From facilitation to enforcement Conventional wisdom revisited

Assessing the extent to which the Kyoto Protocol's compliance system reflects a major shift in thinking among delegations requires a quick look back at previous efforts to develop compliance systems for the climate change regime. The compliance system is the third to have been attempted by climate change negotiators over the past decade. The first effort, made during the negotiation of the Convention, was abandoned in favour of an 'enabling provision' in Article 13 of the UNFCCC, which calls upon the Convention parties to 'consider the establishment of a multilateral consultative process ... for the resolution of questions regarding the implementation of the Convention'. As it became apparent during the negotiations of the FCCC that the treaty would not result in specified, legally binding emissions reduction commitments, delegations determined that a compliance system could await the development of more specific treaty commitments.

The second effort followed the entry into force of the Convention and was based on the Article 13 mandate. This time, negotiators built a procedure in its entirety, but the parties to the Convention have yet to bring it into operation (Szell, 1995). As part of a negotiating process that ran in parallel to the negotiation of the Kyoto Protocol, climate negotiators designed a multilateral consultative process (MCP), and agreed on all elements but the size and composition of the institution that would run the MCP.19 The main characteristics of this procedure reflect what, from a theoretical point of view, has been described as a 'managerial approach' to non-compliance (Downs et al, 2000; Danish, 1997).20 The design of the MCP was heavily influenced by the experience of the design and initial operation of a non-compliance system for the Montreal Protocol on Ozone Substances that Deplete the Ozone Layer (Koskenniemi, 1992; Victor, 1998; Werksman, 1996; see also Chapter 10 by Wettestad). A multilateral committee, comprised of experts nominated by the parties, offers technical advice and financial assistance to parties facing compliance difficulties in an effort to head off potential non-compliance. Liberal standing provisions, non-confrontational procedures and soft consequences invite parties experiencing difficulties to a constructively engage with the system. The MCP's objectives are to provide advice on assistance to parties to overcome difficulties encountered in their implementation of the Convention, to promote understanding of the Convention, and to prevent disputes from arising. Its mandate is limited to providing advice and making recommendations. Like the Montreal Protocol compliance system, recommendations made by the climate change regime's MCP would have to be approved by the parties as a whole.

The MCP was designed to apply to the Convention and its vague obligations. However, the MCP was being negotiated in parallel to the Protocol, and delegations could have opted simply to apply this emerging managerial system to the tougher commitments emerging from the Protocol.21 It is important to recall that advocates of the managerial approach to non-compliance have not tied their theories supporting the effectiveness of a soft approach to soft commitments. On the contrary, soft approaches to compliance are thought to make tougher targets more politically acceptable. Non-confrontational approaches are indeed made necessary by difficult commitments, and favour the pragmatism of engagement over the futility of enforcement against notoriously resistant sovereign states. As has been indicated, the model precedent for the managerial approach was the Montreal Protocol non-compliance procedure, which contains highly specific, legally binding commitments.

Nonetheless, as the Protocol took shape, delegations' attitudes towards non-compliance procedures shifted away from the managerial approaches represented by the MCP and towards tougher enforcement procedures. Three basic reasons can be provided for this shift:

1 Competitiveness concerns in the context of ambitious targets demand a means for identifying and discouraging parties from free-riding by making the costs of non-compliance higher than the costs of compliance.

2 The introduction of market-based instruments carries with it the need to assure traders in carbon allowances and offsets that the benefits of their bargains will be backed by a rule-based response.

3 The legally binding character of the Kyoto Protocol's targets demands a compulsory and binding means of enforcing them. (Werksman, 1999)

The first and second reasons provide the clearest rationales for departing from the managerial approach. The managerial approach is designed to respond to parties that wish to comply, but lack the financial and technical means of doing so. The Montreal Protocol system has worked well, in large part because it has focused on solving the compliance problems of those countries that are eligible to receive financial and technical assistance from international financial mechanisms such as the Multilateral Fund of the Montreal Protocol and the Global Environment Facility (GEF). The financial and political costs of compliance to these countries are lowered through the transfer of technology and financial resources.

In contrast to the Montreal Protocol, many perceive the Kyoto Protocol's commitments as imposing serious economic and political costs on industrialized countries. These countries are donors rather than recipients of development assistance. They also tend to be drivers of technological innovation and therefore the home of innovative industrial patents. For these reasons, traditional compliance incentives such as transfers of financial and technological resources make little sense as a response to the parties most likely to exceed their Kyoto caps. Thus, at the outset of negotiations, delegations from North and South were calling for a 'strong and effective' compliance system that would 'provide parties with certainty and confidence'.22

The second reason also illustrates the central role that Kyoto's market-based flexibility mechanisms23 played in the design of the compliance procedure. These mechanisms will allow Annex I countries and companies to meet their obligations by investing in emissions reduction opportunities in other countries, wherever the costs of compliance are lowest. By lowering the cost of compliance they provide a crucial safety valve for countries struggling to comply. However, markets in these offsets depend upon the regulatory incentives created by a credible compliance system. Offsets and allowances only take on a marketable value when they are in demand by regulators as part of a strong compliance system. This close design link between the strength of the compliance procedure and the effective operation of the Protocol's market-based mechanism was key to building a consensus around a strong compliance system. Even those Annex I delegations that remained ambivalent with regard to tough enforcement consequences found it difficult to square a soft approach with their unshakable enthusiasm for the Protocol's market mechanisms.24

The third reason is backed by a somewhat compelling logic: as a regime's targets are strengthened, so should the procedures and mechanisms to enforce it. This view is not, however, always reflected in the design of multilateral environmental agreements, and, as has been indicated, this logic is not always supported by the academic literature (see the Introduction).

The essence of the managerial approach does, however, remain within the Facilitative Branch of the Marrakesh procedure, which shares many characteristics with both the Montreal Protocol system and the Convention's MCP. To a lesser extent, it has also left its mark on the Enforcement Branch. Although the Enforcement Branch has been authorized to impose substantial sanctions, and has a number of quasi-judicial/administrative tribunal-like features, the branch continues to operate in a relatively multilateral, preventative and non-confrontational fashion. For example, a party that initiates the enforcement process does not take on the role of complainant or prosecutor, but merely triggers the process, which is then left to the Compliance Committee and its branches.

Kyoto's compliance system does reflect a shift in political attitude that may undermine the theoretical underpinning of the managerial approach. It would appear that many of the assumptions of the managerial approach are no longer considered by policy-makers to be of general application. After Kyoto, facilitation appears to be considered appropriate, but only to regimes or those aspects of regimes where non-compliance is likely to be attributable to a lack of technical or financial resources. However, the multilateral nature of the Kyoto system suggests that theorists and practitioners continue to agree on the importance of a process of engagement focused on preventing rather than punishing non-compliance.

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