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Great Seal

United States Submission on Articles 7 and 8

Submitted to the UN Framework Convention on Climate Change (UNFCCC) Secretariat, February 1, 2000
Released by the Bureau of Oceans and International Environmental and Scientific Affairs, U.S. Department of State, February 4, 2000

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Annual Reporting under Article 7.1

Article 7.1 provides that Annex I Parties shall incorporate into their annual inventories "the necessary supplementary information for the purposes of ensuring compliance with Article 3." Verification of a Party's compliance with Article 3.1 will require comparison of a Party's cumulative emissions during the commitment period with the assigned amount held at the end of the period. Therefore the information necessary to demonstrate compliance must include: a) national inventories prepared in accordance with Article 5.2 and b) information on Parties holdings, transfers and acquisitions of assigned amount. In the US view, both components should be mandatory under Article 7.1.

Since the current FCCC inventory reporting guidelines are not binding, it will be necessary to revise them for purposes of the Kyoto Protocol. We anticipate revision of the guidelines after completion of the trial period agreed at COP5, in order to incorporate IPCC good practice, and to reflect experiences gained during the trial period. Once revised, the inventory guidelines would be adopted as legally binding for the Protocol.

With respect to Parties' assigned amount, information would be reported from Parties' national registries in accordance with guidelines to be developed under Article 7.4 (see discussion of registries below, as well as our joint submission on registries). Prior to each commitment period, each Annex I Party would report the serial numbers of assigned amount units (AAUs) issued to quantify its entire initial assigned amount. (See the discussion of the base-year below.) Thereafter, each Annex I Party would be required to report under Article 7.1 the following information to the Secretariat annually in a standard electronic format:

  1. Total assigned amount held in its national registry at the start of the year (i.e., serial numbers of assigned amount units (AAUs), emission reduction units (ERUs), and certified emission reductions (CERs));
  2. Serial numbers of any AAUs issued into its national registry during the year pursuant to Articles 3.3 and 3.4 and the reasons for their issuances;
  3. Serial numbers of AAUs, ERUs, and CERs transferred to another Party's national registry and identification of the acquiring Party(ies);
  4. Serial numbers of AAUs, ERUs, and CERs acquired from another Party's national registry and identification of the transferring Party(ies);
  5. Serial numbers of CERs acquired pursuant to Article 12;
  6. Serial numbers of any AAUs, ERUs, and CERs that have been voluntarily moved into the Party's retirement account (see discussion under Article 7.4); and
  7. Assigned Amount held in its national registry at the end of the year (i.e. serial numbers of AAUs, ERUs, and CERs).

At the end of the commitment period, additional information will be required for final verification of compliance with Article 3.1. At this time, all Annex I Parties must report the serial numbers of all units of assigned amount that have been placed in the Party's retirement account and the serial numbers of any assigned amount banked for the subsequent commitment period.

After completion of the methodological work and decisions on land use, land-use change and forestry, Parties must determine the appropriate format and timing for reporting of this information under this Article.

Modalities for the accounting of Assigned Amount

Article 7.4 requires the COP/MoP to decide upon modalities for the accounting of assigned amounts. The United States considers the development of guidelines for national registries to be necessary for the accounting of Parties' assigned amounts. Under these guidelines, each Annex I Party would be required to establish and maintain a computerized national registry to account for its assigned amount (including quantifying the initial assigned amount as serialized AAUs) and track any changes in its assigned amount. A Party's registry must contain a 'retirement account' to identify units of assigned amount set aside by the Party to meet its Article 3 commitments (i.e., to cover its emissions). A Party may choose to have additional accounts in their national registry to categorize assigned amount holdings, as long as each unit of assigned amount (AAU, ERU, or CER) held in the Party's registry appears in one and only one account within the registry. If a Party authorizes legal entities to hold assigned amount, then assigned amount held by legal entities must also be reflected in an account within the national registry. Parties' registries should be in place by the year prior to the start of the commitment period.

Guidelines for registries will ensure compatibility between national registries and standardize the accounting of assigned amount. This will facilitate compliance review and public accessibility, and ensure that transactions can occur instantaneously so that each unit of assigned amount is held in only one account, in one registry, at any given time. Any transfer of units between different accounts would be reflected in both accounts, i.e. a debit of serialized units in one account and a credit of the same serialized units in the other. These guidelines should also specify requirements for publicly accessible data to be maintained in each registry. The guidelines should require each Party to provide a publicly accessible interface that allows interested persons to query and view non-confidential information contained in the registry, including the minimum data elements. Additional views on registries are included in our joint submissions on the Kyoto mechanisms.

