Though the quantity of waste generation from a single SME may be less compared to large enterprises, the cumulative environmental impact of a number of SMEs is very high in view of their presence in clusters in a given region.

This clearly indicates that SMEs consume more resources as compared to large enterprises, but they also have great potential for resource optimization and conservation. In order to assist SMEs in developing countries, a mechanism has been developed to reduce GHG emissions called “emission trading” under the Kyoto Protocol. Using this mechanism, Annex 1 countries are permitted to purchase allowances for carbon produced by their industries through technological improvements.

Chapter 2: Kyoto Protocol and GHG emissions reduction

Indroduction

The Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC) was adopted in Kyoto, Japan, in December 1997 and entered into force on 16 February 2005. The rules and requirements for implementation of the Kyoto Protocol were further elaborated in a package of decisions called the Marrakesh Accords. The Marrakesh Accords were formally adopted by COP/MOP at its first session in Montreal, Canada, in December 2005.

The Kyoto Protocol shares the ultimate objective of UNFCCC to stabilize atmospheric concentrations of greenhouse gases at a level that will prevent dangerous interference with the world climate. In pursuit of this objective, the Kyoto Protocol builds upon and enhances many of the commitments already in place under the Convention:

- Each Annex I Party must undertake domestic policies and measures to reduce GHG emissions and to enhance removals by sinks.
- In implementing these policies and measures, each Annex I Party must strive to minimize any adverse impact of these policies and measures on other Parties, particularly developing country Parties.
- Annex I Parties must provide additional financial resources to advance the implementation of commitments by developing countries.
- Both Annex I and non-Annex I Parties must cooperate in the areas of:
- Development, application, and diffusion of climate-friendly technologies;
- Research on and systematic observation of the climate system;
- Education, training, and public awareness of climate change;
- Improvement of methodologies and data for greenhouse gas missions; and,
- Gas inventories.

However, the Kyoto Protocol’s most notable elements are its binding commitments on Annex I Parties to limit or reduce greenhouse gas emissions, and its innovative mechanisms to facilitate compliance with these commitments.

The Protocol

As said, the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) is an international treaty that sets binding obligations on industrialised countries to reduce emissions of greenhouse gases. The UNFCCC itself is an environmental treaty with the goal of preventing "dangerous" anthropogenic (i.e., human-induced) interference of the climate system. There are 192 parties to the convention, including 191 states (all UN members, except Andorra, Canada, South Sudan and the United States) and the European Union. The United States signed but did not ratify the Protocol and Canada withdrew from it in 2011. The Protocol was adopted by Parties to the UNFCCC in 1997, and entered into force in 2005.

As part of the Kyoto Protocol, many developed countries have agreed to legally binding limitations/reductions in their emissions of greenhouse gases in two commitments periods. The first commitment period applies to emissions between 2008-2012, and the second commitment period applies to emissions between 2013-2020. The protocol was amended in 2012 to accommodate the second commitment period, but this amendment has (as of January 2013) not entered into legal force.

The 37 countries with binding targets in the second commitment period are Australia, all members of the European Union, Belarus, Croatia, Iceland, Kazakhstan, Norway, Switzerland, and Ukraine. Belarus, Kazakhstan and Ukraine have stated that they may withdraw from the Protocol or not put into legal force the Amendment with second round targets. Japan, New Zealand, and Russia have participated in Kyoto's first-round but have not taken on new targets in the second commitment period. Other developed countries without second-round targets are Canada (which withdrew from the Kyoto Protocol in 2012) and the United States (which has not ratified the Protocol).

International emissions trading allows developed countries to trade their commitments under the Kyoto Protocol. They can trade emissions quotas among themselves, and can also receive credit for financing emissions reductions in developing countries. Developed countries may use emissions trading until late 2014 or 2015 to meet their first-round targets.

Developing countries do not have binding targets under the Kyoto Protocol, but are still committed under the treaty to reduce their emissions. Actions taken by developed and developing countries to reduce emissions include support for renewable energy, improving energy efficiency, and reducing deforestation. Under the Protocol, emissions of developing countries are allowed to grow in accordance with their development needs.

