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Volume 8 Issue 3 1999 Rights under the Kyoto Protocol Equity, Entitlements and Property Rights under the Kyoto Protocol: the Shape of ‘Things’ to Come Farhana Yamin What constitutes a fair response to climate change is the main question underlying many of the unresolved issues in the climate change debate. It is behind the questions of the level of commitments by industrialized countries, the type of participation to be undertaken by developing countries, the structure of the various trading mechanisms, and the nature and magnitude of financial obligations. What has been missing from the debate, however, are consensus principles that define equity in the context of this issue. Eileen Claussen, US Under-Secretary for Energy and Lisa McNeilly, ‘Equity and Global Climate Change: The Complex Elements of Global Fairness’, Pew Center on Global Climate Change, October 1998. Introduction Equity and fairness are a major motivating force in international decision-making.1 It is now widely recognized that fairness considerations are central to the evolution of the 1992 Framework Convention on Climate Change (FCCC) and the fate of its 1997 Kyoto Protocol. This is because the question of who will take on commitments, and when and how these might be implemented, raises significant distributive and procedural fairness issues between countries involved in the climate change negotiations. This article provides a timely opportunity to take stock of the fairness debate in the climate change regime. It focuses on the distribution-related implications of the targets adopted at Kyoto. Because these provisions are integrally linked to the Kyoto ‘mechanisms’ this article also examines equity-related concerns relating to Protocol’s provisions concerning emissions trading, joint implementation and the Clean Development Mechanism. It is anticipated that these mechanisms will allow Parties, and private entities, to buy and sell allowances to achieve their Kyoto targets. Part I examines the meaning of equity and its role in international negotiations. Part II discusses the equitable basis for the targets and emissions patterns sanctioned by the Protocol relevant to establishing ‘entitlements’. Part III of the article is an inquiry into the legal nature of the ‘things’ created by the Protocol: assigned amounts, parts of assigned amounts, emission reduction units and certified emission reductions. The article uses the term ‘things’ to avoid use of more loaded concepts such as ‘property’, ‘commodities’ etc. The article examines who might hold rights to these things and what kind of rights might be held. It sets out conclusions that could inform future negotiations concerning the Kyoto mechanisms’ new commitments for developing countries. Part I: Equity This section examines the legal concept of equity. There is no universally agreed meaning of equity in international law. One legal scholar has characterized equity as ‘considerations of fairness, reasonableness, and policy often necessary for the sensible application of the more settled rules of law’ which can comprise factual considerations and legal principles.2 The legal notion of equity is created and applicable in the context of the international legal order, which consists of principles and rules that are legally binding on states and other members of the international community in their interactions with each other. States have the sovereign right to exploit their own natural resources pursuant to their own environmental and developmental policies, subject to the proviso that they bear the responsibility of ensuring that activities within their jurisdiction do not cause damage to the environment of other states or of areas beyond the limits of national jurisdiction.3 This means that the question of how a state allocates responsibility for mitigating or adapting to climate change (i.e. how it allocates the costs and benefits of climate change) among various regions, economic sectors, social groups or individuals within its territory, is primarily a domestic matter. The following discussion focuses on the role of equity in Blackwell Publishers Ltd. 1999, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA. 265 Rights under the Kyoto Protocol relation to the allocation of responsibilities as between states and, in particular, over disputes concerning access and use of natural resources. In its judgment on the 1982 Continental Shelf case (Tunisia/Libya), the International Court of Justice (ICJ), the principal judicial organ of the United Nations (UN), explained the nature of equity as follows: Equity as a legal concept is a direct emanation of the idea of justice. The Court whose task is by definition to administer justice is bound to apply it.4 The Court went on to state that the application of equity in an international legal context differed from developments in some national legal systems where equity was contrasted with the rigid rules of law which had to be mitigated in order to do justice.5 The Court explained that ‘in general, this contrast has no parallel in the development of international law’ and that ‘the legal concept of equity is a general principle directly applicable as law’.6 As a general principle of law, equity can therefore be a source of law, rather than merely consisting of considerations necessary for the sensible application of the law.7 The ICJ recognized in its 1982 Judgment that equity was relevant when the Court was called upon to apply international law and found that it could choose among several possible interpretations of the law.8 In such cases, the Court was bound to choose the interpretation ‘which appears, in the light of the circumstances of the case to be closest to the requirements of justice’.9 However, even where equity was called upon to fulfil this function, the Court explained that equitable considerations had to lie within the law, and not be seen as something distinct and opposed to law. In its 1969 Continental Shelf cases (Germany/Denmark/Netherlands) Judgment, for example, the ICJ stated: Whatever the legal reasoning of a court of justice, its decisions must by definition be just, and therefore in that sense equitable. Nevertheless, when mention is made of a court dispensing justice or declaring the law what is meant is that the decision finds its objective justification in considerations lying not outside but within the rules.10 The specific references to considerations as being part of the general principles of law and of equitable considerations lying within the rules are intended to distinguish the legal application of equity from a decision ex aequo et bono.11 A decision ex aequo et bono amounts to ‘an avowed creation of new legal relations between the parties’.12 The ICJ is empowered by its statute to decide a case ex aequo et bono. As this would involve the Court in non-judicial functions such as conciliation, compromise and legislation, it may only exercise this power if clearly requested by Parties to a dispute. From the above, it is clear that in the absence of a specific request from State Parties to a dispute, equity must be applied as part of the general principles of law within the overall framework of the existing law governing a particular area of dispute. In applying equity, the Court cannot invent new principles or rules of law nor take into account equitable factors or considerations, which lie outside the law. As the Court put it in its 1969 Judgment: Blackwell Publishers Ltd. 1999. 