Because the provision of accurate inventory and assigned amount information is essential for verification of compliance with Article 3.1, the inventory, national registry and reporting (of emissions and assigned amount) obligations must be binding on all Annex I Parties. Both a regional economic integration organization (REIO) acting under Article 4 and individual Parties acting under Article 4 must meet reporting obligations with respect to national inventories and assigned amount accounting. The REIO must meet the requirements to demonstrate attainment of its total combined level of emission reductions; individual Parties of such REIO must meet the requirements because the information will be necessary to verify each Party's individual compliance with its reallocated target, in the event that the REIO fails to meet its combined target. Care will be needed to ensure that double counting of emissions or assigned amount does not occur.

Reporting of National Communications

With respect to national communications, Article 7.2 requires that national communications incorporate supplementary information "necessary to demonstrate compliance with [a Party's] commitments under this Protocol." In the US view, the supplemental information required by Article 7.2 refers to information on implementation of those elements that are unique to the Protocol, specifically:

Information on implementation of broader commitments that are already reported in national communications under the Convention would still be provided in national communications, but would not be considered 'necessary supplementary information' for purposes of the Protocol. Annex I Parties should be required to submit national communications once during the commitment period.

Since quantitative information (i.e. inventories and assigned amount) would be reported annually under Article 7.1, this information would not be reported again in detail in national communications. Rather Parties would communicate qualitative descriptions of how it is implementing these obligations. For example, we envisage that each Annex I Party would describe the institutions involved, data sources and legal authority for collecting and maintaining its national greenhouse gas inventory under 5.1, and similarly its registry under Article 7.4. Additionally, each Annex I Parties that uses one or more of the mechanisms would be required to describe its implementation of the mechanism(s) in the context of agreed eligibility requirements.

Because national enforcement will be crucial to a Party's compliance with the Article 3 targets, the United States believes that Annex I Parties should also provide information on the national compliance and enforcement programs they have in place to meet Article 3.1 commitments. Specifically, Parties should report on the legal authority for, implementation and effectiveness of these programs, as well as a description of the effectiveness of these programs and a summary of actions to identify, prevent, address and enforce against cases of non-compliance with domestic law. Parties would also describe any provisions for making public information related to compliance and enforcement.

We will provide further detail on our recommendations for national communication reporting requirements in future submissions.

Annual Review Process

Article 8 provides that information submitted under Article 7.1 is to be reviewed as part of the "annual compilation and accounting of emission inventories and assigned amount". In the US view, the annual review is composed of three sub-tasks: (1) the inventory review and calculation of adjustments [note 1]; (2) the review of assigned amount information; and (3) the compilation and accounting of emissions and assigned amount.

The inventory review trial period under the FCCC will undoubtedly provide much insight into the design of the review process for the Kyoto Protocol. However, the inventory review must be intensified to provide a thorough review of the inventory methodologies and use of good practice. Additional time and resources will also be required for the calculation and application of adjustments. Depending on the timing of submission of information, the annual review process may also need to review the measurement and reporting of emissions and removals from sinks for consistency with rules to be developed under Articles 3.3 and 3.4.

Straightforward and detailed guidelines for identification of inventory problems and for calculation of adjustments will enable the review team to perform its task objectively and consistently; and will assist the compliance body in deciding which cases to take up, in accordance with its screening rules. Since a review team's identification of egregious inventory reporting problems (adjusted or not) could lead to the loss of a Party's eligibility to participate in the mechanisms and other consequences, inventory review guidelines must leave no ambiguity about what constitutes an egregious problem.

The second sub-task is the review of assigned amount information in annual reports. This should entail cross-checking of reported information across Parties to ensure that the quantity and serial numbers of units reported as transferred match those reported as acquired, and that each unit appears in only one Party's registry. The assigned amount review should also verify that no transfers or acquisitions have been made by Parties determined to be ineligible to participate in the mechanisms (by the compliance body).

If a problem with a Party's inventory or assigned amount reporting is identified during the annual review, the Party would be provided with the opportunity to provide additional information and/or correct the problem within a predetermined timeframe. If the Party concerned agrees, the review team may schedule a country-visit to gather more information, or clarify the potential problem. We envisage that completion of these two stages of the annual review process (for all Annex I Parties) would require 4 to 6 months.

The third sub-task of the review is "the annual compilation and accounting for emissions inventories and assigned amounts", which would occur upon completion of the inventory and assigned amount review. The Secretariat would maintain a public electronic database where emissions and assigned amount information would be compiled for each Party. This information would contain:

The review team would update the database annually. During the commitment period, this information would be used solely to track Parties' emissions and assigned amounts. However, at the end of commitment period, the review team would use this information to determine whether a Party's cumulative emissions are less than or equal to a Party's final assigned amount. This final step would occur after expiration of the preset 'true-up period' to allow Parties to make any final transfers and acquisitions. At this time, Parties would also report serial numbers of any AAUs, ERUs, and CERs that they intend to bank into the next commitment period pursuant to 3.13. This information would be reflected in the Secretariat's accounts for those Parties.

