Following the announcement by the French government late last year that they had approved their first domestic Joint Implementation (JI) project, this note has been prepared to act as a guide to JI projects, explain how the French domestic project works and to discuss the significance of the project in the context of the reduction of greenhouse gas emissions under the Kyoto Protocol.

The Background

Following the adoption of the Kyoto Protocol that came into force on 15 February 2005, developed countries (referred to as Annex 1 or Annex B countries) that have ratified the Protocol are required to limit their greenhouse gas emissions over the period 2008 to 2012 (the first commitment period) by an agreed amount relative to their emissions in 1990. In order to assist them in meeting their commitments, the Kyoto Protocol includes the project mechanisms of JI and the Clean Development Mechanism (CDM) as well as the concept of International Emissions Trading (IET). JI and CDM projects involve developing and implementing projects that reduce greenhouse gas emissions overseas. These projects generate carbon credits that can be sold on the IET markets and other regulated markets such as the EU Emissions Trading Scheme. The carbon credits provide additional income for the project and are a cost effective way of helping Annex 1 countries to meet their emission commitments.

What Are Joint Implementation Projects?

JI projects are mechanisms whereby an Annex 1 country can benefit from emissions reductions achieved through a project implemented in another Annex 1 country. In order to be eligible as a JI project it must have the approval of both the Annex 1 countries involved and it must result in emissions reductions that would not otherwise have occurred in the absence of the project. This concept is referred to as 'additionality' and means that the reductions achieved by the JI project must be over and above action taken at a national level to reduce emissions. The level of emission reductions which would have occurred in the absence of the JI project is used as a baseline and the difference between the baseline and the emissions saved by the project results in the amount of 'credits' the JI project can generate. The 'credits' arising from emission reductions achieved using JI projects are called emission reduction units (ERUs).

During the first Kyoto commitment period, each Annex 1 country has a target level of greenhouse gas emissions under the Kyoto Protocol and receives assigned amount units (AAUs) equivalent to that target. These are assigned by the United Nations Framework Convention on Climate Change (UNFCC) and represent the 'units' of IET at state level. These can be supplemented by certified emission reduction units (CERs) that are issued against the emission reductions from CDM projects. In order to derive the credits from a JI project, the host country must convert an appropriate number of its issued AAUs into ERUs and transfer them to the investing Annex 1 country.

In order to achieve their targets under Kyoto, Annex 1 countries have established mechanisms such as the European Union Emissions Trading Scheme (EU ETS) whereby these targets are passed on to companies in those countries. In the case of the EU ETS, this applies to industrial energy intensive companies. There is a Linking Directive which allows operators with EU ETS targets to use ERUs and CERs against their EU ETS targets, subject to certain limitations to preserve the concept of additionality.

There are two sets of procedures used to implement JI projects known as the "Two Tracks". Whether a JI project will follow Track 1 or Track 2 will depend upon the status of the necessary regulatory infrastructure in the host country. This will determine whether or not the host country is allowed to use their own procedures for assessing the additionality of JI project emissions (this is Track 1) or whether projects have to be assessed and registered by the JI Supervisory Committee (JIC), a body set up under the UNFCC (this is Track 2).

The procedure first involves identification of the project by the project developer, who approaches the relevant government departments dealing with JIs (known as the JI Designated Focal Point) from both the host and investor countries. Authorisation of the project is confirmed through the host country issuing a letter of approval. Documentation is then submitted and the project approved either by the host country under Track 1 or by the JIC under Track 2. The project is then implemented and the emissions monitored before the project is verified and the ERUs issued by the host country.

French Domestic Off-Set Projects

The state owned financial institution, Caisse des Dépots, in a report commissioned by the French government identified that the EU ETS covered less than 30% of French greenhouse gas emissions and offered no financial incentive to non EU ETS companies to reduce their emissions. They therefore developed a domestic offset project mechanism aimed at rewarding companies in the principal sectors not covered by the EU ETS (including transport, construction and agriculture) for reducing emissions on a domestic level.

The creation and implementation of the French domestic off-set project uses the JI process. The criteria that such projects must meet can be found in a decree laid down in domestic French law on 7 March 2007. The projects are first approved by the French Designated Focal Point and are then recognised by a partner country serving as the investor country. The investor country does not conduct its own assessment of the projects and is involved primarily to ensure the scheme's compatibility with the Kyoto Protocol (which requires the participation of two Annex 1 countries). France as the host country issues the ERUs and transfers them to the investor country which immediately passes them back to France.

The Rhodia Domestic Off-Set Project

This was the first domestic off-set project to be approved by the French government and is also listed as a Track 1 JI Project by the UNFCCC. Rhodia is an international chemicals company and, whilst details of the project are scarce, it is known that the project involves the installation of a thermal oxidiser to destroy greenhouse gases from the effluents of Trifluoroacetic Acid production unit at their plant in Salindres. The ERUs are yet to be verified and it is not clear which country has acted as the investor partner. This is the first of approximately 20 such projects under development in France, 14 of which are being developed within the framework of a project tender invitation that was issued by Caisse des Dépots in October 2007. Many of these are 'combined projects', an arrangement permitted under the French regulatory framework, whereby similar projects of a comparable size are grouped together under one project heading. They include, amongst others, projects covering renewable heat production, fuel changes in bus fleets and methane extraction from animal slurry.

The Significance Of The Rhodia Project

Domestic off-set projects have been in place in New Zealand, Australia and Canada for some time now and Germany also permits domestic off-set projects to be developed under its own regulatory framework. However, the French domestic offset project uses the JI mechanism outlined in the Kyoto Protocol so can lead to the issuance of verified ERUs which can be traded in the EU ETS. By making the projects subject to the JI procedure, there is also less risk that they will add to the problem of 'double counting' (where emission reductions are counted twice because the project is implemented at a facility that is already covered by the EU ETS, giving an inaccurate picture of the reduction in emissions). If the remaining domestic off-set projects that are in development are approved by the French government, this could stimulate a move towards projects that are designed to contribute to the wide scale reduction of greenhouse gas emissions on a domestic as well as an international level and encourage other EU countries to do the same.

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