266 Volume 8 Issue 3 1999 it is not a question of applying equity simply as a matter of abstract justice, but of applying a rule of law which itself requires the application of equitable principles, in accordance with the ideas that have always underlain the development of the legal regime.13 From the above, a number of conclusions can be drawn from the Court’s exposition of the legal nature of equity and its functions: 앫 Equity is part of the general principles of law; it is therefore itself a source of law to which the ICJ can turn when called upon to apply international law;14 앫 Unless Parties to a dispute clearly request it to exercise its power to decide a case ex aequo et bono, the Court cannot use equity to make new laws where no general principles of law (expressed in treaties or the actual practice of states) exist; 앫 Where several interpretations of the law are possible, equity requires that all relevant factors or circumstances should be taken into consideration. The relevant circumstances must be legally relevant in deciding a particular case rather than, for example, political circumstances which may or may not be legally relevant; whether a factor is legally relevant will depend on the particular characteristic of each dispute including the state practice involved;15 and 앫 Finally, as equity functions within the context of particular legal regimes, the equitable principles and factors which are relevant for achieving an equitable result in a particular case cannot necessarily be generalized, but depend on the legal and factual circumstances of each case. The conclusion that in any particular case, equity consists of the application of equitable principles to achieve an equitable result taking into consideration all the relevant considerations may seem tautological and rather unhelpful.16 It does, however, signal an important point that may otherwise be overlooked: the application of equity relevant to one context cannot necessarily be transposed and applied to the climate change context to determine disputes about the equitable allocation of states’ rights and responsibilities to protect the climate system.17 Emerging international legal and political science approaches to studying the role of equity in international negotiations also stress the context-specific meaning that should be given to equity. Thomas Franck’s work suggests that equity and fairness should be defined primarily by the degree to which the expectations of the participants of the process about fairness are satisfied both in terms of final distributive outcomes and the process by which they can be agreed.18 Social science research suggests that notions of shared equity and fairness, however inchoate, can forge solidarity amongst the disparate state and non-state actors who constitute the international community.19 Climate policy-makers are anxious to be seen to be achieving equitable results, supporting the view that equity plays a significant role in defining the range of outcomes considered acceptable in the international negotiating process. Equity debates between the members of the international climate policy-making community can thus Volume 8 Issue 3 1999 rightly be seen as instrumental (designed to achieve explicit goals). But at the same time, these equity debates can be also be seen as expressive (communicating shared values, collective representation of problems and building trust and confidence). Discussions about fairness are a form of institutionalized political dialogue essential for oiling the wheels of negotiations. They are not a fanciful diversion getting in the way of the ‘real’ negotiations. By extending and deepening the horizontal bonds between members of the climate policy-making community, equity debates contribute to the development of international law. By giving concrete guidance on the meaning and application of the general, but constitutional, principles defined in Article 3 of the Convention, for example, negotiations about equity will help define principles such as sustainable development, common but differentiated responsibilities and the precautionary principle.20 Although part of international law, these principles are widely acknowledged to be difficult to interpret and apply. They can only become more concrete and specific through further international discourse about their meaning. The climate regime is still at an early stage in the discourse of fairness. Its ability to have this discourse bodes well for future co-operation because shared values provide a more congenial, and hence more effective, negotiating environment than one based on power alone. Part II: Entitlements One of the most fundamental equity issues facing the climate regime is what future emissions levels countries should aim to achieve. Scientists state that cuts of up to 80% from current levels are required, but are unwillingly to prescribe individual country targets and time-frames as there are many different pathways to the Convention’s ultimate objective. The key question for the climate regime is whether countries will define their own targets and do so without reference to objective criteria such as economic and human needs and ability to pay. Rights under the Kyoto Protocol calculate ‘objectively’ the historical contribution of Annex I and non-Annex I Parties. Arguing that the critical factor to be looked at was the contribution to radiative forcing by groups of countries, Brazil calculated that the contribution of non-Annex I countries would not equal that of industrialized countries until approximately the year 2150. The clear implication was that on a strict equality basis, developing countries were entitled to emit another 160 years of emissions before becoming equal climate culprits. The Brazilian figures were a response to ‘objective’ figures used by the USA suggesting that emissions from Annex I will equal those from Non-Annex I Parties by years 2015–2020, and thus justified its case that developing countries should begin to shoulder some of the burden of climate mitigation. The US figures calculated emissions from 1950, rather than from the industrial revolution, and did not look at the cumulative effect of emissions on radiative forcing. These proposals illustrate the difficulty of an ‘objective’ approach to determining issues of fairness. What is clear, however, is that if developing countries come to accept the case for legally binding targets they will not do so on the basis of grandfathering, but on the basis of negotiations regarding their future needs and resources in the light of their past, low emissions. A widespread fear, shared by the Claussen Report, is that left to their own devices, developing countries will adopt targets incorporating large amounts of ‘tropical hot air’, based on exaggerated estimates of future needs, that will gut the environmental integrity of the climate change regime.22 The Report recommends that Kyoto-style negotiations, with little transparency and objectivity of end results, should not be replicated in future negotiations, and that new commitments for developing countries should be based on objective criteria. The Kyoto Protocol established targets for developed countries but left the thorny issue of developing country targets for future negotiations. Most commentators agree with the Claussen Report that the Kyoto ‘targets were arrived at through negotiations, rather than a process of defining and applying specific, transparent, criteria’.21 By requiring only modest cuts from current emission levels (and in some cases, allowing increases), the Kyoto targets appear to sanction grandfathering as a formula for allocation of emission entitlements. This gives developed countries considerable advantages because it sanctions their high levels of current emissions. It works to the disadvantage of developing countries because of their historically very low levels of per capita emissions. Although based on sound environmental considerations, the double standards for procedural equity are