Compliance mechanisms and procedures

The Marrakesh Accords provided interim closure in developing procedures to encourage compliance in the short term and maximize emission reductions in the longer term. These procedures involve verifying and reviewing behaviours and emissions, facilitating compliance prior to the end of the first commitment period, sanctioning non-compliance with inventory and reporting requirements prior to the end of the first commitment period, and sanctioning non-compliance with targets after the end of the first commitment period.

Monitoring and verification

The climate regime's obligations adopt an economic efficiency (rather than 'command and control') approach, which defines compliance in terms of results states must achieve rather than actions they must take. The first step in evaluating compliance involves monitoring and verification. Collecting extensive and high quality behavioural and environmental information is important not only to validate whether actors deserve credit for reductions, but to learn more about human impacts on the climate and how best to reduce those impacts.

Under the climate regime, countries are required to develop national emission inventory systems, use those systems to provide annual inventories, and have both the system and the annual inventories verified by Expert Review Teams (see Chapter 2 by Ulfstein and Werksman and Chapter 4 by Berntsen and associates). Nominally, compliance requires only monitoring 'anthropogenic emissions by sources and removal by sinks'. In practice, however, major components of most countries' inventories will not be based on direct measurements of gases. Instead, they will estimate emissions and removals by applying emission rates to measurements of relevant activities. Methane emission levels may be based on counts of livestock by type multiplied by emissions per livestock type, and hectares of rice cultivation multiplied by emissions per hectare. Transport-related CO2 emission levels seem likely to be based on consumption of different fuels multiplied by fuel-specific emission factors. Regardless of whether emissions are based on such calculations or direct measurements, the broader goals of the regime require monitoring both behaviours and emissions to better understand how variation in emissions depends on the type of, and conditions under which, policies and activities are undertaken.

The range of behaviours that emit or sequester GHGs precludes making general claims about the ease of monitoring (Morlot, 1998). In some cases, such as power plant emissions, relevant activities (amount of coal or oil burned) and environmental results (amount of CO2 emitted) are relatively easy to monitor. In others, such as deforestation, relevant behaviours may be relatively easy to monitor (satellite surveillance of net changes in forest cover) but it may be more difficult to identify corresponding emissions because of problems in modelling carbon release. In yet other cases, even relevant behaviours may be difficult to monitor, as with determining the number of methane-producing livestock being grazed or levels of GHG-emitting military activities that governments have incentives to keep secret. The climate regime will need to develop mechanisms for evaluating, providing feedback on and making recommendations or even requirements for the models states use in estimating emissions from behavioural measurements.


Evaluating national-level compliance requires comparing the emissions information countries provide, however created, to the valid AAUs, ERUs, CERs and RMUs they hold. Since states will know what this review process will entail before submitting their emission inventories, the reviews themselves seem unlikely to 'catch' states in violation of their commitments (Victor et al, 1998b). States seem likely to enter the review stage using one of four strategies: they will have brought themselves into compliance by ensuring they have requisite emission credits; they will have constructed inventories that successfully misrepresent their actual emissions so they appear to be in compliance; they will acknowledge that they are out of compliance and seek to receive assistance in coming into compliance; or they will acknowledge that they are out of compliance and decide to accept or ignore whatever formal or informal sanctions may be imposed. Misrepresentation seems the least probable of these outcomes.

Thus, implementation reviews seem unlikely to uncover non-compliance. They may nonetheless contribute to the compliance process. They may identify why a particular state failed to comply and thereby identify more general factors that hinder or facilitate compliance. The justifications and explanations of a state's noncompliance and the evaluation of those justifications by other parties are likely to contribute to learning by the regime and other states about which policies are effective at reducing or sequestering emissions and under what conditions. Reviews may entail discussions about whether national governments, local governments, private actors, unexpected economic shocks or natural forces are responsible for any shortfalls; whether shortfalls reflect failures of policy or implementation; and whether intention, incapacity or inadvertence was the major cause of the shortfall. Review procedures will also need to identify or develop methodologies for addressing the many cases in which monitoring efforts face inherent difficulties in identifying which actors, if any, were responsible for a shortfall. Thus, it may be easy to identify those responsible for high emission rates from the power sector but far more difficult to identify those responsible for high emission rates due to deforestation or methane production.

In contrast to assessments of national-level compliance, project-level compliance explicitly requires reviewing both behaviours and emissions. Reductions or sequestration can only be shown to be additional if actual emissions, project-related behaviours and non-project factors (both human behaviours and environmental conditions) that influence emission/sequestration levels are observed or estimated. Projects are likely to be of four types: 'successes', in which participants' actions reduced or sequestered emissions; 'good faith efforts', in which participants' actions would have reduced or sequestered emissions were it not for other factors; 'coincidental compliers', in which reductions or sequestration occurred in spite of participants' actions or failures to act; and 'failures', in which participants' actions or failures to act caused the project not to produce reductions or sequestration. High-quality baselining systems should distinguish most, if not all, successes from coincidental compliers, so long as they identify changes in factors that influence project performance but change after initial baselines are agreed upon, such as economic growth rates or weather patterns. In a world in which other factors are never held constant, this is no easy task. It requires large amounts of accurate information about a large range of human behaviours and environmental conditions, as well as methodologies for converting that information into politically compelling assessments of which actors should be rewarded and which should be sanctioned.

