Greenpeace has again updated its analysis of the emission implications of the proposals made by a number of Parties for a wide range of additional land use change and forestry activities, uncontrolled emission trading, and other issues. Estimates of the effects of proposed land use change and forestry activities have been made using the estimates made in the Intergovernmental Panel on Climate Change (IPCC) Special Report on Land Use Change and Forestry Special Report Summary for Policy Makers.

This analysis shows that if all, or even a sizeable subset of the options on the table principally from the Umbrella group are adopted, then very little, if any, domestic action would be required by the Annex I Parties. In other words the potential loopholes in the Kyoto Protocol equal or exceed the reduction requirements of the Protocol.

The Kyoto Protocol requires that the Annex B Parties, as a group, be 5.2% below 1990 levels by 2010. Kyoto Protocol requires that the OECD group of Parties (when their individual allocations are taken into account) be 6.6% below 1990 levels in 2010.

The baseline for emissions growth used here are the most recent official projections based on the United Nations Framework Convention on Climate Change (UNFCCC) National Communications for Annex B emissions in 2010. These show that their emissions, as a whole, are likely to be 8% above 1990 levels in the absence of action to implement the Kyoto Protocol. The OECD members of Annex B are projected to be 16% above 1990 levels in 2010, whilst the others - Russia, the Ukraine and Central and East European countries - are projected to be 12% below 1990 levels in 2010.

These projections mean that the OECD countries would have to reduce their emissions by 770 MtC/yr (millions of tonnes of carbon per year) in 2010. By contrast Russia, the Ukraine and Central and East European countries would have an excess of allowed emissions over actual emissions of around 150 MtC/yr in 2010 (this is known as "hot air" or the "surplus"). Built into the final deal in Kyoto were several small loopholes that are not under negotiation but which reduce the overall emission reduction effort required by about 90 MtC/yr. These include an allowance for countries (essentially Australia) which are deforesting to add their 1990 deforestation emissions to their allowed emissions in 2010 and a clause that permits countries to choose how to count industrial gas emissions (HFCs, PFCs and SF6). These leave about 680 MtC/yr of abatement effort required.

The loopholes under negotiation are:

• Unlimited "Hot Air" emission trading would permit all of these 150 MtC/yr to be bought by OECD countries thereby permitting emissions to increase by this amount. If all this were used by the OECD countries to "meet" their emission obligations then the total remaining emission reduction effort would be 530 MtC/yr.

• Under the Kyoto Protocol every tonne of sequestered carbon that is counted under Article 3.3 (afforestation, reforestation or deforestation) or Article 3.4 (additional activities) results in an additional tonne of fossil fuel carbon being emitted to the atmosphere. Implementation of the first category requires the definitions of forests, deforestation, afforestation and reforestation activities. Manipulation of these definitions can lead to quite large amounts of sequestered carbon being counted for credit and thereby allow increases in countries emissions. This could either be quite small (of the order of 30 MtC/yr) or quite large (200MtC/yr) depending on the definitions to be adopted by the Parties. If small this leaves about 500 MtC/yr of abatement effort remaining.

• In addition to the afforestation, reforestation or deforestation above, the Kyoto Protocol provides that additional land use change and forestry and agricultural soil activities may be agreed. Proposals have been made that would allow emission credit for a wide range of land use activities including agricultural soil protection, forest harvesting and regrowth (eg additional Land Use Change and Forestry Activities under Article 3.4). If agreed the IPCC has estimated that these would permit more than 200 MtC/yr to be claimed by 2010. At this level only 300 MtC/yr of emission reduction effort domestically would remain.

Additional Activity proposed by the USA in its 1 August 2000 Submission	Lower MtC/yr	Middle MtC/yr	Upper MtC/yr
Forest management	245	288	332
Cropland management	9	16	24
Grazing land management	3	8	23
Total	257	312	379
Estimated US abatement effort in 2010 MtC/yr		491
Proportion of abatement effort met by Additional activities	52%	64%	77%

• The Clean Development Mechanism (CDM) allows industrial countries to claim credit for activities conducted in developing countries. Each CDM credit claimed permits an increase by the corresponding amount in the fossil fuel and other industrial emissions of the industrial country. The CDM market size is potentially very large, to the order of some hundred of millions tonnes of carbon/year, not taking into account the use of land use change and forestry projects. A minimum size would be of the order of 100 MtC/yr with a likely size more in the range of 200 MtC/yr. In other words only 100-200 MtC/yr of abatement effort would be required domestically.