Upon completion of the annual review, and the compilation and accounting of emissions and assigned amount, all of the review team reports, in addition to the questions identified therein, would be forwarded to compliance body for consideration. The compliance body would determine which cases to pursue, in accordance with its screening rules.

The stages of the annual review process outlined here will require significant time and resources. The use of ad hoc expert review teams, as under the Convention, may not ensure the requisite technical expertise, nor the consistency and time commitment required for timely completion of the annual review under the Protocol. For this reason, consideration is needed of the structure and composition of review teams, as well as the procedures (e.g. testing or training) to ensure the technical expertise of the teams. It may be useful to consider the potential use of consultants or private sector auditors in the review process. In the US view, such outside experts could perform parts of the review process that are highly objective or that involve very routine procedures. However, outside experts should only provide input to the review teams; they should not be involved in decision making, nor in review tasks that require subjective judgement. Parties will need to resolve these questions in the guidelines for the review process.

National Communication Review Process

The US considers that the review of national communications should focus on those aspects of implementation that are unique and critical to the Kyoto Protocol. As we stated above, these aspects are the national system under Article 5.1, the national registry under Article 7.4, implementation of the mechanisms, and domestic enforcement programs. These components are critical to ensuring a Party's compliance with the Protocol. Review teams under Article 8 should not review individual Article 12 projects, as these projects, and the CERs generated by them, will be reviewed by the institutions established under the Clean Development Mechanism. Further consideration must be given to the design of an appropriate process to audit Article 6 projects under Article 6 or 8.

The periodic national communication review differs from the annual review of quantitative information, in that it is primarily a qualitative review. We envisage that it would occur once per commitment period (although we note that problems identified during the annual review may necessitate an in-country visit to elucidate the problem). Since the quality of Parties' national inventory systems and national assigned amount registries determine their ability to accurately track and report emissions and assigned amount, we believe that the bulk of the review should focus on these aspects. As we noted with respect to the annual review process, it may be useful to consider how outside experts (consultants and auditors) might be used to expedite the review process and assist the work of the expert teams.

Guidelines for all aspects of the review process must be developed to ensure consistency and objectivity.

Baseyear Review and Establishment of Initial Assigned Amount

In closing, we note that the inventory base-year merits special consideration. In the US view, the initial assigned amounts of Annex I Parties must be formally quantified to represent tonnes of carbon dioxide equivalent to provide certainty to countries regarding the level of their Article 3 targets. To enable establishment of initial assigned amounts, base-year inventories must be reviewed prior to the commitment period in conjunction with review of Parties' national systems. Parties should also be required to designate their selection of base-year for the high GWP gases at this time. This review would occur in accordance with the guidelines for the Article 8 review. Parties would have the opportunity to correct any inventory deficiencies, and would be subject to adjustments for any deficiencies that are not corrected. Once the base-year inventory has been reviewed and, as appropriate adjusted, the Party's initial assigned amount would be established in tonnes of carbon dioxide equivalent units. This number would be recorded in the Secretariat official account for that Party. Prior to the commitment period, the Party would serialize its initial assigned amount in its national registry, and report this information to the Secretariat. Although the base-year review and establishment of initial assigned amounts could potentially occur as late as 2007 (at which time Annex I Parties are required to have their national systems in place), we recommend that the decision allow Parties to voluntarily undergo the base-year review sooner, in order to have more time to prepare for the commitment period and to correct any inventory problems that may be identified.

Technical Workshop

Finally, the United States would like to offer views on the structure and focus of the upcoming workshop on Articles 5, 7 and 8. In our view, the elements requiring the most technical elaboration are the guidelines for national systems under Article 5.1 and the methodologies for adjustments under Article 5.2. We acknowledge that there will be technical issues involved in the development of guidelines under Articles 7 and 8. However, we believe that it would be premature to address these Articles before further progress has been made in other negotiating areas (i.e., the Kyoto Mechanisms) and on Articles 5.1 and 5.2. For this reason, we recommend that the Secretariat establish two working groups at the technical workshop: one on guidelines for national systems under 5.1 and a second on adjustments under Article 5.2. The 5.2 working group should consider options for defining objective criteria for egregious inventory problems and methodologies for adjusting specific inventory problems.

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Footnote

1. As noted above, the full adjustment procedure spans the review and compliance procedures. Review teams would calculate adjustments, and provide Parties the opportunity to accept these adjustments. Where Parties do not accept the adjustment, or where reporting problems are egregious, the compliance body would resolve the issue, and determine consequences, including, as appropriate, the application of adjustments or loss of access to the mechanisms.

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