./.WORLD TRADE
ORGANIZATIONWT/CTE/W/153
29 June 2000
(00-2699)
Committee on Trade and Environment Original:  English
DEVELOPMENTS IN THE UNITED NATIONS FRAMEWORK CONVENTION
ON CLIMATE CHANGE (UNFCCC)
Communication from the UNFCCC Secretariat
This background paper is circulated to Members of the CTE in preparation for the MEA
Information Session on 5 July 2000.
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1. The United Nations Framework Conventi on on Climate Change (UNFCCC) and the
Kyoto Protocol (the Protocol) form the core of the emerging climate change regime.  The UNFCCCestablishes its overall framework.  This Agreement, which entered into force in 1994, sets the
regime’s objective as the stabilization of greenhouse gas (GHG) concentrations in the atmosphere at a
level that will not disrupt the Earth’s climate system.  It requires all Parties to develop national
programmes addressing emissions by sources and removals by sinks of greenhouse gases.
Industrialized countries and countries with economies in transition (Annex I Parties) must also adoptnational policies and measures that will limit their emissions and enhance their GHG sinks and
reservoirs.  The 1997 Kyoto Protocol further requ ires Annex I Parties to reduce by 2008-2012 their
collective GHG emissions to five percent below 1990 levels.
2. With the FCCC in force and the Protocol in the process of ratification, both Annex I
(developed countries) and non Annex I Parties (dev eloping countries) are moving forward with the
development and implementation of measures to meet their commitments.  For Annex I Parties, this
includes not only the development of policies to reduce emissions from sources and enhance sinks,but also the development, transfer, and diffusi on of environmentally-sound technologies, practices,
and processes to developing countries.
3. Annex I Parties can adopt a range of market-based and regulatory policy instruments to meet
their commitments.  Some are market based in that they use economic forces to change behaviour,
such as:  energy pricing strategies;  changes in agricultural and forestry subsidies;  tradable emissionspermits;  and advanced technology development and demonstration programmes.  Other policies
include the more traditional regulatory approach, such as:  minimum energy efficiency standards,
technology standards, and fuel restrictions.  Countries will generally adopt a mix of these instruments
depending on national circumstances.
4. The Protocol defines three interlocking mechanisms, adding an additional dimension to the
development of national climate change policies.  Under the Clean Development Mechanism (CDM),
Annex I governments and private companies may obtain Certified Emission s Reductions (CERs) by
participating in projects in developing countries that reduce GHG emissions and satisfy local
development needs.  Under Article 6 (joint implem entation - JI), two Annex I governments or private
companies can share Emission Reduction Units (ERUs) for projects implemented jointly in thatcountry for which emissions reduction costs are lowest.  Finally, emissions trading is the purchase of
parts of assigned amount (PAAs) by Annex I governments and companies with high marginalWT/CTE/W/153
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abatement costs from those with lower costs.  CERs , ERUs and PAAs can be put toward the Annex I
Parties’ Protocol obligations during the 2008-2012 compliance period.
5. Unlike traditional financial instruments, the Kyoto Protocol mechanisms assign an explicit
role to market actors.  Under the CDM (and JI, to a minor extent), for instance, legal entities
accredited by Parties will validate projects and verify and certify emissions reductions.  While theirdetails are still the object of negotiation, it is undoubted that the mechanisms will require the  private
sector to interact on an unprecedented scale.  As the Kyoto mechanisms become operational and the
“carbon” market emerges, Annex I Parties can be expected to pursue a course of action that
maximizes the opportunities offered by these mechanisms to reduce the overall cost of
implementation of the treaty.
6. The procedures and mechanisms related to compliance under the Kyoto Protocol will
determine the credibility of the transactions and th e eligibility of Parties to participate in these
market-based arrangements.  The compliance system being negotiated includes both facilitative and
enforcement functions.  It is expected that the negotiations on the key elements of the compliance
system will conclude at COP 6, in November 2000.
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