The Kyoto Protocol sets legally binding limits on greenhouse gas emissions in industrialised countries who have committed to reduce their GHG emissions during the 2008-2012 first “commitment period”. In addition to promoting the reduction of on-site GHG emissions, the protocol envisages market-based flexible mechanisms aimed at keeping the cost of curbing emissions low:
- Emissions trading
- Joint implementation projects; and
- Clean development mechanism projects
Under the Kyoto Protocol, GHG emissions are quantified according to tonnes of carbon dioxide equivalent (CO2e). One tonne of CO2e will be known as an Assigned Amount Unit. Each ratifying Annex 1 country will be subject to a maximum number of AAUs equal to the maximum permissible amount of GHG emissions for that country. Countries will be able to trade AAUs in order to comply with their GHG emission reduction targets under the Protocol.
Joint Implementation (JI)
Joint Implementation projects allow Annex 1 (developed) countries to invest in GHG emission reduction projects in other Annex 1 countries (ratifying countries subject to GHG emission reduction targets from 2008 onwards), provided those projects result in real, measurable and long-term climate change benefits. The investing party is awarded “Emission Reduction Units” (ERUs), which can be used for its own emission reduction target, or sold to third parties. However, JI ERUs may not be used for compliance until the first commitment period of the Kyoto Protocol, commencing in 2008.
Clean Development Mechanism (CDM)
Clean Development Mechanism projects also allow Annex 1 countries to invest in GHG emission reduction projects. These projects take place in developing countries without GHG emission reduction targets. In order to promote sustainable, environmentally friendly development in developing nations, the Certified Emission Reductions (CERs) earned by CDM projects can be used to meet GHG reduction requirements in the European Union Emissions Trading Scheme (EU ETS) starting in 2005, as well as requirements under Kyoto.
Joint Implementation and CDM programs are driven by the understanding that climate change is a global problem, and therefore it does not matter where the emissions reductions are physically achieved. The key consideration is that they occur and are achieved in the most cost- effective way. In addition, Joint Implementation and CDM will also transfer environmentally sound technology to help countries move onto a sustainable path of development.