The treaty recognizes that developed countries have contributed the most to the anthropogenic build-up of carbon dioxide in the atmosphere (around 77% of emissions between 1750 and 2004), and that carbon dioxide emissions per person in developing countries (2.9 tonnes in 2010) are, on average, lower than emissions per person in developed countries (10.4 tonnes in 2010).

A number of developed countries have commented that the Kyoto targets only apply to a small share of annual global emissions. Countries with second-round Kyoto targets made up 13.4% of annual global anthropogenic greenhouse gas emissions in 2010. Many developing countries have emphasized the need for developed countries to have strong, binding emissions targets. At the global scale, existing policies appear to be too weak to prevent global warming exceeding 2 or 1.5 degrees Celsius, relative to the pre-industrial level.

The view that human activities are likely responsible for most of the observed increase in global mean temperature ("global warming") since the mid-20th century is an accurate reflection of current scientific thinking. Human-induced warming of the climate is expected to continue throughout the 21st century and beyond.

The Intergovernmental Panel on Climate Change (IPCC, 2007) have produced a range of projections of what the future increase in global mean temperature might be. The IPCC's projections are "baseline" projections, meaning that they assume no future efforts are made to reduce greenhouse gas emissions. The IPCC projections cover the time period from the beginning of the 21st century to the end of the 21st century. The "likely" range (as assessed to have a greater than 66% probability of being correct, based on the IPCC's expert judgement) is a projected increased in global mean temperature over the 21st century of between 1.1 and 6.4 °C.

The range in temperature projections partly reflects different projections of future greenhouse gas emissions. Different projections contain different assumptions of future social and economic development (e.g., economic growth, population level, energy policies), which in turn affects projections of future greenhouse gas (GHG) emissions. The range also reflects uncertainty in the response of the climate system to past and future GHG emissions (measured by the climate sensitivity).

The main aim of the Kyoto Protocol is to contain emissions of the main anthropogenic (i.e., human-emitted) greenhouse gases (GHGs) in ways that reflect underlying national differences in GHG emissions, wealth, and capacity to make the reductions. The treaty follows the main principles agreed in the original 1992 UN Framework Convention. According to the treaty, in 2012, Annex I Parties who have ratified the treaty must have fulfilled their obligations of greenhouse gas emissions limitations established for the Kyoto Protocol's first commitment period (2008–2012). These emissions limitation commitments are listed in Annex B of the Protocol.

The Kyoto Protocol's first round commitments are the first detailed step taken within the UN Framework Convention on Climate Change (Gupta et al., 2007). The Protocol establishes a structure of rolling emission reduction commitment periods. It set a timetable starting in 2006 for negotiations to establish emission reduction commitments for a second commitment period. The first period emission reduction commitments expired on 31 December 2012.

The ultimate objective of the UNFCCC is the "stabilization of greenhouse gas concentrations in the atmosphere at a level that would stop dangerous anthropogenic interference with the climate system." Even if Annex I Parties succeed in meeting their first-round commitments, much greater emission reductions will be required in future to stabilize atmospheric GHG concentrations.

For each of the different anthropogenic GHGs, different levels of emissions reductions would be required to meet the objective of stabilizing atmospheric Carbon dioxide (CO2) is the most important anthropogenic GHG. Stabilizing the concentration of CO2 in the atmosphere would ultimately require the effective elimination of anthropogenic CO2 emissions.

Some of the principal concepts of the Kyoto Protocol are:

- Binding commitments for the Annex I Parties. The main feature of the Protocolis that it established legally binding commitments to reduce emissions of greenhouse gases for Annex I Parties. The commitments were based on the Berlin Mandate, which was a part of UNFCCC negotiations leading up to the Protocol.
- In order to meet the objectives of the Protocol, Annex I Parties are required to prepare policies and measures for the reduction of greenhouse gases in their respective countries. In addition, they are required to increase the absorption of these gases and utilize all mechanisms available, such as joint implementation, the clean development mechanism and emissions trading, in order to be rewarded with credits that would allow more greenhouse gas emissions at home.
- Minimizing Impacts on Developing Countries by establishing an adaptation fund for climate change.
- Accounting, Reporting and Review in order to ensure the integrity of the Protocol.

Compliance. Establishing a Compliance Committee to enforce compliance with the commitments under the Protocol.

