The past 12 months has seen an exploding number of Green InvestmentSchemes (GIS) involving Hungary, Latvia, Slovakia, the Czech Republicand Ukraine as seller countries and Austria, the Netherlands, Spain,Belgium and Japan, as buyer countries, according to the World Bank.
The GIS concept emerged as a way to enhance the environmentalintegrity of International Emission Trading (IET) of Assigned AmountUnits (AAUs) by governments that ratified the Kyoto Protocol. In thefirst round of Kyoto commitments, an excessive number of AAUs wereallocated to countries in Central Europe and the Russian Federation sothat trade in AAUs without a specific, dedicated underlying emissionreduction activity was often considered ‘hot air.’ GIS transactionsallow governments with a surplus of emissions allowances an opportunityto sell those allowances to governments that are at likely to needadditional allowances to meet their Kyoto obligations in anenvironmentally sound manner. By agreeing to use the funds associatedwith the sale of AAUs to invest in green projects likely to reduce GHGemission reductions – e.g., an energy efficiency project in the builtenvironment – GIS has enabled a trade in AAUs.
Ironically, although GIS claims to have created an environmentalsound way to trade AAUs between governments, there are growing concernsthat it may be funding projects with fewer environmental benefits thanadvertised. There are no international legal regulations regarding GISand thus the way GIS can be set up is extremely flexible: it onlydepends on how the buying and selling countries formulate atransaction. This substantial flexibility, especially as compared tothe other KP flexibility mechanisms, offers major new opportunities: itcould potentially “correct” the shortcomings of other carbon financemechanisms for certain project types and be a testing ground for thedevelopment of new carbon financing mechanisms such as voluntaryschemes in developing countries. In addition, this same flexibilityalso has significant risks: environmental integrity is harder to assurewithout a robust international legal and institutional frameworksdesignated for this purpose.
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