obvious. Rich countries negotiated their Kyoto commitments with scant regard to transparency of process and the need for ex ante (or ex post) justifications, but there is a move to demand justifications of targets to be adopted by other countries. This article argues that there is indeed a compelling need to clarify the basis of all the targets, including the current ‘entitlements’ established by the Protocol for developed countries. More than one year on from Kyoto, most of the climate policy-making community remains in the dark about how Annex B of the Protocol, listing individual country targets, was negotiated. It is clear the Kyoto targets are not equitably random. It has been suggested, for example, that there is a certain equitable logic to Annex B targets. Like considerations (high reliance on renewables/gas for example) appear to have been given similar treatment, and like groups of countries (the USA, the EU and Japan as matched economic powers) have been treated similarly. There is a need to understand what happened at Kyoto and what factors made a difference to the target outcomes. Two Parties’ proposals during the Kyoto Protocol negotiations illustrate well the differences of approach to equity and entitlements. Prior to Kyoto, Brazil attempted to The fairness dialogue, and in turn the climate regime, would be strengthened by attempts to explicate the basis of current emissions levels, including the pattern Blackwell Publishers Ltd. 1999. 267 Rights under the Kyoto Protocol of emissions sanctioned by Kyoto. The discussions of the equity issue should, however, be carefully framed, and the institutional forum carefully chosen, to allow Parties to articulate and acknowledge their perceived inequities about the emerging global environmental order (now as strongly held by the USA as India) whilst avoiding the possibility of impasse. A carefully structured international dialogue on the basis of emission entitlements, so far demanded by developing countries and rejected or treated nervously by developed countries, could prove constructive in clarifying how future commitments will be handled by the FCCC Conference of Parties (COP). These commitments will focus on developing countries in the short term. But by 2005 the negotiations will turn once again to developed countries as the Protocol requires Parties to examine commitments for the second commitment period (2013–2017). Part III: the Shape of ‘Things’ to Come The Kyoto Protocol mandates developed countries Parties to reduce emission levels domestically or else to acquire equivalent emissions reductions from others to ensure that their assigned amounts do not exceed those specified by the Protocol. Acquisitions can be undertaken via the three ‘mechanisms’ established by the Protocol, each of which will produce a transferable ‘thing’ that can be counted towards compliance. 앫 Joint implementation (JI) under Article 6 of the Protocol will allow Annex I Parties to transfer ‘emission reduction units’ (ERUs) generated from specific projects. 앫 Emissions trading under Article 17 will allow Parties listed in Annex B to transfer ‘parts of assigned amounts’ (PAAs) to each other. 앫 The Clean Development Mechanism (CDM) under Article 12 will allow certified emission reductions (CERs) generated by sustainable development projects in developing countries to be used by Annex I Parties. Details of how each of the mechanisms will work are sketched out in the Protocol only in broad-brush terms. The authority for determing how JI and the CDM might work rests with the FCCC COP serving as the meeting of the Parties (COP/MOP), and for emissions trading with the COP. To expedite matters, Parties have agreed that the COP will work out these details for all three mechanisms simultaneously and make recommendations for adoption by the first COP/MOP upon entry into force of the Protocol.23 Key Issues One of the key tasks before the COP is to work out the legal nature of PAAs, CERs and ERUs; in particular, who is capable of having rights in relation to them and what they are entitled to do. Answers to these issues are further complicated by the fact that many Parties want private entities to participate in the mechanisms. Some of the key issues that need to be discussed are: 앫 Should assigned amounts, PAAs, CERs and ERUs be considered a form of property belonging to developed countries and if so, what kind of property? Blackwell Publishers Ltd. 1999. 268 Volume 8 Issue 3 1999 앫 Should PAAs, CERs and ERUs be considered fully interchangeable, i.e. fungible? 앫 What degree of regulatory oversight should the COP have over transfer transactions? In what circumstances should the COP intervene in the market for PAAs, CERs and ERUs? 앫 What kinds of non-compliance might occur as a result of transfer transactions and how should these be addressed? Should the COP require Parties to maintain compliance reserves and should it be able to impose trade sanctions? 앫 Should international trade in PAAs, CERs and ERUs be subject to international or regional trade law regimes such as the European Community and the rules of the World Trade Organization (WTO)? The following section examines some of these issues in more detail. Fungibility A preliminary issue is whether PAAs, CERs and ERUs are the same thing and fully interchangeable, i.e. fungible. Fungible goods are mutually interchangeable; they can be replaced by equal quantities and qualities. Typical fungible goods are coins. If they are antique or commemorative, even coins can become non-fungible, as if the individual identity of the coin matters. It is clear that not all goods are capable of being fungible (e.g. plots of land are unique). As the coins example suggests, goods that are normally fungible can also be treated as individual depending on the circumstances. Most economists have tended to assume that PAAs, ERUs and CERs are fungible. Assuming the fungibility of PAAs, CERs and ERUs tends to emphasize the need to harmonize the Kyoto mechanisms and to downplay the distinctive ‘equity’ considerations relevant to their operation. An underlying assumption is that a single, global market driven by the private sector should emerge. Ironing out the ‘equity inconsistencies’ in the mechanisms deliberately put in by the Parties therefore favours efficiency-based imperatives and uniformity of approaches and procedures. Denying fungibility is more likely to give Parties greater choice over how they strike the balance between efficiency and equity in relation to the three mechanisms established by the Kyoto Protocol. This is because Parties are likely to find it easier to design bespoke equity solutions at the level of each mechanism than they are to design equity solutions that ‘cut across’ all the mechanisms. The three Kyoto mechanisms emerged as three distinct mechanisms for many reasons that cannot be elaborated here. These reasons still exist. Because of these considerations, keeping the PAAs, ERUs and CERs that result from them distinct makes negotiating sense. The adaptation ‘fee’ to be collected from the proceeds of CDM projects is a good example of an ‘inconsistency’ relevant to equity outcomes. Variously called a tax or surcharge, the adaptation element would take some of the efficiency gains that would otherwise accrue entirely to Annex I Parties (and their nationals) and distribute Volume 8 Issue 3 1999 them to countries vulnerable to climate change impacts. Most Annex I Parties have made clear that they only accepted this tax in the context of the bargains struck in Kyoto. Post-Kyoto, their public submissions, and virtually all the economics-based literature, suggest ‘gutting’ the substance of this provision ‘to level the playing field’ between the mechanisms. It is argued that CDM projects will be ‘disadvantaged’ because the tax will make them more expensive than equivalent projects undertaken under the JI provisions or PAAs acquired under trading. This obfuscates the equity issue: the adaptation provision reduces the efficiency gains which Annex I Parties could expect to reap from an equity-unfettered CDM and distributes them to vulnerable developing countries. Post-Kyoto, developing countries have tried to apply the adaptation fee to all the mechanisms. This approach would still ‘level the playing field’. But it would also force Annex I Parties to distribute part of the efficiency gains accruing from all extra-territorial achievement of targets, not just the CDM. The logic of both sets of Parties towards ‘harmonization’ shifts attention to ‘global, onehat-fits-all’ type policy solutions. These have proved impossible to agree in the past and resulted in stalemate. Climate change participants should aim to balance equity and efficiency concerns and avoid approaches that tend to prioritize only one of them. Property Rights The law recognizes many things, but not all, are deemed ‘property’. Legal, political, moral, social and cultural traditions differ greatly, making it difficult to offer a concept of property accessible, and acceptable, to all. In Western legal tradition, ‘property rights’ are usually synonymous with ‘rights of ownership’. Economists tend to define property rights very narrowly. The economic litmus test for property is whether someone has a sole claim to the ‘benefit stream’ (or income) such that its enjoyment is enforced by the state, which will agree to protect it through the assignment of duties to others who may covet or somehow interfere with the benefit stream.24 Common usage and law tend to conceive of property rights/ownership more broadly as a ‘bundle of rights’. Full ownership is merely the concatenation of different elements in the bundle; no one element is a necessary condition for ownership and different forms of ownership combine different elements of the bundle in different ways.25 A simple example is that of landlord and leasehold tenant. Both have property rights but the tenant’s rights are carved out of the bundle belonging to the landlord. There are many different analyses of what is/should be included in the property rights bundle. The following exposition has been chosen because it may be particularly helpful for understanding the nature of the things created by the Protocol and the different interests members of the climate policy-making community can legitimately have in them. The ownership bundle comprises the following thirteen elements. Elements 1–9 are ‘rights’ which can be enforced against others. Elements 10–13 are restrictions on what the owner can do.26 Rights under the Kyoto Protocol (1) The right to possess. Possession implies exclusive, physical control of a benefit stream. (2) The right to use. Here ‘use’ refers to the owner’s personal enjoyment. (3) The right to manage. Management confers upon the holder the authority to decide how and by whom something may be used, including if others are allowed access. (4) The right to the income. Income arises if the owner foregoes personal use and allows others access in return for payment. (5) The right to consume or destroy. This allows the owner to annihilate the benefit stream. The intertemporal consequences of allowing this are particularly important for environmental issues. (6) The right to modify. The right to modify is less extensive than that to destroy, but permits the owner to make changes. (7) The right to alienate. Alienation allows the owner to transfer the benefit stream and to abandon ownership. (8) The right to transmit. Transmissibility allows an owner to bequeath their interest in a benefit stream. (9) The right to security. This refers to the immunity of the owner from arbitrary appropriation of the benefit stream.27 There are four restrictions on the exercise of the rights (these are elements 10–13): (10) The absence of term. The absence of term suggests that full ownership runs into perpetuity. If this is not intended, the length of ownership must be stated to limit the term. (11) The prohibition of harmful use. The exercise of ownership rights is restricted to ensure no harm occurs to others, and occasionally, to the owner. (12) Liability to execution. The benefit stream may be taken away to repay debts incurred by the owner. (13) Residuary rules. This covers rules to cover situations where ownership rights have lapsed. Are Kyoto ‘Things’ Property? One of the central equity disputes in the Kyoto Protocol is whether developed countries have acquired the entire bundle of rights stated in elements 1–9 in relation to assigned amounts listed in Annex B of the Protocol. If so, what kinds of restrictions are they or should they be subject to under elements 10–13? Although the debate has never taken place explicitly, elements of the negotiations clearly indicate that Annex B Parties appear to assume they have the fullest bundle of rights listed in 1–9 and are not subject to any of the restrictions listed in 10–13, or if so, only in a very minimalist sense. Developing countries deny they have the full bundle of rights in 1–9. With the EU, they stress the need for a number of important restrictions. The response of both sets of Parties is based on the longstanding legal traditions, philosophic preferences and economic positions. Developing countries’ responses are informed by the general dynamic of North/South relations. Their greatest Blackwell Publishers Ltd. 1999. 269 Rights under the Kyoto Protocol fear is that the issue of climate change will be used by the North to suppress their economic development. They fear that Annex B of the Protocol may form the basis of irrevocable ownership rights for industrialized countries which fail to provide for growth of emissions from developing countries. This leads them to challenge any nuance that may lead to the international recognition that Annex B Parties have property rights over the assigned amounts. This is one reason why the G77/China insisted that the term ‘emissions budgets’ be removed from the text of the Protocol in favour of the term ‘assigned amounts’ which suggests someone has merely prescribed an amount to reduce rather than given a (positive) right to emit. The Protocol ‘grandfathered’ targets, with no or little ex ante or ex post equitable justification, increase developing country fears that they will be forced to accept targets inappropriate to their social and economic capabilities, disproportionate to their historic contribution and their greater vulnerability to the adverse effects of climate change. Protocol provisions allowing banking of assigned amounts surplus to compliance reinforce these fears because of the absence of term: i.e. the lack of date means that any rights which Annex B may have over assigned amounts appear to run in perpetuity. This only tends to reinforce developing country fears that when the time comes for them to assume commitments, the global pie of emissions will either have been ‘eaten’ by Annex I Parties or else be hoarded and only available to developing countries at extortionate prices. These fears are further exaggerated by the inclusion of the Kyoto mechanisms. Advocates of the Kyoto mechanisms argue that all distribution issues, other than the initial allocations, should be left to the ‘free hand of the market’. This is based on classical free market principles, which assume that the market deals with allocation issues more efficiently. They also assume that any distribution inequalities produced by the market are actually in everyone’s interests (and hence equitable) because the increased efficiency gains from them will trickle down to ensure that everyone is better off than they would otherwise be. Finally, in the context of climate change, it is assumed that the efficiency gains attributable will support the achievement of the Protocol’s objective. But it is quite possible for the Kyoto mechanisms to be a complete success as economic instruments and yet fail to deliver the Protocol’s environmental objective. Because of their weaker financial and economic strength, developing countries fear that they will not be able to regulate the Kyoto markets. To compensate for their weaker position (and that of their businesses and other non-state actors), developing countries therefore advocate greater multilateral scrutiny over the Kyoto mechanisms.28 Developed country negotiators frame issues quite differently. Instead of responding to developing countries’ fears about the size of their future entitlements, they ask how developing countries can be expected to have any entitlements at all when, unlike Annex I Parties, they have not made any limitation commitments themselves. Blackwell Publishers Ltd. 1999. 