Guides
Guide to Kyoto Units and Rules
December 2011
This guide is for helping to understand the type of Kyoto units that can be held in the New Zealand Emission Unit Register (NZEUR) and their key associated rules.
(Kyoto units are transacted between those parties to the Kyoto Protocol who have established national registries).
What is the Kyoto Protocol?
- A legally binding agreement adopted as a protocol to the United Nations Framework Convention on Climate Change (UNFCCC). It has been ratified by 181 countries and 1 regional economic organisation
- It sets binding targets for 37 industrialised countries and the European community for reducing greenhouse gas emissions
Goal of the Kyoto Protocol
- To reduce the collective emissions of greenhouse gases in industrialised countries by at least 5% compared to 1990 in the commitment period from 2008 to 2012.
- Under the treaty, countries must meet their targets primarily through national measures, however, the Kyoto Protocol offers additional means of meeting targets by way of 3 market-based mechanisms that help stimulate green investment and cost-effectiveness:
- Emissions Trading
- Joint Implementation
- Clean Development Mechanism.
What is a Registry?
Each Annex 1 Party to the UNFCCC is required to establish and implement an electronic database, called a national registry, to track its holdings of and transactions of Kyoto Protocol units. New Zealand’s national registry has been in operation since 3 December 2007.
Each national registry:
- contains Holding Accounts held in the name of the government or entities authorised by the government to hold and trade units.
- is linked to the International Transaction Log (ITL). The ITL is the UNFCCC’s central registry which facilitates the international transfer of Kyoto units between national registries. The ITL verifies registry transactions in real time to ensure that they are consistent with the rules of the Kyoto Protocol. The ITL requires national registries to terminate transactions that infringe Kyoto Protocol rules.
- must comply with the detailed technical standards, known as the data exchange standards, that cover data format, data exchange and communication between national registries, data security, serial numbers, unit and transaction rules and termination of invalid transactions.
- must hold a minimum number of Kyoto units in its national registry at all times. This is known as the Commitment Period Reserve (CPR). The CPR has been set to prevent Parties from overselling units and subsequently being unable to meet its emission targets.
New Zealand’s national registry was enhanced during the first half of 2009 to accommodate New Zealand’s domestic unit of trade, the New Zealand Unit.
Key Definitions - Units
| Unit | Definition |
|---|---|
| Assigned Amount Units (AAUs) | These units represent the initial assigned amount of each Annex B Party to the Kyoto Protocol. New Zealand’s initial assigned amount was 309, 564, 733 units. These units have been recorded as AAUs in the NZEUR. |
| Removal Units (RMUs) | These are given for net removals from land use, land-use change and forestry activities under Article 3 of the Kyoto Protocol. The New Zealand Government has elected to receive the units at the completion of the commitment period accounting. |
| Emission Reduction Units (ERUs) | These are converted from AAUs for a joint implementation project, or RMUs. A joint implementation project allows developed (or Annex I) countries to work together by jointly implementing initiatives that will reduce overall greenhouse gas emissions. This mechanism enables developed countries to meet part of their required cuts in greenhouse gas emissions by paying for projects that reduce emissions in other developed countries, in return for ERUs. |
| Certified Emission Reduction Units (CERs) | These units are generated from developed countries, or entities within those countries, investing in projects that either reduce greenhouse gas emissions or sequester carbon in sinks in developing countries (or non-Annex I countries). Temporary CERs (tCERs) and long-term CERs (lCERs) arise from investing in deforestation and afforestation Clean Development Mechanism projects. |
One Kyoto unit is equivalent to 1 tonne of CO2.
Transfer of Units
An Internal Transfer is the transfer of units within a registry (for example the NZEUR) from one internal holding account to another internal holding account. Any Internal Transfer made to support a domestic trading scheme can be made without the involvement of the ITL registry – refer to the Guide to Transferring Units Within NZ.
An External Transfer is the transfer of units from one registry to an overseas registry – refer to the Guide to Transferring Units Overseas. The ITL will check that a transfer proposal (transfer of units) does not violate Kyoto rules (for example, the registry holdings drop below the CPR level).
The diagram below highlights the need to subsequently check the status of your transaction, and not just assume that it completes successfully:
Commitment Period Reserve
During the first commitment period of 1 January 2008 to 31 December 2012, the Commitment Period Reserve (CPR) requires New Zealand to hold Kyoto units (AAUs, CERs, ERUs or RMUs) in its Registry totalling no less than 90% of its initial assigned amount of 309,564,733 units. This means that at least 278,608,260 units must be held in the Registry at all times.