Flexible mechanisms

The Protocol defines three "flexibility mechanisms" that can be used by Annex I Parties in meeting their emission limitation commitments. The flexibility mechanisms are International Emissions Trading (IET), the Clean Development Mechanism (CDM), and Joint Implementation (JI). IET allows Annex I Parties to "trade" their emissions (Assigned Amount Units, AAUs, or "allowances" for short).

The economic basis for providing this flexibility is that the marginal cost of reducing (or abating) emissions differs among countries. "Marginal cost" is the cost of abating the last tonne of CO2-eq for an Annex I/non-Annex I Party. At the time of the original Kyoto targets, studies suggested that the flexibility mechanisms could reduce the overall (aggregate) cost of meeting the targets. Studies also showed that national losses in Annex I gross domestic product (GDP) could be reduced by use of the flexibility mechanisms.

The CDM and JI are called "project-based mechanisms," in that they generate emission reductions from projects. The difference between IET and the project-based mechanisms is that IET is based on the setting of a quantitative restriction of emissions, while the CDM and JI are based on the idea of "production" of emission reductions. The CDM is designed to encourage production of emission reductions in non-Annex I Parties, while JI encourages production of emission reductions in Annex I Parties.

The production of emission reductions generated by the CDM and JI can be used by Annex I Parties in meeting their emission limitation commitments. The emission reductions produced by the CDM and JI are both measured against a hypothetical baseline of emissions that would have occurred in the absence of a particular emission reduction project. The emission reductions produced by the CDM are called Certified Emission Reductions (CERs); reductions produced by JI are called Emission Reduction Units (ERUs). The reductions are called "credits" because they are emission reductions credited against a hypothetical baseline of emissions.

Each Annex I country is required to submit an annual report of inventories of all anthropogenic greenhouse gas emissions from sources and removals from sinks under UNFCCC and the Kyoto Protocol. These countries nominate a person (called a "designated national authority") to create and manage its greenhouse gas inventory. Virtually all of the non-Annex I countries have also established a designated national authority to manage their Kyoto obligations, specifically the "CDM process". This determines which GHG projects they wish to propose for accreditation by the CDM Executive Board.

Chapter 3: Emissions trading

Indroduction

Under emissions trading, an Annex I Party may transfer Kyoto Protocol units to, or acquire units from, another Annex I Party. A Party may acquire an unlimited number of units under Article 17. However, the number of units that a Party may

transfer is limited by the Party’s commitment period reserve (CPR). The CPR is the minimum level of units that a Party must hold in its national registry at all times. The requirement for each Party to maintain a CPR prevents a Party from over transferring units, and thus impairing its ability to meet its Article 3, paragraph 1, commitment.

Annex I Parties may choose to implement domestic or regional (e.g., with a group of Parties) systems for entity-level emissions trading, under their authority

and responsibility. Although the Kyoto Protocol does not address domestic or regional emissions trading, Kyoto emissions trading forms an umbrella under which national and regional trading systems operate, in that the entity-level trading uses Kyoto Protocol units and needs to be reflected in the Kyoto Protocol accounting.

Any transfer of units between entities in different Parties under domestic or regional trading systems is also subject to Kyoto Protocol rules. The emissions trading scheme (ETS) of the European Union is one example of a regional trading system, operating under the Kyoto Protocol umbrella.

The basic rationale for emissions trading is straightforward. By giving firms the flexibility to reallocate (trade) emissions credits or allowances among themselves, trading can reduce the compliance costs of achieving the emissions target.

A simple numerical example illustrates how emissions trading can reduce control costs relative to a traditional approach that is based upon setting uniform emissions standards (i.e., traditional command-andcontrol).

Basic Types of Emissions Trading Programs

Three broad types of emissions trading programs have emerged: reduction credit, averaging, and cap-and-trade programs. Although all share the feature of tradability, the three differ in important respects.

Reduction credit programs provide tradable credits to facilities that reduce emissions more than required by some pre-existing regulation (or other baseline) and allow those credits to be counted towards compliance by other facilities that would face high costs or other difficulties in meeting the regulatory requirements. (These programs sometimes are referred to simply as “credit-based.”) Reduction credits are created through an administrative process in which the credits must be pre-certified before they can be traded.

[...]