270 Volume 8 Issue 3 1999 By emphasizing that they can develop rules on how to trade parts of assigned amounts without reference to the COP, developed countries also give the impression that they see themselves as ‘sole owners’ of assigned amounts, able to design and operate the mechanisms without COP scrutiny. These responses fail miserably to convey any understanding of developing country concerns. It is important to understand that Annex I Parties’ framework of reference for discussing these issues is informed by two traditional legal principles regulating the appropriation of things and territory historically favoured by them. First, that whoever possesses a territory and exercises actual control over it acquires a legal title. Second, that as far as terrae nullius (that is, areas subject to no one) are concerned, the ‘first come-first served’ principle establishes title, provided there is an actual display of sovereignty and authority. Developing countries point to alternative bases: basic needs equality, economic circumstances, historical contributions and the polluter pays principle. As a whole, developed countries are not so afraid of devolving distribution responsibilities to markets. The predominant trend in most developed countries across Left and Right is the ‘rolling back of the state’ which translates into allowing markets to decide how to allocate health care, housing, education and pensions – all previously provided by the state.29 The Convention’s provisions on the legal basis for entitlements to emit greenhouse gases into the atmosphere were nicely balanced and constructively ambiguous. The Kyoto Protocol has revived these disputes for two reasons. First, it contains quantified targets the size and legal nature of which are unclear and potentially imbalanced in terms of inter-generational and intra-generational equity. Second, the inclusion of the mechanisms inject market disciplines (and allocation vagaries) into a regime previously underpinned by principles of international co-operation and publicly-funded assistance. These principles, not market-based mechanisms, lay at the heart of the global ‘bargain’ struck at the Earth Summit, and they remain deeply embedded in the Convention’s financial provisions. The Convention mandates Annex II Parties to provide new and additional funding to meet developing countries’ agreed incremental costs of mitigation action. These provisions have been transported into the Protocol, but it is clear to anyone attending the negotiations that the Kyoto mechanisms are intended to be the primary delivery vehicles for any financial and technological transfers. Where does this lead us on the question of the legal nature of property rights over assigned amounts? This article argues that the ambiguity tolerated by the FCCC on the issue of entitlement is unlikely to prove ‘constructive’, given the nature of the Kyoto Protocol and its reliance on market mechanisms. In the long term, markets cannot thrive on legal uncertainty. And neither can the debate on future commitments, whose resolution appears to be politically essential if the Protocol is to Volume 8 Issue 3 1999 stand any chance of being ratified by the USA. Thus, if the Protocol is actually to enter into force, and if intergovernmental and private sector trading is to get off the ground, the underlying equity issues on the size of assigned amounts and the ‘bundle of rights’ that can exist in relation to them will have to be addressed. This article does not suggest that the underlying equity issues should be resolved. Any final resolution is likely to quickly become outdated and irrelevant because the climate regime has to continually respond to fast-changing economic circumstances as well as the latest scientific information. It is worth recalling here the impasse created over the ‘common heritage of mankind’ principle in the Law of the Sea negotiations. In view of these considerations, this article recommends that a new kind of pluralistic and open-ended dialogue, grounded in the acceptance of different conceptions of equity, should be devised. The dialogue could be structured, in the first instance, to allow the climate change policy-making community to clarify what is to be included in the bundle of rights Annex I Parties have over their assigned amounts, and then over PAAs, CERs and ERUs. The dialogue must not only clarify the positive elements listed in elements 1–9 but also address the nature of the restrictions to be imposed under elements 10–13 described above. This points once again to the need to consider more closely issues related to procedural equity. The idea of a ‘ bundle of rights’ which go towards defining ownership, but can be combined and recombined to create different patterns of ownership, is also helpful. It would avoid the rather unsophisticated versions of the equity dialogue with one side arguing ‘we have full ownership rights’ and the other retorting ‘no, you don’t’. Precedents from other international regimes provide some useful insights about how the legitimate interests of numerous Parties might be struck to produce equitable outcomes. Many different legal concepts have been used to regulate access and apportioning of benefits from their use in other natural resources regimes. Each has been tailor-made for its circumstances. This article argues that none of the existing ‘models’ should be applied to the climate change context. These ‘models’ include the following: the doctrine of ‘permanent sovereignty over national resources’;30 the open access model applicable to many resources in areas beyond national jurisdiction;31 the common heritage of mankind principle;32 the non-appropriability doctrine; and equitable access principles.33 Although not a natural resource regime, the Claussen Report has held up the General Agreement on Tariffs and Trade (GATT) as a suitable ‘model’ for the climate change regime to handle developing country commitments. The suggestion that GATT forms something approaching an equitable regime relevant to the Kyoto Protocol negotiations indicates how much its basic principles (reciprocity, free trade, competition and market mechanisms) are defining how other regimes should function, even though its underlying principles are as much an expression of a political creed as they are legal rules defining trade relations. Rights under the Kyoto Protocol Who Can Exercise Rights? The Protocol ascribes responsibilities and duties to sovereign states. But it also envisages other kinds of actors having dealings with these things. For many Parties, particularly the USA, the Protocol’s mechanisms are premised on the active participation of non-state actors. These actors could include, inter alia, international