The regime clearly seeks to build a transparent and accurate system of international monitoring, reporting, verification and review of emissions and behaviour. Its success depends not only on the initial structure and methodologies of those systems, but also on the incentives created to improve those systems over time. An important tension exists, however, between the desire for an accurate reporting system and the use of information from that system in determinations of non-compliance and application of sanctions by the Enforcement Branch of the Compliance Committee. States and non-state participants in JI, CDM and RMU projects know that the reductions or sequestrations they are credited with depend on actual emissions reported. They therefore have incentives to provide or withhold information, promote or oppose certain methodologies, and argue and negotiate over baselines and emissions in ways that maximize their reductions or sequestrations. How strong those incentives are depends on the response those actors expect for non-compliance and whatever supports and rewards are given for providing accurate information, especially if that information identifies non-compliance.

Facilitating compliance

The regime's creation of a Facilitative Branch under the Compliance Committee represents only one element of a broader strategy based on facilitating compliance rather than deterring non-compliance. The regime relies largely on 'compliance management' while coupling it with some elements of an 'enforcement' approach (Chayes and Chayes, 1995; Chayes et al, 1995; Downs et al, 1996). The decision at Kyoto to allow states to choose their own targets, including ones that allowed for increases over 1990 levels, was a political necessity but does facilitate compliance. The flexibility mechanisms of emissions trading, JI and CDM projects, the use of sinks and RMUs, and the ability to bank emission units further increase the ways states can meet their targets while reducing the costs of doing so. Perhaps the largest provision facilitating compliance involves the 'additional period for fulfilling commitments'. This 'true-up' period allows states to acquire AAUs, ERUs, CERs and RMUs up until 100 days after completion of the expert review of inventories for the commitment period, a deadline that translates into over two years in which states can make up any shortfall (Michaelowa, 2001).12 These provisions collectively make it much easier for states to comply, in part by reducing the need for behavioural change.

When states seem unlikely to comply, the regime has adopted a system 'to avoid confrontation, to be transparent' and to eschew sanctions in favour of cooperative measures.13 The Facilitative Branch seeks to encourage Annex I parties to work with developing, non-Annex I parties in implementing their commitments, and to facilitate compliance by Annex I parties with building national inventory systems and meeting their targets. The Facilitative Branch can provide, or foster the provision by others of, advice, financial and technical assistance, and technology transfer and capacity building.14 Developing countries involved in CDM projects or seeking to develop their inventory systems seem the most likely to make use of the Facilitative Branch, although Annex I countries that face unexpected difficulties may also do so. The success of such capacity building will depend on how many parties are committed to the regime's success, since only those struggling states that support the regime will request assistance and only those that support the regime will provide the financial and technological assistance envisioned. Unfortunately, historical experience suggests that funding, whether required of governments under the regime or volunteered by NGOs, is likely to fall short of that needed to create robust assistance programmes (Keohane and Levy, 1996; Victor and Salt, 1994, p15).

The regime has not delineated mechanisms to reward overcompliance and innovation. Since current emission reduction targets fall far short of what most scientists consider necessary to avert climate change, significant progress requires incentives for exceeding current targets and for undertaking risky projects that provide uncertain, but potentially large, reductions at low cost. At present, although the regime facilitates compliance, it has developed few mechanisms to reward those who go the next step, such as public awards, white lists, access to financial mechanisms or reduced project verification requirements.


The regime also seeks to discourage non-compliance through mechanisms that include, but extend significantly beyond, the activities of the Enforcement Branch. At the project level, the incentives to discourage false credits will depend largely on the market's ability to distinguish (and discount the price of) false credits from those more likely to be assessed as valid. Governments may find the most salient reasons to comply involve the political criticism they receive from their own citizens, the media or other governments of failing to comply with a regime that has made compliance both easy and cheap.

For an emissions market to develop, there must be at least some governments committed to complying with their commitments and willing to promulgate corresponding domestic policies that pass these incentives on to subnational actors. These incentives to acquire credits will translate into a demand for credits only if those offering AAUs, ERUs, CERs or RMUs can convince potential buyers that those credits have value, i.e. that they are backed by real emission reductions or sequestration (Victor, 2001b, p22). Given the 90 per cent commitment period reserve, both corporations complying with domestic regulations and countries trying to fulfil national obligations must ensure that the credits they acquire will cover their emission obligations. Beyond the formal cancellation of credits, public and political sanctions for knowingly engaging in bogus transactions are also likely. Wary buyers are likely to require those undertaking projects to provide information reassuring them of credit validity prior to purchase, and to reward those that build reputations for high-quality projects and credits. This should, in turn, create a market in which false credits are distinguishable, harder to market and hence discouraged.