For New Zealand this means if we reach this lower limit of units, the Registry would close to outgoing international transfers until enough Kyoto units have been transferred back into the Registry.
You can check the current CPR level before undertaking an international transaction.
Key Rules Regarding Kyoto Units in New Zealand
- New Zealand climate change legislation allows for assigned amount units (AAUs) and temporary CERs to enter the Registry. However, these units cannot be used for the purposes of meeting surrender obligations in the New Zealand Emissions Trading Scheme (NZ ETS).
- Long-term CERs are not allowed because these units expire and need to be replaced (only the Crown is eligible to hold lCERs)
- New Zealand legislation prohibits the Registry from holding units that arise from nuclear energy projects.
Kyoto Transaction Types
FOR ACCOUNT HOLDERS
| Transaction Type | Description |
|---|---|
| External Transfer | Transfer of units between the national registries of parties to the Kyoto Protocol. (that is, from the NZEUR to an overseas registry) |
| Cancellation | Transfer of units internally to a designated Cancellation Account. Once units are cancelled they can no longer be traded or be used for compliance with an emissions target. |
| Replacement | Replacement of tCERs and ICERs through the internal transfer of units to a Replacement Account. Units in the Replacement Account cannot be traded or used for compliance with an emissions target. |
| Retirement | Transfer of units internally to a Retirement Account for the purposes of compliance with an emissions target (Article 3 commitment). |
| Expiry date change | The change of an Expiry Date of a tCER or lCER. Each temporary CER and long-term CER must be replaced by another unit prior to its expiry. |
| Internal Transfer | Transfer of units within the same registry (for example, Transfer of units from one account to another account within New Zealand’s Registry). |
FOR THE REGISTRAR (in addition to some of the above)
| Transaction Type | Description |
|---|---|
| Issuance | Initial creation of units (AAUs, RMUs, CERs, lCERs, tCERs) based on Assigned Amount or on land-use, land-use change and forestry (LULUCF) activity. |
| Conversion | The conversion of a unit of one type into another type. Specifically AAUs or RMUs are converted into ERUs on the basis of a JI project. |
| Retirement | Transfer of units internally to a Retirement Account for the purposes of compliance with an emissions target (Article 3 commitment). |
| Carry-over | The carry-over of units from one Commitment Period to a subsequent Commitment Period. Individual unit types are subject to different rules for carry-over. Carry-over cannot be performed until after the end of the period for reviewing and determining compliance. Following the completion of the review and compliance procedures, the International Transaction Log (ITL) will notify each party of the total quantity of units available and eligible for carry-over. Any units not eligible for carry-over are required to be cancelled. |
| Cancellation | Registries may be requested by the ITL to cancel some units, for example following the UNFCCC compliance review. |
Common Questions and Answers
What is a commitment period?
This is the time frame over which the Kyoto Protocol’s emission limitation and reduction commitments apply. The first commitment period runs from 1 January 2008 to 31 December 2012.
What are the Kyoto rules for carry-over of units between commitment periods?
- AAUs can be carried over without limitation.
- CERs and ERUs converted from AAUs may be carried over, up to a limit of 2.5% of New Zealand’s assigned amount for each of these two units. The total combined carry-over is not allowed to exceed 5% of the initial assigned amount of Kyoto units. Based on New Zealand’s initial assigned amount of Kyoto units, this equates to approximately 15 million units: 7.5m CERs and 7.5m ERUs respectively. Kyoto rules specify that any CERs and ERUs above this 2.5% threshold are cancelled.
- RMUs, tCERs and ICERs and ERUs from LULUCF projects may not be carried over.
What is difference between Kyoto rules and obligations and NZ ETS rules and obligations?
The Kyoto rules are set by the UNFCCC and relate specifically to Kyoto units and transactions for the purposes of compliance with emissions targets. The NZ ETS rules and obligations relate specifically to the operation of New Zealand’s domestic emissions trading scheme.
What is the difference between cancellation and retirement?
Cancellation of units takes them out of circulation completely, whereas
retirement of units aids New Zealand in meeting its Kyoto obligations and will count towards our emissions target. Account holders can only retire units with the authority of the Minister of Finance.
This guide is based on the law at the date of issuance. The information in this guide does not alter the laws of New Zealand or other official guidelines or requirements. Readers of this guide should take specific advice from qualified professional people before undertaking any action following information received from this guide.
