The Settlement of Disputes Arising in Flexibility Mechanism Transactions under the Kyoto Protocol

Abstract

AFTER MANY years of uncertainty, the Kyoto Protocol finally entered into force on 16 February 2005.1 In one sense, this day marked the culmination of a long process in the international community's efforts to combat climate change.2 In another sense, the entry into force of the Kyoto Protocol represents the beginning of a new era, for much work remains to be done by the international community to ensure that the commitments entered into under the Kyoto Protocol are implemented. The Kyoto Protocol aims to combat the problems connected with climate change by introducing quantified limitations on emissions of greenhouse gases – which are defined as including carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulphur hexafluoride – for the states parties listed in Annex I of the Framework Convention on Climate Change.3 These states, which comprise developed countries and countries with emerging market economies, have an obligation under Article 3 of the Kyoto Protocol to limit their greenhouse gas emissions to the levels stipulated in Annex B.4 Crucially, Article 3 further provides that the states parties can meet their quantitative emission limitations either ‘individually or jointly’.5 The Kyoto Protocol elaborates three methods by which states parties can comply with their emission limitations ‘jointly’. These are collectively known as the ‘Kyoto flexibility mechanisms’, and they consist of ‘joint implementation’, the ‘clean development mechanism’, and ‘emissions trading’. Contemporaneously with the entry into force of the Kyoto Protocol, efforts are being made to implement the rights and obligations contained in the Protocol into domestic legislation.6 Accordingly, the quantified emission limitation and reduction obligations are being passed on to private entities operating within each state party. These private entities are also permitted to take advantage of the flexibility mechanisms in order to facilitate their compliance with relevant domestic …