At the project level, sanctioning will require cancelling credits. The operational entities and the CDM Executive Board can be expected to reduce or revoke credits from projects that cannot demonstrate real reductions or sequestration corresponding to the project design. Despite the somewhat adversarial relationship of the verifying operational entities and the project participants, the former should be able to use the ability to provide or withhold credits to acquire data and information necessary to adequately validate credits. Project participants that do not want to monitor and report adequately will also build a reputation for not being forthcoming, making it more difficult for them to market those credits that they can get validated.

Operational entities will face difficulties in deciding whether to validate projects involving the coincidental compliers and good faith efforts mentioned earlier. Cancelling the credits of good faith efforts (e.g., a well-implemented reforestation project destroyed by a flood, drought or fire) has the virtue of ensuring that credits are backed by real reductions or sequestration, but punishes actions that reasonably could have been expected to produce such credits. The opposite problem is raised by projects of coincidental compliance (e.g., emission reductions from a plant that switched to a lower-emission fuel type which, after the project plan had been submitted, actually became cheaper than alternative fuels). Since the reductions were achieved by the planned activity, how should the fact that they were cost-free and would have occurred anyway (although this seemed unlikely when the project was approved) be taken into account? The CDM Executive Board and the operational entities will need to decide whether reductions from a project will be certified based on the actual behaviours of project participants or contracted behaviours. Even with buyer liability, buyers are likely to press for validation of credits in which contracted behaviour was carried out, regardless of actual emissions produced. As the regime develops procedures for allocating responsibility for project credit validation, it will need to consider how those procedures influence not only the actors involved in the case at hand but also the willingness of other actors considering undertaking such projects and trades in the future.

At the national level, the Enforcement Branch itself is entrusted with determining whether a state is in compliance, and taking action to urge it to come into compliance if it is not. Actions coming before the Enforcement Branch seem likely to be few, since the emissions trading market may develop in ways so that most states at risk for being sanctioned will either acquire credits during the true-up period or withdraw from the regime. Actions may come before the Enforcement Branch if concerns arise that a country's inventory system is susceptible to manipulation, but such issues will most likely be raised earlier in the Facilitative Branch, with the country seeking to respond to those concerns or rejecting treaty commitments outright. Despite the variety of sanctions available under the Marrakesh Accords, none seem likely to be used. Making participation in the flexibility mechanisms contingent on compliance with monitoring and reporting provisions will encourage states committed to the regime to develop strong inventory and reporting systems, but will have little influence on less committed actors. The regime's responses to non-compliance with targets appear somewhat harsher on paper but, like most sanctions in environmental agreements, seem unlikely to be used for several reasons. First, potential sanctioners will likely be deterred from imposing sanctions because of the political costs of accusing other states and of undermining a sense of common purpose in the regime (Axelrod and Keohane, 1986). Second, once the Enforcement Branch identifies a state as non-compliant it is mandated to demand the country provide a compliance plan, stop its sales of emissions credits, and make up 130 per cent of its shortfall in the next commitment period. Given the mandatory nature of these sanctions, the locus of contention will shift to the stage of calculating emissions and estimating (and re-estimating) baselines to avoid finding a country in non-compliance in the first place. Third, requiring states to make up 130 per cent of their shortfall in the second commitment period will lead those who expect to be found in non-compliance to make their emissions reduction targets for the second commitment period sufficiently small so as to not be burdensome.

If issues come before the Enforcement Branch, the problems of determining actual emission levels are likely to involve uncertainty rather than 'cheating'. Emission inventory systems are likely to be inaccurate and uncertain because of inherent measurement difficulties and a failure to dedicate adequate resources, rather than because of efforts to cheat. Thus, systems are more likely to lack data of sufficient quality to make a determination of non-compliance. Such data as the Enforcement Branch can acquire are likely to raise the question of what constitutes non-compliance. Since the 'actual emissions' numbers will almost certainly involve a mean estimate and corresponding confidence band, the question will be whether the mean, the 95 per cent confidence band or some other reference point should be used. If states seem likely to be found in non-compliance, they are likely to claim either that their higher emissions were due to large economic factors that prevented efforts they did make from being effective, or that they could not afford the credits necessary to come into compliance. Especially for states that took actions and expended resources that could reasonably have been expected to reduce emissions by a given amount, claims that they should be treated as if they complied are likely to prove compelling to other states and the Expert Review Teams.

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