How Annex I Parties to the Kyoto Protocol will achieve compliance with their substantive obligations, and how the Parties will collectively enforce those obligations, are two of many questions left unanswered by the Protocol’s text. On the one hand, Parties fear that an effective compliance and enforcement system may punish them for committing to
obligations with which they are unable to comply. On the other, they are concerned thatwithout such a system their efforts may be undercut or their economic competitiveness undermined by “free riders”—Parties that fail to implement their own obligations adequately.
Parties legitimately need assurances that these concerns can be met as they negotiate rules that will determine how the first and subsequent commitment periods will be managed. During the first commitment period, domestic action to reduce emissions should be the centerpiece of each Party’s compliance strategy. However, the Protocol’s cooperative mechanisms—joint implementation, emissions trading, and the Clean Development Mechanism—can help promote compliance by providing flexibility and cost-effectiveness. The United States and others are relying heavily on them as part of their compliance strategies.
An especially important compliance function to be provided by the cooperative mechanisms is to make additional GHG reductions available to Parties that have exceeded their assigned amounts at the end of the commitment period. Once the commitment period closes, the opportunity for a Party to meet its obligations for that period through domestic reductions will no longer be available to it. There is no guarantee, however, that a sufficient number of credits will be available through the cooperative mechanisms to satisfy demand. If they are not, some other mechanism will be required to enable Parties to avoid non- compliance. The Compliance Fund proposed in this paper is such a mechanism. It can both help Parties avoid non-compliance with their substantive Kyoto Protocol obligations and help enforce those obligations when Parties fail to comply.