organizations, NGOs, companies, multinational enterprises, research and educational bodies, government agencies and departments, various levels of municipal and regional governments and, finally, individuals. The term ‘non-state actors’ specifically excludes states that are not Parties to the FCCC/Kyoto Protocol. Such states will have observer status. For the purpose of this article it is assumed that non-parties to the Protocol will not be entitled to participate, directly or indirectly, in the mechanisms in any form whatsoever. This is to ensure that states join the Protocol and do not free-ride by remaining outside. This is the reasoning behind the Montreal Protocol’s restrictions on non-party trade in controlled substances. The rules of the Kyoto Protocol mechanisms would obviously have to make clear that non-Parties cannot pay or otherwise direct non-state actors to buy/sell on behalf of a non-Party, as this would simply by-pass the restriction on trade with non-Parties. From a legal standpoint, there are a number of ways in which the participation of non-state entities could be accommodated in the Protocol. One option would be to endow non-state entities with specific rights and responsibilities that are recognized in public international law to enable them to deal with PAAs, ERUs and CERs. Non-state entities would then be subject to international scrutiny by the COP. An alternative way to accommodate private entities would be to confine international dealings with PAAs, ERUs and CERs to those entities already recognized in public international law, with all other entities participating subject to the domestic jurisdiction of a particular Party. Dealings by nonstate entities would not register on the international legal plane unless specifically sanctioned by states: trades between entities would be ‘shadowed’ by sovereign to sovereign exchanges. In the Reparations case, the ICJ defined an international person as ‘capable of possessing international rights and duties % and [having the] capacity to maintain its rights by bringing international claims’.34 It also stated that in any legal system, ‘the subjects of law are not necessarily identical in nature or extent of their rights, and their nature depends on the needs of the community’. The ICJ decision on the international status of the United Nations (UN) states that the key element of international legal personality is the ability to bring international claims. In a similar vein (relevant to the US domestic level), Christopher Stone writes that the hallmark of a right-holder is the ability to bring a claim, at its behest, to be granted relief for its own injuries, which gives it benefits.35 This makes clear that FCCC/Kyoto Protocol Parties can tailor-make legal personalities for the array of non-state actors. Blackwell Publishers Ltd. 1999. 271 Rights under the Kyoto Protocol Volume 8 Issue 3 1999 Apart from international organizations such as the UN, there is no consensus on whether any of the other nonstate actors are suitable subjects of international law.36 Rules and state practice are patchy, incomplete and essentially contested, even in the relatively few specialized branches of international law where their direct action is allowed.37 Giving legal rights and responsibilities beyond observer status to non-state actors goes way beyond current practice. No Party has expounded an entitlement claim ‘thick’ enough to ground a property right to the satisfaction of all others. Developing countries reject allocations based on grandfathering. Long after Kyoto, they consistently stress that Annex B evidences that Annex B Parties have possession of assigned amounts, but that this does not equate to ownership. If you cannot own assigned amounts, it follows that you cannot be the full owner of smaller denominations: PAAs, ERUs and CERs. It is likely to be resisted by many developing and former Soviet bloc countries on the grounds that this might strengthen the legal position of non-state entities under public international law at their expense. Loss of effective sovereignty concerns are hardly surprising given that the three richest individuals in the world hold assets that are greater than the combined wealth of the 48 poorest countries.38 What is surprising is that most multinationals have also resisted greater direct participation at the international level. No doubt this is due to their fear of greater multilateral scrutiny and legal accountability. For these reasons, the granting of additional rights and responsibilities to non-state entities in the climate sphere is an unlikely option. There are other good policy grounds to reject property rights in assigned amounts and their components. Increased scientific knowledge and inter-generational equity considerations may justify a future re-allocation of current assigned amounts between Parties. This must be possible without the need to pay the original assignee compensation. The US acid rain trading programme specifically states that allowances granted to participating entities do ‘not constitute a property right’.39 This provision allows regulators to reduce or limit the number of allowances issued without a corresponding duty to compensate the ‘owners’, provided this is not done in an arbitrary manner. Economists would argue that the second option, which requires a ‘shadow’ system of domestic and international trades, would increase bureaucracy and limit greatly the economic benefits of the Kyoto mechanisms. It is possible that a sui generis regime for climate change to facilitate the direct participation of non-state actors in the Kyoto mechanisms could emerge. This depends on the extent to which the climate policy-making community continues to regard the climate regime important enough to break with certain legal traditions. This in turn depends on whether the climate issue is considered politically and economically important enough to sanction the creation of new legal entities and relations by anything more than a handful of countries. Insights for the Climate Regime Based on the above, this article suggests that the following insights should guide the construction of the bundles of rights in relation to the Kyoto things. These can inform the discussion of the rules, principles and guidelines being developed for emissions trading, as well as the inter-linkages to the other mechanisms: 앫 No one should be allowed to claim sole ownership rights over assigned amounts. Even a cursory examination of the Protocol illustrates that the COP or the COP/MOP exercises functions that correspond to many of the 13 elements of ‘ownership’ identified above. Because the ultimate authority to define, and where appropriate, redefine, Parties’ rights relating to the mechanisms are vested in the COP or COP/MOP, no individual Party can claim the full bundle of rights. Parties’ ability to deal with PAAs and ERUs will always be subject to COP oversight. The proper scope of the COP’s authority needs to be clear and settled to avoid uncertainty and unnecessary bureaucracy. 앫 PAAs, CERs and ERUs should not be recognized as property rights. Blackwell Publishers Ltd. 1999. 272 앫 PAAs, CERs and ERUs should retain their distinctive character Parties’ expectations about fairness may be better satisfied if the legal distinctness of PAAs, CERs and ERUs is recognized. This will allow tailor-made ‘bundles of rights’ to be agreed that respect the equity and environmental circumstances relevant to the intended operation of the mechanisms. 앫 Rules should clearly prohibit harmful use of rights to buy/sell PAAs, CERs and ERUs. Michael Grubb’s suggestion about the principle of ‘emission conservation’ appears to fall into the category of restrictions.40 The principle is designed to ensure that the climate system suffers no more harm as a result of the exercise of Annex B Parties’ right to trade than would result if there had been no trading. The principle is restrictive because it is meant to prevent environmental harm. 