• If land use change and forestry activities are permitted in the CDM then available supply of CDM credits would be much larger; of the order of 700 MtC/yr by 2010. Even if only a fraction of these were available then there would remain very little incentive for domestic emission action.

• Finally the continued exemption of international aviation and shipping fuels from the Kyoto Protocol and with no firm agreement to consider on when, and how, to include them in controls, adds a further 90MtC/yr to the emissions to the atmosphere (above 1990 levels) by 2010.

Taking all these into account it is clear that the loophole options on the table at present would almost remove the need for domestic action on fossil fuel and other industrial gas emissions. In other words rather than reduce OECD emissions by nearly 7% the end result of rules for the Kyoto Protocol that does not have environmental integrity could be an increase in OECD emissions of the order of 15% (which is the same order of magnitude that their business as usual emissions in 2010).

It is well known that the Kyoto Protocol, with its nominal reduction target of 5.2% relative to 1990 for the industrialized countries included in Annex B to the Protocol will have only a marginal effect on the build up of greenhouse gases in the atmosphere. Professor Bert Bolin, Chairman Emeritus of the IPCC has calculated that the Kyoto Protocol slows the projected rise in global temperatures by only one-tenth to two-tenths of a degree Centigrade by 2050. The rise in CO2 levels in the atmosphere, projected to be up 8% above 1990 levels by 2010, will only be about 0.4 percent lower if the Kyoto Protocol is strictly adhered too.

Given these considerations the Kyoto Protocol is only a small step towards global climate protection. However even this small step is under threat as the "details" of the implementation of the protocol are negotiated. This paper presents an analysis of the implications of some of the major proposals on the table for COP6.

• Loopholes are defined here as devices which increase the industrial emissions of greenhouse gases to the atmosphere compared to 1990 levels above the level that would otherwise have occurred. There are three kinds of "loophole" problems in relation to emissions of industrial greenhouse gases to the atmosphere that can be identified:

• Inflation of Assigned Amounts. By far the land use and forestry (sink) provisions of the protocol (Article 3.3 and potentially Article 3.4) provide the greatest potential to allow for Parties to inflate their emission budgets. The Clean Development Mechanism (CDM) also provides a mechanism for systematic and large increases in the overall assigned amount of Annex I Parties. These problems can be addressed in the implementation of the Kyoto Protocol. Both the sink provisions and the CDM credits are likely to result in overall emissions to the atmosphere being higher than they would otherwise have been. Other provisions of the protocol that are not open for negotiations also allow an inflation of the allowed emission of Parties, which degrade the effectiveness of the target (see the final section of this paper).

• Exclusion of sources. The Kyoto Protocol’s emission obligations do not include international aviation and marine transport emissions. According to the second compilation and synthesis of second national communications (FCCC/CP/1998/11) "these emissions increased by about 10 per cent from 1990 to 1995, one of the largest rates of increase for any category".

• Hot air emission or "surplus" trading. Hot air or "surplus" trading does not inflate the assigned amount but can result in emissions being higher than they would otherwise have been.

Proposals from a number of Parties would:

• Allow uncontrolled use of "Hot Air" emission credits;

• Add a large number additional agricultural and other land use activities under Article 3.4 and for "generous" interpretations of the terms afforestation, reforestation and deforestation under Article 3.3 of the Kyoto Protocol;

• Allow uncontrolled use of the CDM to meet emission obligations and permit the inclusion of land use change and forestry activities in the CDM.

• Failure to agree to control international aviation and marine transport emissions.

The quantification of these loopholes starts with an assessment of emission trends and projections to the first commitment period.

Based on the data and emission projections submitted by Parties (and significant amendments made in the course of, or subsequent to, In Depth Reviews of National Communications (eg Russia), emissions in 2010 are projected for the Annex B group as a whole to be 8% above 1990 levels. The Kyoto Protocol requires that these Parties be 5.2% below 1990 levels by 2010.

In 1995 emissions from the Annex I Parties as a whole were some 4.4% below 1990 levels and are projected to rise, in the absence of policy action to equal 1990 emissions by 2000.

