THE COMPLIANCE FUND

The report proposes the creation of a 'Compliance Fund' to allow Annex I Parties under the Kyoto Protocol to avoid non-compliance by paying fees for GHG mitigation credits when market options are unavailable. It advocates for this fund over 'borrowing' from future periods and suggests a 'Compliance Assessment' system, enforceable through domestic courts via a 'Recognition Agreement,' to penalize and remedy willful non-compliance.

• The Compliance Fund is proposed as a mechanism for Annex I Parties to avoid non-compliance if their emissions exceed their assigned amounts at the end of the 'true-up' period and cooperative mechanism credits are unavailable on the open market. Parties pay a fee based on estimated mitigation costs plus a 'multiplier' to cover administrative costs and project risk, in exchange for emissions credits equivalent to their overage.
• The report argues that the Compliance Fund is superior to 'borrowing' (reducing future assigned amounts) because borrowing merely shifts the burden to future generations and fails to remove the economic advantage of a non-complier. In contrast, the Fund requires up-front payment to 'make the climate whole' by funding actual GHG reductions.
• The Compliance Fund is intended to protect the Kyoto Protocol from market distortions, such as speculators cornering the credit market and charging exorbitant prices, by providing a fairly priced alternative for Parties needing to remain in compliance.
• The report suggests two potential administrators for the fund: the Clean Development Mechanism (CDM) and the Global Environment Facility (GEF). The CDM is noted for its alignment with generating credits and benefiting developing countries, while the GEF could provide an initial inventory of credits backed by accrued reductions, though its mandate for 'grant and concessional funding' might conflict with issuing credits to developed countries.
• For Parties that willfully fail to comply after the true-up, the report proposes a 'Compliance Assessment'—a monetary penalty determined by the size of the overage and a multiplier. This assessment would be issued by the COP/MOP following a review and verification process, potentially involving an expert panel and an arbitral panel for disputes.
• To ensure the collection of Compliance Assessments, the report proposes a 'Compliance Assessment Recognition Agreement.' Under this agreement, Annex I Parties would recognize these assessments as arbitral-type awards enforceable in their domestic courts, similar to arrangements under the NAFTA Environmental Side Agreement and the New York Convention.
• The report suggests a 'traffic light' system for emissions trading to penalize non-compliance: a 'red light' would prohibit Parties from selling parts of their assigned amounts (PAAs) until they pay their Compliance Assessment, while a 'yellow light' would warn buyers that they assume the risk of the seller's non-compliance.

APA

Goldberg, D., & Wiser, G. (1999). THE COMPLIANCE FUND. Center for International Environmental Law. https://www.ciel.org/wp-content/uploads/2015/03/ComplianceFund.pdf

Chicago

Goldberg, Donald, and Glenn Wiser. THE COMPLIANCE FUND. Center for International Environmental Law, 1999. https://www.ciel.org/wp-content/uploads/2015/03/ComplianceFund.pdf.

Wikipedia

{{cite report |last1=Goldberg |first1=Donald |last2=Wiser |first2=Glenn |title=THE COMPLIANCE FUND |publisher=Center for International Environmental Law |date=June 1999 |url=https://www.ciel.org/wp-content/uploads/2015/03/ComplianceFund.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{goldberg1999compliance, author = {Goldberg, Donald and Wiser, Glenn}, title = {{THE COMPLIANCE FUND}}, institution = {Center for International Environmental Law}, year = {1999}, month = jun, url = {https://www.ciel.org/wp-content/uploads/2015/03/ComplianceFund.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }