Do “Surrogate Emissions†Constitute in-Built Leakage of the Kyoto Protocol Flexible Mechanisms?

“Surrogate emissions†is a neologism coined to describe GHG emissions resulting from the production of intermediate goods in developing countries for industrial processing in industrialized countries, especially where the same transnational corporation controls these goods. Where upstream industrial processes extend to other developed countries, the leakage caused by this phenomenon does not arise. This is because all developed countries have QELROs. Thus, all emissions take place within the Annex I area and are covered by the QELROs. However, where the upstream processes ramify into developing countries, the associated GHG emissions are vented off, as it were, into an open system. The paper suggests that, for a complete picture of GHG emissions resulting from the industrial activities of Annex I Parties to the UNFCCC, these surrogated emissions should be incorporated into their national inventories. Otherwise, the emissions trading scheme under the auspices of the Kyoto Protocol would be undermined.