Mechanisms to help reduce emissions — Mechanisms have been designed to stimulate investment in non-industrial countries or economies in transition and are intended to enable the reduction of emissions in an economically effective manner.
Projects in developing countries under the CDM are expect to produce about 1.9 billion certified emission reduction units, each equivalent to a tonne of CO2, to the end of the Kyoto Protocol’s first commitment period in 2012.
The price of carbon — A carbon price reflecting the true cost of greenhouse gases emissions would provide signals to individual firms and households to cut emissions and stimulate the research and development of low-carbon technologies.
Capping emissions — The central feature of the Kyoto Protocol is its requirement that countries accept commitments to reduce emissions, binding by international law — in a word, caps. The adoption, or imposition, of caps creates a commodity — emission units — which can be traded/sold. The ability to trade emission units gives countries or companies some flexibility in meeting their emission reduction requirements, thus reducing economic costs, and provides a market-based financial incentive to reduce emissions.
Flexible mechanisms — On the principle that an emission reduction achieved in one location has the same beneficial effects as an emission reduction achieved anywhere else, the Kyoto Protocol contains three flexible mechanisms — emissions trading, the clean development mechanism, and joint implementation. These mechanisms are designed to stimulate investment in non-industrial countries or economies in transition and are intended to enable the reduction of emissions in an economically effective manner.
Emissions as a commodity — Countries with firm commitments to reduce their emissions under the Kyoto Protocol can acquire emission units from other countries with similar commitments and use them toward meeting their emissions targets. This enables countries to make use of lower cost opportunities to reduce emissions. An important component of emissions trading under the Kyoto Protocol is the international transaction log, a software-based tool to ensure secure transfer of emission reduction units between countries. The transaction log is undergoing testing, and is expected to be in operation in time for the start of the first commitment period under the Protocol in 2008.
Creating new markets — The Kyoto Protocol has already provided the impetus for creation of the European Union Emissions Trading Scheme, the world’s largest carbon market. There are other cap-and-trade carbon markets, outside of the Protocol, including a regional market covering electricity producers in seven states in the eastern United States. Another market is planned in western United States and Australia is also considering setting up a cap-and-trade system. Still others are being discussed. Some people foresee the linking of the various cap-and-trade carbon markets to achieve efficiency and cost saving.
Stimulating sustainable development — The clean development mechanism provides a means to stimulate sustainable development and emission reductions, while giving industrialized countries flexibility in how they meet their emission reduction targets.
Reducing emissions in developing countries — The mechanism allows emission-reducing projects in developing countries to earn certified emission reduction units, each equivalent to one tonne of CO2, which the project participants can then sell to buyers in industrialized countries. Projects range from wind farms to hydroelectric power stations and also include energy efficiency projects.These projects must qualify through a rigorous registration process designed to ensure real, measurable emission reductions that are additional to what would have occurred without the project.
A growing programme — The mechanism, the first global investment and credit scheme of its kind, is overseen by an executive board, answerable ultimately to the countries that have ratified the Kyoto Protocol. Projects in a wide range of sectors, from renewable energy to agriculture to chemical industries are expected to earn in excess of 1.9 billion CERs.
Offsetting emissions through development — Through the Joint Implementation mechanism, a country with an emission reduction commitment under Kyoto Protocol can be involved in an emission-reducing project in any other country with a commitment, and count the resulting emission reductions towards meeting its own Kyoto target. Joint Implementation projects earn emission reduction units, each equivalent to one tonne of CO2. As such, the mechanism is broadly similar to CDM in terms of verification and oversight, but is open to projects in industrialized countries as well. As with the CDM, all emission reductions must be real, measurable and additional to what would have occurred without the project. The Joint Implementation mechanism is overseen by a supervisory committee, which answers ultimately to the countries that have ratified the Protocol.