앫 Rights to use PAAs, ERUs and CERS should not run in perpetuity. Assigned amounts should not be conceived of as permanent appropriations, but limited to a reasonable period of time. Surpluses should not be bankable ad infinitum. If surpluses have not been used for, say, two commitment periods, they should expire. The length of expiry for CERs should be very carefully considered to allow the possibility of it taking back CERs which developing countries have alienated as part of the settlement of equity considerations relevant to the size of any targets that a developing country may accept at a future date. This would help address the inequities arising from the ‘lowhanging fruit’ harvest now possible under the CDM, which may result in all the cheaper abatement options being used by Annex I Parties, leaving developing countries with the most expensive ones. Rules developed for the mechanisms must describe what can be done in the normal course of Protocol business Volume 8 Issue 3 1999 with PAAs, CERs and ERUs, as well as what can be done when transactions result in non-compliance or Parties act, or are suspected of acting, in bad faith. 앫 The climate regime should define the extent and character of rights in relation to PAAs, CERs, and ERUs to generate legal certainty for the climate and other international regimes The COP and COP/MOP have extensive legal powers, including where to draw the line between multilateral regulation and Parties’ discretion. The kind of policy-relevant questions that need to be decided include: should it be possible for a Party to ‘mortgage’ parts of their assigned amount rather than permanently transferring these to the account of another? Should a Party be able sell the whole of its assigned amount? Should a developing country (and its entities) be entitled to generate CERs without Annex I participation? Should the COP be legally empowered to stop a Party that had given notice of withdrawal from ‘cashing in’ its assigned amount? Should the COP insist that all or some Parties maintain compliance reserves in advance of any compliance breach? And should it be able to impose trade sanctions for persistent non-compliance, and if so under what circumstances? In cases of non-compliance, because monetary damages would rarely be appropriate to make good the damage to the environment, collective remedies should provide for actual performance as well as fines. Fines would punish and check abuses of the right to alienate the benefit of income (through excess sale of parts of assigned amounts, for example). If non-state actors participate in the mechanisms, the legal status and powers (or functions) of each category of non-state entity must be determined. The clarification must include what collective and individual remedies are available to compel performance of these functions/rules. Other international legal regimes, such as the GATT/WTO, should not, directly or indirectly, seek to regulate trade in PAAs, CERs and ERUs. Trade-related aspects of the Kyoto mechanisms should be considered by the dispute- and compliance-related processes established by the FCCC and Kyoto Protocol. It remains unclear, for example, whether PAAs, CERs and ERUs can be characterized as ‘goods’, ‘services’ or financial instruments, if indeed they fall into any of these categories. Conclusions The climate regime is in the process of defining rules to regulate the access and use of highly valuable resources. It is doing so in the context of the globalized, de-regulated market economy. This poses fundamental challenges to the traditional legal order. Because of their overtly political, value-laden character, there is a tendency to sweep equity considerations relevant to climate change under the carpet. Policy-makers believe that equity discussions involve a high risk of deadlock because if participants insist on their viewpoints, there is no objective way to solve disputes on a consensual basis. Rights under the Kyoto Protocol In a negotiating community as large and diverse as that of climate change, and one operating without agreed rules of procedure, these beliefs are understandable. Ignoring equity issues tends to result in the prioritization of efficiency-based objectives. Undue focus on efficiency alone will not serve the climate regime well. Equity lies at the heart of the two critical issues facing the regime: the development of new commitments and the operation of the Kyoto mechanisms. At this particular stage in time, the climate regime will benefit from an explicit, detailed consideration of equity. Negotiations about equity in the climate context will help define principles, rules and norms fundamental to the development of international law, such as sustainable development, in the next millennium. Successful solutions devised by the climate community will not only make the planet safer. They will also contribute to the development of international law. Notes 1. For an overview of the literature on equity and climate change, see Banuri et al., chapter 3, in ‘Climate Change 1995, Economic and Social Dimensions of Climate Change’, Second Assessment Report, ed. Bruce et al., Intergovernmental Panel on Climate Change (Cambridge, Cambridge University Press, 1996). See also Tim O’Riordan and Jill Jaeger, ‘Beyond Climate Change Science and Politics’, in Politics of Climate Change; a European Perspective, O’Riordan and Jaeger (eds), (London, Routledge, 1996), M. Thompson, and S. Rayner, chapter 4, ‘‘Cultural Discourses’ in Institutional Frameworks for Political Action’, in Human Choice and Climate Change, The Societal Framework, Volume 1, Steve Rayner and Elizabeth Malone (eds), (Battelle Press, 1998). For post-Kyoto equity discussions, see Eileen Claussen and Lisa McNeilly, ‘Equity and Global Climate Change: The Complex Elements of Global Fairness’, Pew Center on Global Climate Change (October 1998); Benito Müller, ‘Justice in Global Warming Negotiations, How to Obtain a Procedurally Fair Compromise’, Oxford Institute for Energy Studies, (December 1998); Lasse Ringius, ‘Differentiation, Burden-sharing and Leadership in the EU’, CICERO (1998); Daniel Kammen and Ann Kinzig, ‘Aiming for Equity, National Trajectories of Carbon Emissions: Analysis of Proposals to Foster the Transition to Low Carbon Economies’, Global Environmental Change, 8(3), 183–208 (1998); Christina Batruch, ‘Hot Air as Precedent for Developing Countries? Equity Considerations’, Working Paper W71, International Academy of the Environment, Geneva (1998); Philippe Cullet, ‘Equity and Flexibility Mechanisms in the Climate Change Regime: Conceptual and Practical Issues’, Paper for the International Environmental Law Research Centre (1998). 2. Brownlie, Principles of Public International Law (Third Ed.), (New York, Oxford University Press, 1979), at 27. 3. Principle 2 of the Rio Declaration on Environment and Development, U.N. Doc. A/CONF.151/5/Rev.1 (1992), reprinted in 31 ILM 876. See Annex for full text of this Principle; see also Principle 21 of the Declaration of the U.N. Conference on the Human Environment in Report of the United Nations Conference on the Human Environment, U.N. Doc. A/CONF.48/14/Rev.1, U.N. Sales No. E.73.IIA.14 (1973), reprinted in 11 ILM 1416. 4. Case Concerning the Continental Shelf (Tunisia/Libya Arab Jamahiriya), 24 February 1982, ICJ Rep. 1982, at 60, para. 71. 5. Id. This restricted view of equity is still held by some legal scholars, see e.g. Brownlie, n.2 above. 6. Id. The sources of international law are set out in Article 38(1) of the ICJ’s Statute. 