The Kyoto Protocol is an international agreement that was agreed in 1997 and has been ratified by 178 countries. It will reduce global greenhouse gas emissions by requiring developed countries to meet national targets for greenhouse gas emissions over the five year period from 2008 to 2012.
The Protocol recognises that developed countries have a responsibility to take the lead in international action because they are responsible for most of the world's past emissions. Each developed country's target was negotiated and agreed internationally. Australia's annual target is 108% of our 1990 emissions.
Under the Protocol, developed countries are required to take domestic action to reduce greenhouse gas emissions. The latest emissions projections show that Australia is on track to meet its Kyoto target. Australia's emissions are projected to be 108% of 1990 levels during the 2008-2012 period.
Countries that fail to meet their emissions reduction targets during the 2008-2012 period may be liable for a 30 percent penalty, to be made up in the post-2012 commitment period. For example, a country that exceeds its target by 100 million tonnes during 2008-2012 would have 130 million tonnes deducted from its allowable emissions in the post-2012 commitment period.
Countries are also required to take on a range of monitoring and reporting commitments, which are designed to ensure they remain on track to meet their obligations and to measure the overall success of the Protocol.
Australia deposited its 'instrument of ratification' on 12 December 2007. It came into force for Australia on 11 March 2008 following a mandatory 90 day waiting period.
The Kyoto Protocol requires countries to meet their targets primarily through domestic action. However, to supplement domestic action the Kyoto Protocol establishes three 'flexibility mechanisms'.
The flexibility mechanisms are based on the principle that the benefit to the atmosphere of reducing emissions is the same regardless of where they are reduced. The cost for taking action will vary from place to place, so the Protocol enables the global community to reduce emissions where it is the most cost-effective. The three flexibility mechanisms are:
- The Clean Development Mechanism (CDM) - Enables developed countries (and their approved organisations, which can include private companies) to undertake projects to reduce emissions in developing countries and to receive emissions credits in return. The goals are to reduce greenhouse gas emissions and support sustainable development.
- Approved CDM projects must lead to a reduction in emissions that is over and above what would be achieved by business as usual.
- The reductions in greenhouse gas emissions achieved by the project - known as 'Certified Emissions Reductions' (CERs) - can be counted towards the developed country's emissions target.
- The CDM also enables developing countries to participate in efforts to reduce emissions, develop their expertise and ability to undertake future actions to reduce emissions, and to benefit from economic investment in their country.
- Joint Implementation (JI) - Enables developed countries (and their approved organisations) to undertake projects to reduce emissions in other developed countries.
- Approved JI projects must also lead to a reduction in emissions that is over and above what would be achieved by business as usual.
- As with the CDM, a country's investment in a project entitles it to emissions credits -known as 'Emission Reduction Units' (ERUs) - that can be counted towards its own emissions target.
- International Emissions Trading - Enables developed countries that emit less than their targets to sell their surplus credits (Assigned Amount Units [AAUs]) to countries that have not met their targets.
- Domestic Emissions Trading Schemes may also be established by national governments as a means of reducing national emissions levels. These are independent of the Kyoto Protocol, but Governments may design the rules of their schemes to link with credits generated by the flexibility mechanisms.
The Kyoto Protocol requires each developed country to establish a national registry system. The registries track and record all trade in emissions credits, including CERs and ERUs. The price of these credits is determined by the market.
Next Steps for Australia
Countries that have ratified the Kyoto Protocol are required to submit an 'Initial Report Under the Kyoto Protocol' within 12 months of their ratification coming into effect. Australia submitted its report on 11 March 2008, which was the first day possible.
Each year during the 2008 to 2012 commitment period, countries are required to report their annual emissions. Australia is well-prepared to meet these reporting obligations. Australia's National Greenhouse Gas Accounts, including our National Greenhouse Gas Inventory, are based on a well-developed and technically sound methodology. They are prepared according to the Kyoto Protocol's rules for greenhouse gas accounting and will form the basis of Australia's annual emissions reports.
National Registry and National Authority
Australia will be able to participate in the Kyoto flexibility mechanisms once certain criteria are met and appropriate institutions established. Work is already underway to establish a national emissions registry, which is one of these requirements.
The Government is also considering the design and functions of a 'national authority' which must be set up to assess and approve any Kyoto projects that Australia becomes involved in.
Opportunities for Australian Businesses
Australia's ratification of the Kyoto Protocol facilitates new opportunities for Australian businesses to participate in global carbon markets. In February 2008, there were 918 approved CDM projects around the world, with more than 1900 others waiting for official approval by the CDM's 'Executive Board'.
Projects are currently underway to reduce emissions in a range of sectors, including energy industries (both renewable and non-renewable), waste handling and disposal, agriculture, manufacturing emissions, and fugitive emissions from fuels. In total, the CDM market was estimated to be worth more than US$5 billion in 2006.
Australian innovation has an important role to play in global efforts to reduce emissions and the Government will be working to facilitate access by Australian companies to the emerging global market.