Joint Implementation

In the context of a global climate change policy, the concept of Joint Implementation (JI) was discussed for the first time in September 1991, during the negotiations that preceded the establishment of a Framework Convention on Climate Change (FCCC). In the FCCC, which was signed by 154 nations at the UN Conference on Environment and Development (UNCED) in Rio de Janeiro (1992), JI was included in Article 4.2(a): “developed country Parties and other Parties included in Annex I… may implement… policies and measures jointly with other Parties and may assist other Parties in contributing to the objective of the Convention.”

The idea is that since greenhouse gases (GHGs) are uniformly mixed gases, that is, one ton of GHG emitted by party A does the same global damage as one ton emitted by party B, it does not make a difference whether a particular GHG emission reduction takes place in the territory of party A or party B.

Although there were still many uncertainties surrounding the concept at the time, the JI concept essentially enables Parties (countries that have ratified the FCCC) to fulfill a part of their greenhouse-gas emission-reduction commitments through abatement action in the territory of another party (the JI host country). The rationale for such cooperation is that for Parties with high marginal costs of abatement—for example, because of their already relatively high level of energy efficiency—it is cost effective to invest in cheaper emission-reduction measures abroad than in expensive measures domestically. If the host countries also benefit from the same cooperation (for example, via financial compensation, technology transfer, or credit sharing), both parties can gain from JI. If, moreover, a larger cost-effectiveness of abatement through JI would enhance the acceptability of actual commitments, JI may also benefit the global economy and climate. Economic theory would suggest that, if the scale of application of JI were not restricted, JI cooperation would proceed to the point at which the marginal abatement costs for all Parties are equal.

FCCC Negotiations and JI
The negotiations on the interpretation of the FCCC text, and therefore also of Article 4.2(a), continued after 1992, and especially after 1994, when a sufficient number of ratifications had been registered for the FCCC to enter into force. JI attracted increasing attention, but also turned out to be controversial. Opponents argued, for example, that JI would allow industrialized-country parties to postpone abatement action and the development of technology to save fossil-fuel energy domestically and would absorb the most attractive abatement opportunities in the host countries.

At the first Conference of the Parties to the FCCC (COP-1, Berlin, 1995), the debate yielded a compromise: to develop the JI concept further during a pilot phase. To remove any sensitivities, it was decided that JI activities should be referred to as Activities Implemented Jointly (AIJ) during this phase. Moreover, it was agreed that, during this phase, developed-country parties could not use AIJ to fulfill their obligations under the FCCC to stabilize their emissions of greenhouse gases by the year 2000. In other words, AIJ investments would earn no credit.

As of April 2000, 126 AIJ projects of various kinds had been reported to the FCCC Secretariat. Thirty of the pilot projects will take place in Latin America, 78 in Central and Eastern Europe, 6 in Africa, and 12 in Southeast Asia.

On December10,1997, in Kyoto (Japan) the Kyoto Protocol was adopted by COP-3. Under this Protocol industrialized countries agreed to reduce the emissions of six greenhouse gases by at least 5% below the levels of 1990 in the first commitment period, 2008–2012. Industrialized countries are allowed to achieve part of their GHG emission reduction commitments through cooperation with other countries via three flexibility mechanisms: GHG abatement-project cooperation between industrialized countries (Article 6 of the Protocol); project cooperation between industrialized countries and developing countries under a multilateral regime called the Clean Development Mechanism (CDM, Article 12); and a system of international emissions trading (Article 17). The first two types of cooperation are based on the JI concept. In the following, both the Article 6 and the CDM project-cooperation are referred to as JI.

Technical Issues
For a successful implementation of the JI concept under the Kyoto Protocol, the following technical issues need to be worked out.

Baseline determination

To measure the GHG emission reduction through a JI investment, a baseline must be established that indicates what the emissions would have amounted to in the absence of the investment. This implies that projections must comprise factors such as economic growth, (energy) price developments, and structural changes in the JI host country for the project lifetime, which may be quite long (in the case of forestry, for example). Such projections may not be easy, especially because of the counterfactual character of a project baseline (i.e., because of the JI project the situation that is described by the baseline will never exist). The FCCC negotiations focus on several approaches to baseline determination, varying from completely unstandardized and project-specific to standardized baselines based on category-wide information.

In order to ensure environmental integrity, baseline calculation should not overstate the emission reduction of a JI project because this would result in a transfer of too many credits from the host to the investor country. This is particularly relevant for projects implemented in countries without emission quota under the Kyoto Protocol (i.e., for CDM projects). In the case of Article 6 project cooperation, the environmental integrity is likely to be safeguarded better as emission-reduction credits from such projects are deducted from the emission budget of the host country (which is also an industrialized country with an emission reduction commitment). There is, therefore, a built-in checking mechanism in Article 6 of the Kyoto Protocol that is not present in the CDM.

JI project monitoring and verification

The GHG emission reductions achieved (or carbon sequestered) through a JI project have to be included in the national governments’ reports to the FCCC. The Conference of the Parties will then decide on the credits to be issued. With respect to monitoring and verification of a JI project's performance, some experts suggest that project monitoring should be left to the project parties involved (either national or local governments, or private-sector parties); others suggest that this task should be delegated to independent experts (to prevent parties from cheating to inflate the credits’ volume). Most experts agree that the verification of the reported GHG emission reduction (carbon sequestration) should be left to an international third-party auditing body.

Credit sharing

Once the JI project's abatement impact has been verified, it must be decided how the JI credits collected at the country level will be shared among the parties. During the pilot phase for JI (see above), this question has remained a theoretical one because crediting is not yet allowed, but it becomes a relevant issue under the Protocol. The discussion of this question is still in its infancy. It may well be that the credit-sharing issue will be left to negotiations between participants of individual JI projects (i.e., investors and host countries) It is also possible that some general guidelines will be agreed upon, such as distinguishing between categories of host countries according to the stringency of their emission-reduction commitments.

Sustainable development of CDM projects

According to the Kyoto Protocol, one of the purposes of the CDM is to assist developing countries in achieving sustainable development, but the Protocol does not define sustainable development. The question is whether it should be left to developing countries to define sustainable development, given countries’ different priorities and circumstances, or whether the term should be defined by the COP, for example, through a list of required project criteria. The risk of the first option is that some developing countries may opt for projects that they consider sustainable, but which the international community considers unsustainable (e.g., nuclear energy). A risk of the second option is that it may conflict with developing countries’ sovereignty.

JI in the Second Sulphur Protocol

In 1994 the Second Sulphur Protocol (SSP) to the 1979 Convention on Long Range Transboundary Air Pollution was signed in Oslo. Article 2.7 of this Protocol (covering Europe and the economies in transition) enables parties to implement their obligations jointly. The cost-saving potential of JI in SSP, however, is rather limited (Foundation JIN, 1995). First, since sulfur is a nonuniformly mixed gas, third-party effects have to be taken into account (in the SSP these parties are therefore given an important say). Second, the parties’ (differentiated) emission-reduction obligations under SSP were determined using a cost-minimization model, more or less equalizing the marginal sulfur dioxide abatement costs across the countries. Because of this, the cost-savings potential through sulfur dioxide trading—essentially equivalent to the JI concept discussed above—was largely undermined. To date there is only limited experience with JI-like mechanisms that is directly applicable to the design and operation of sulfur or greenhouse-gas trading mechanisms.