7. There have been many attempts to summarize the general principles of law. See generally Bin Cheng, General Principles of Law as Applied by International Courts and Tribunals (Cambridge, Grotius Publications, 1987). Blackwell Publishers Ltd. 1999. 273 Rights under the Kyoto Protocol 8. Continental Shelf Case (Tunisia/Libya Arab Jamahiriya), n.4 above; see also Article 38 of the ICJ statute, n.6 above. 9. Id. 10. North Sea Continental Shelf Cases, 20 February 1969, ICJ Rep. 1969. The judgment was adopted by 11 votes to 6. Several of the dissenting judges appended dissenting opinions on the application of equity and equitable principles to the cases. 11. See Article 38(2) of the ICJ Statute. 12. Hersch Lauterpacht, The Development of International Law by the International Court (New York, Praeger, 1958), at 213. 13. In that case, the legal regime concerned the continental shelf. See ICJ Rep. 1969, at 47, para. 85. 14. For a non-exhaustive attempt at codifying the general principles of law, see Bin Cheng, n.7 above, in particular, Appendix I. 15. The ICJ stated in the 1985 Libya/Malta Judgment ‘[i]n relation to continental shelf delimitation, although there may be no legal limit to the considerations which States may take into account, this can hardly be true for a court applying equitable procedures. For a court, although there is assuredly no closed list of considerations, it is evident that only those that are pertinent to the institution of the continental shelf as it has developed within the law, and to the application of equitable principles to its delimitation, will qualify for inclusion. Otherwise, the legal concept of continental shelf could itself be fundamentally changed by the introduction of considerations strange to its nature’. (1985) ICJ Rep., at 40, para. 48. 16. Recognizing this, the ICJ in its 1982 Judgment stated that whilst its terminology was generally used, it ‘is not entirely satisfactory because it employs the term equitable to characterize both the result to be achieved and the means to be applied to achieve this result’. (1982) ICJ Rep., at 59, para. 70. 17. For one example of this see Legal and Institutional Aspects of Joint Implementation under the UN Framework Convention on Climate Change, Institute of Social Studies International Services, Netherlands, 31 December 1993, at 57. 18. Thomas Franck, Fairness in International Law and Institutions (Oxford, Clarendon Press; New York, Oxford University Press, 1995), at 8. 19. See O’Riordan et al., ‘Institutional Frameworks for Political Action’, in Steve Rayner and Elizabeth Malone (eds), n.1 above. For a legal perspective of solidarity as a basis for inter-state relations, see R. McDonald, ‘Solidarity in the Practice and Discourse of Public International Law’, 8 PCE Int’l L Rev. 259 (1996), and Philippe Cullet, n.1 above. 20. On the ‘constitutional’ nature of these principles see article by Jaume Saura, ‘Mechanisms to Adapt the Climate Change Regime to the Particular and General Needs of Parties’ (1999), a paper for the EUFCCC Project. See also Clarke, Jhaveri and Yamin, ‘The Rio Declaration: a Case Study’ prepared for the EUFCCC Project, FIELD Working Paper (1997), which examines how the principles underpinning the FCCC have been incorporated, interpreted or applied in treaties and international judicial bodies. 21. Claussen and McNeilly, n.1 above, at 8. See also Müller, n.1 above; Lasse Ringius, ‘Differentiation, Leaders and Fairness: Negotiating Commitments in the European Community’, CICERO (1997/98); Kammen and Kinzig, n.1 above; Grubb, Vrolijk and Brack, The Kyoto Protocol – A Guide and Assessment (London, Royal Institute for International Affairs, 1999). 22. See Batruch, n.1 above. 23. To simplify discussion, the term COP is used in the remainder of this article, although formally it is the COP/MOP that has the legal authority to deal with Protocol matters. 24. Daniel Bromley, Economic Interests and Institutions: the conceptual foundations of public policy (Oxford, Blackwell, 1988). 25. See Bhaskar Vira, ‘Rights, Property Rights and their Protection – implications for the analysis of environmental policy’, Oxford Centre for the Environment, Ethics and Society (OCEES), Research article No. 2, August 1995. 26. The following elements are quoted directly from Vira, id., at 13, and are based on Becker, ‘The Moral Basis of Property Rights’, Blackwell Publishers Ltd. 1999. 274 Volume 8 Issue 3 1999 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. in J. R. Pennock and J.W. Chapman (eds), Property (New York, 1980). Following the Hohfeld classification of rights/duties, elements 1, 4 and 9 are described by Becker (id.) as ‘claim-rights’. This means that there are corresponding duties on others to allow the right-holder to exercise her right. The duties may involve positive assistance or simply the passive condition of non-interference. Elements 2, 5 and 6 are described as a ‘liberty/privilege’. This means that the owner may undertake a particular action and is under no obligation to take others’ interests into account. Elements 3, 7 and 8 are described as ‘powers’. This means that the right owner may bring about a particular consequence for others who are under a liability to accept the new situation even if it is to their disadvantage. See Farhana Yamin, ‘Bi-lateral, Multi-lateral and Other Approaches to the CDM’, WRI/CSDA/FIELD article (October 1998). See B. Guy Peters, ‘Globalization, Institutions and Governance’, European University Institute, Robert Schuman Centre, (1998). See Ayesha Diaz, ‘Permanent Sovereignty’, Environmental Law and Policy, 1995. Fisheries on the high seas, for example. There are, however, various sectoral and specific geographic regimes where open access rules are displaced in favour of later, more specialized rules, e.g. whaling and Antarctica. Initially applied to the deep sea bed in UNCLOS and substantially revised by the 1994 Agreement. The concept also applies to the resources of the Moon and, more controversially, according to developing countries, to the whole of outer space. These are most developed for international watercourses and widely used in determining access/benefits to the geo-stationary orbit. Reparations for Injuries suffered in the Service of the United Nations Case, ICJ Advisory Opinion, 11 April 1949, ICJ Rep. 1949 at 174. See C. Stone, Should Trees Have Standing? And Other Essays on Law, Morals and the Environment (New York, Oceana, 1996). See the Reparations Case, n.34 above, where the ICJ recognized the legal personality of the UN. Donna Arzt and Igor Lukashuk, ‘Participants in International Legal Relations’, in International Law, Classic and Contemporary Readings, Charlotte Ku and Paul Diehl (eds), (Lynee Rienner Publishers, 1998). Philip Johnston, ‘These Americans are Richer than 48 Nations’, Electronic Telegraph (10 September 1998), citing UNDP Human Development Report 1998. Ss 7651(b), Title IV Clean Air Act 1990 states that ‘An allowance allocated under this sub-chapter is a limited authorisation to emit sulphur dioxide in accordance with the provisions of this sub-chapter. Such allowance does not constitute a property right. Nothing in this sub-chapter or in any other provision of law shall be construed to limit the authority of the US to terminate or limit such authorisations.’ Michael Grubb, ‘Implementing the Kyoto Mechanisms: Rules for Emissions Trading’, Paper for the EUFCCC Project (1999). Farhana Yamin is Programme Director of the Climate Change Programme at the Foundation for International Environmental Law and Development (FIELD). This article is based on research carried out for the Project to Enhance Policy-Making Capacity under the Framework Convention on Climate Change and the Kyoto Protocol, funded by the European Commission, DGXII (EUFCCC project).