Etude Climat no. 33 'Joint Implementation: a frontier mechanism within the borders of an emissions cap'

Among the publications of CDC Climat Research, 'Climate Reports' offer in-depth analyses on a given subject. This issue addresses the following points: Based on specific projects rather than economy-wide emissions reductions, and driven by the demand from the installations covered by the European Union Emissions Trading Scheme (EU ETS), Joint Implementation (JI) turned out to be a largely private sector mechanism. Besides attracting private investors in GHG abatement projects, JI creates an opportunity for countries to exploit the arbitrage price spread between different carbon offsets: Emission Reduction Units (ERU), the credits issued from JI projects, trade with a premium of up to 50% over Assigned Amount Units (AAU), the country-level carbon allowances. Some countries, like for instance Ukraine, quickly realized the added value of JI and boosted its development, while in others, like Russia, JI lacked political support and efficient frameworks took time to be established. According to the ERU supply forecasting model developed by CDC Climat Research, Annex I countries are expected to generate up to 356 million ERUs for the first Kyoto commitment period. Around 80% of these credits shall originate from Russia and Ukraine, and up to 70 million shall be generated from countries participating in the EU ETS. Within the EU, JI has been used as a 'frontier mechanism': JI projects mostly explored abatement opportunities not covered by the scheme and, as highlighted by the case of nitrous oxide emissions from the production of nitric acid, played an important role in identifying abatement technologies and providing information to extend the scope of the EU ETS. One of the most complex issues related to JI is the practice of additionality. The cases of France and Ukraine demonstrate that the stakes associated with additionality may differ depending on a country's compliance position. In Ukraine, additionality was not perceived as a significant economic risk due to a large anticipated AAU surplus, which, however, turns it into a threat to the environmental integrity of the mechanism - as is the case for the Clean Development Mechanism (CDM) - unless a stringent additionality screening is performed. In France, on the other hand, additionality was perceived as a threat to the treasury due to the uncertain compliance position of the country. In that case, additionality becomes more a matter of economic efficiency than environmental integrity