Canada fails to establish Kyoto registry - CERs may cease to be a compliance option

Posted by Andrew Lord

Canada has failed to comply with its administrative obligations under the Kyoto Protocol. In a report release April 17, 2008, the UNFCCC Compliance Committee concluded that Canada had not established a registry system as required by the Protocol. The registry system is required to track Canada's Assigned Amount Units (i.e., allowances) under Kyoto system and to settle emissions trades under the Kyoto Flexibility Mechanisms (CDM, JI and trading of AAUs).

The report is not a final determination of Canada's compliance. However a "question of implementation" has been formally raised with the Compliance Committee's Enforcement Branch. Should the Enforcement Branch make a final decision that Canada is not complying, it can impose the following sanctions (which were recently imposed on Greece for its non-compliance):

• declare Canada to be in non-compliance;
• require Canada to submit a plan to address the non-compliance within 3 months; and
• prohibit Canada from participating in the Kyoto Flexibility Mechanisms.

This final sanction is the most severe. It would make it impossible for regulated entities in Canada to purchase Certified Emissions Reductions ("CERs") from CDM projects. According to its recently released document "Turning the Corner: An action plan to reduce greenhouse gases and air pollution", the government intends to allow regulated entities to purchase CERs to cover up to 10% of their compliance obligations. By failing to create a Kyoto registry, Canada has frustrated its own intentions in this regard.

Fortunately, the government signed a deal on February 14 with Perrin Quarles Associates to develop the registry this year. Perrin Quarles Associates developed New Zealand's registry and is working on a system for RGGI. Canada may therefore be able to pull itself back into administrative compliance and avoid the sanctions above.

Even if Canada is able to comply with its administrative obligations under Kyoto, it will still face a steep uphill struggle to comply with its substantive emissions reduction obligations. Statistics Canada released data this week showing that Canada's emissions increased by 25% from 1990 to 2005. Reuters UK reports that this increase was the highest of any G8 nation. It is also a leagues away from Canada's Kyoto obligations, which calls for a 6% reduction from 1990 levels by 2012.