The Kyoto Protocol – where countries agreed on a “legally binding” emissions reduction protocol, including agreement on a carbon trading scheme – has clearly moved Parties of the FCCC toward a regime that more adequately addresses the problem of global climate change. Most notably, the ERC concept has become more defined and interest in the concept by developing countries, developed countries and investors has increased.
Entry into force of the Protocol is the next step in the FCCC process. The Protocol opens for signature in March 1998 for one year, although countries may accede to it after that period. It will enter into force after at least 55 Parties to the FCCC, encompassing Annex I countries, which account for at least 55% of the total global emissions of CO2, have ratified, accepted, or acceded to the Protocol. Prospects for ERC project development and implementation in the Region will become even more defined as the FCCC process continues. 1998 FCCC meetings in Bonn and Buenos Aires will help clarify broad questions related to measurement, reporting, emissions accounting and compliance issues. For advocates and opponents of ERC, these meetings will also provide a forum for defining the future scope and operational aspects of JI, AIJ and CDM. Constructive involvement from fast growing developing countries of the Asia-Pacific Region for the Convention, particularly in Bonn and Buenos Aires in 1998, is critical to the further development and implementation of the FCCC – especially ERC mechanisms.
Active and constructive involvement from developing countries is also necessary because emissions from developing countries are expected to surpass developed countries in the near future and comprise the bulk of emissions in the coming decades. In addition, developing country involvement is critical from a political point of view. US President Clinton and the US Congress have indicated in different terms that developing countries must participate in a meaningful way to address global climate change. Ratification by the EU and Japan seems more certain. As mentioned earlier, several developing countries of the Region have created criteria for ERC projects. Others seem set to follow. This progress might demonstrate that developing countries realize the ERC investment opportunities and seek a greater role in addressing global climate change in general.
Finally, it is important to note that the Protocol is not the only driver encouraging public and private entities in developed countries to invest in ERC projects in developing countries. Ultimate implementation of the Kyoto Protocol would certainly ensure the widest possible participation by both developed and developing countries in ERC projects. However, as mentioned earlier, demonstrating corporate-environmental responsibility produces a public relations benefit and demonstrating voluntary action hedges possibly stringent future regulation. These are often sufficient incentive for an investor. Thus, regardless of the short-term policy uncertainty, unilateral Annex I government and private programs directly investing and encouraging investment will continue – likely on an accelerated basis.