As a group Russia, the Ukraine and Central and East European Parties in Annex B are projected to be 12% below 1990 levels in 2010. The Kyoto Protocol requires that this group of Parties (when their individual allocations are taken into account) be 1.8% below 1990 levels in 2010.

The OECD members of Annex B (not including Hungary) are expected to be 16% above 1990 levels in 2010. The Kyoto Protocol requires that this group of Parties (when their individual allocations are taken into account) be 6.6% below 1990 levels in 2010. Some Parties have projected their emissions for 2010 on the basis of climate policy mitigation measures in general consistent with their Kyoto Protocol obligations (eg Germany, Denmark), but most have not. For these Parties the projections from National Communications and revised inventories show that a reduction of about 770 MtC from expected 2010 levels will be needed to meet the Kyoto obligations. This is below the middle of the range reported by a number of sources (580-1160 MtC in 2010).

These projections imply that the "Hot Air" available for trading is around 150 MtC/yr, equivalent to about 4.3% of the 1990 emissions from the OECD members of Annex B (not including Hungary). If these assigned amount units were not available for transfer then the Kyoto Protocol would generate a reduction of 8.2% relative to 1990 levels.

The so-called "Australia clause" permits Parties whose Land Use Change and Forestry sector is a source of emission in the base year to count their Land Use Change emissions (deforestation) in the calculation of their assigned amounts. This has the effect of increasing the allowed emissions for the Annex I emissions by about 34 MtC/yr as a whole or about 0.7%. The Australian baseline for deforestation has been reduced compared to earlier inventory because of a change in the methodology used to estimate the Land Use emissions term. The UK also has a land clearance term that may be added into its base year emissions.

This permits Parties to choose between 1990 and 1995 emissions of these gases for the purposes of computing their assigned amounts. Based on date submitted by Parties this increases the assigned amount of Annex I Parties by about 53 MtC/yr. This is equivalent to an increase in emission to the atmosphere of about 1% relative to 1990 emissions.

There are a range of hot air (Russian surplus) estimates in the literature. Table 2 from a recent review shows that the range in the literature is large (92-374 MtC/yr). The lowest estimate in Table 2 of 92MtC/yr is based on National Communications submitted by Parties for CO2 only and not including the Ukrainian National Communication.

An independent estimate has been made here based on the revisions to the Russian National Communication consequent upon Russian In Depth Review, the Ukrainian National Communication, accounting for non-CO2 greenhouse gases as far as possible and using the projections of Parties for 2010. As is shown in Table 1, see previous page, the estimated "hot air" or surplus of the Russian Federation, the Ukraine and Central and East European Countries based on this analysis is 150 MtC/yr in 2010. As this estimate is consistent with the data and projections available under the FCCC reporting system and represents a reasonably conservative estimate of the Russian surplus this is the volume used in this analysis.

[4] Article 3.3 Afforestation, Reforestation and Deforestation.

The IPCC Special Report on Land Use, Land Use Change and Forestry produced estimates of Afforestation, Reforestation and Deforestation by 2010 by estimating these terms in 1990 and assuming that they remained unchanged into the first commitment period. For the purposes of this analysis we have assumed that deforestation in the Annex I Parties will be reduced to zero by the first commitment period and there will be no increase in afforestation and reforestation activities in the first commitment period above current levels. Table 3 shows the results of these assumptions with a mid-range estimate of 26,5 MtC/yr sequestered in 2010, which is equivalent to about 0.5% of 1990 industrial emissions.

The choice of this scenario has been motivated by a number of factors which include: the IPCC used Food and Agricultural Organization (FAO) estimates of deforestation in 1990, which are significantly higher than the Land Use Change emissions reported by Parties for that year; since 1990 these emissions appear to have declined significantly; the UNFCCC reporting data are what will be used for compliance purposes. It should be noted that it may be unrealistic to expect that Afforestation and Reforestation activities will not increase above 1990 levels as the Kyoto Protocol provides an incentive to expand these.

Should Parties choose to use the FAO definitional scenarios for accounting for Afforestation, Reforestation and Deforestation (ARD) activities then the ARD credits in the first commitment period could be very substantially greater than indicated here.

