In contrast, the environmental integrity of a CDM project is subject to specific supervision rules and a series of checks along the project cycle by the UNFCC Secretariat. To start, methodologies for establishing baselines must be approved on behalf of the UNFCCC by an international supervisory group, known as the CDM Executive Board. Approved methodologies are published and these can be drawn on by project developers. However, projects relying on new methods face the additional task of gaining approval. In either case, whether new or established methods are employed, developers must also convince the CDM board that their project methodology has been appropriately applied.

The project cycle also contains checks carried out by an independent firm or organization that has been accredited by a CDM Board. This entity, known as a Designated Operational Entity (DOE), initially validates the baseline design and the project‘s plan to monitor and measure outcomes.<sup>21</sup> This occurs before the project is registered -- that is officially recognized by the CDM Board. For large CDM projects, a separate independent entity carries out the project‘s monitoring protocol, the process by which emissions or sequestrations are measured. The DOE is also responsible for certifying all emission reductions, although it is the CDM Board that issues and tracks the ownership all CERs. To boost the contribution of the CDM to sustainable development, a two percent levy on CERs goes toward an Adaptation Fund, designed to cover the CDM‘s administrative costs and to fund projects that help the poorest countries adapt to climate change.<sup>22</sup>

# _The JI project cycle_

Conceptually, Joint Implementation, the second project-based mechanism established by the Kyoto Protocol is less controversial since, because of an overall cap on allowed emissions from the JI host, any projects that abate greenhouse gases potentially lead to tradable units of carbon. Domestically financed projects do so by creating more headroom under the cap of allowed emissions, potentially contributing to a surplus that could be traded to other countries in the form of AAUs. The JI program provides an additional mechanism for foreign investment projects that directly create tradable carbon units in the form of ERUs. At the end of the Convention‘s accounting period, all types of carbon units are balanced, so the primary distinction between traded AAUs and traded ERUs has to do with how the underlying projects were financed.

Notionally, the practical hurdles of implementing JI projects are also lower. Since Annex I countries have pledged to cap domestic emissions, national guidelines used to measure emissions from wholly domestic projects can be applied to JI projects as well. Moreover, in contrast to the CDM project cycle, the JI program is designed to place full responsibility for the environmental integrity of the projects in the hands of hosting countries. In practical terms, Annex I countries that have the necessary national guidelines in place to track, measure and report emissions and reductions are able to issue and transfer ERUs without recourse to an international body for approval.<sup>23</sup> Many Annex I countries were late putting in place the domestic institutions needed to fully comply with UNFCC JI eligibility rules.<sup>24</sup> And, rather than preclude projects in countries that have pledged emission ceilings while permitting them in countries that have not, the UNFCCC devised a second Track Two procedure for JI similar in structure to the CDM project cycles. Track Two projects are monitored by the Article 6 supervisory committee, also known as the Joint Implementation Supervisory Committee (JISC),

> 21 The overall design of the project is laid out in a Project Design Document (PDD).

> 22 The levy is not assessed against projects hosted by developing countries.

> 23 To be eligible for participation in either project-based mechanism, Annex I countries: ratify the Kyoto Protocol; calculate their assigned amount; establish a national system for estimating emissions and removals; put in place a national registry to record and track the creation and movement of related tradable assets.

> 24 As of May 2012, Track 1 projects had been implemented in Bulgaria, the Czech Republic, Estonia, Germany, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, Sweden, and the Ukraine.

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