Joint Implementation
Joint Implementation (JI) is one of the three flexible mechanisms for emissions trading set out in the Kyoto Protocol. Like the Clean Development Mechanism (CDM) , it is a mechanism for financing individual projects aimed at reducing GHG emissions. JI credits are created by reducing actual emissions in a project compared to a hypothetical baseline in the future, similar to the way the CDM operates. However, JI is different. It is only for Annex I countries with capped GHG emissions, unlike CDM which is solely in non-Annex I countries with no GHG reduction obligations. This is crucial because JI credits are not offsets, but emission reductions effectively indistinguishable from allowances under a cap-and-trade system. Under JI, the total mandatory emission reductions are unchanged; project-based reductions are simply shifted and credited toward another country.
Why is it important?
JI will likely become the central project-based flexibility mechanism in future cap-and-trade schemes. More countries and sectors are expected to commit to GHG reductions, and the role of JI will be key in allowing countries to trade credits and create projects among themselves. Over time, it is likely that the role of CDM will diminish as JI moves into a more central role. This opens up the possibility for JI to create cost-efficient emission reductions in sectors and regions not covered by domestic emissions trading. It can also serve as a carbon price "safety-valve" by allowing the inflow of cheaper credits into the cap-and-trade scheme.
Other benefits include:
- Promotes innovation. Project-based mechanisms encourage innovation to reduce emissions: new, innovative methodologies can be developed and tested in a private and voluntary environment.
- Unrestricted in scope. JI is a valuable tool to explore the potential of areas not generally targeted by emission trading schemes. Whereas a trading scheme is by definition limited in scope, a JI-like mechanism is not.
- Emphasises positive incentives rather than penalties. Trading schemes and standard-setting tend to be based on penalties in order to make non-compliance less rewarding. This creates a natural resistance and slows down implementation as traditional, conservative, industrial companies grapple with the new operating environment. In contrast, project-based mechanisms are a source of new funding attractive to businesses and entrepreneurs.