The IPCC Special Report on Land Use, Land Use Change and Forestry has produced estimates for feasible additional activities by 2010 in the Annex I Parties up to about 520 MtC/yr. The Summary for Policy Makers (SPM) has interpreted this work producing estimates for these in the first commitment period which sum to 288 MtC/yr based on an assessment of what is probable and assuming an ambitious policy agenda. The SPM notes that this estimate is likely to be on the high side.

Additional Activity proposed by the USA in its 1 August 2000 Submission	Lower MtC/yr	Middle MtC/yr	Upper MtC/yr
Forest management	245	288	332
Cropland management	9	16	24
Grazing land management	3	8	23
Total	257	312	379
Estimated US abatement effort in 2010 MtC/yr		491
Proportion of abatement effort met by Additional activities	52%	64%	77%

Table 4 shows the estimated potential for some LUCF activities globally from which can be inferred that the non-Annex I potential for 2010 is of the order of 700 MtC/yr. This estimate does not include forest conservation for which the estimated potential is somewhat larger and at a lower overall cost.

Estimates for the CDM market size in the literature vary substantially because of a variety of factors including differences in baseline growth of emissions and the availability of "hot air", differing mitigation cost assumptions and modelling approaches.

Table 5 shows the estimated market size of the CDM from a recent study conducted for the Asia Development Ban (ADB). It shows that for a total mitigation effort 621 MtC/yr in 2010 the demand for CDM credits varies between 169 and 292 MtC/yr, depending upon requirements for domestic action. This is in the context of where about 105 MtC/yr of hot air is available, somewhat lower than the 150 MtC/yr used in this analysis.

Table 6 shows a range of other estimates from the recent literature drawn from "The Potential Size of the CDM" by Christiaan Vrolijk in Global Greenhouse Emission Trader, Issue 6, February, 1999.

For the purposes of this work the "no limits" case from Table 5 will be used as the basic estimate for the demand for CDM credits. This scenario estimates the CDM size assuming no controls on emission trading. As with other estimates here it is indicative. It should be noted that this does not include land use change and forestry activities, which would most likely be cheaper and hence expand the available supply.

We have assumed a medium range growth for international aviation and marine fuels and have not accounted for the additional effect of CO₂ combustion in the upper troposphere and lower stratosphere from subsonic aircraft. Whilst the IPCC Special Report on Aviation and Global Atmosphere has found that the direct effect of CO₂ must be multiplied by a factor of 2 to 4 to get the true effect, this cannot be applied to the base year emissions of Parties in a scientifically consistent way. This is because the base year emissions make use of 100 year GWPs to compute CO₂ equivalent emissions and the enhanced effect for air traffic is computed on a different basis. If one were to do this on a consistent basis it would increase the relative significance of aviation emissions by a significant amount.

On a CO₂ alone basis the loophole in the Kyoto Protocol is equivalent to an increase of 90 MtC/yr in 2010 above 1990 levels, or about a 1.8 % degradation in the Protocol’s target.

Table 8 summarizes the magnitude of the loopholes estimated here.

Two arbitrary but indicative scenarios are used to illustrate the scale of the problem.

Scenario 1 varies the sinks categories for Article 3.4 Additional activities and CDM activities by taking 50% and 10% respectively of the estimates made in the IPCC Special report on Land Use, Land Use Change and Forestry for "additional activities" in Annex I and non Annex countries.

Scenario 2 uses the full estimate made in the IPCC special report for "additional activities" in both Annex I and Non Annex I Parties. The figure below shows the overall magnitude of these two scenarios compared to the estimate emission abatement required of 770 MtC/yr in 2010 in order to meet the Kyoto targets for the OECD countries.

The loopholes now appear to represent a fundamental breach of the environmental integrity of the Protocol. The available loopholes equal or exceed the reductions required under the Protocol and there are sufficient possibilities available to permit Annex B Parties to "meet" their commitments without significant domestic action.

COP6 will have to decide to close these loopholes in order to maintain the environmental integrity of the Kyoto Protocol. Otherwise rather than reduce OECD emissions by nearly 7% the end result of rules for the Kyoto Protocol could be an increase in OECD emissions of the order of 15%.

FOR MORE INFORMATION

Bill Hare

Climate Policy Director, Greenpeace International

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Email: bhare@ams.greenpeace.org