Kyoto flexible mechanisms

One of the Kyoto Protocol's key features is the establishment of international emissions trading through the use of the three flexible mechanisms: Emissions trading (ETS), The Clean Development Mechanism (CDM), and Joint Implementation (JI). Together, the flexible mechanisms allow states that have committed themselves to reducing their emissions, to reduce in the most cost-effective way. The mechanisms are called flexible as they enhance the possible ways in which a state or a company can achieve its emission targets.

The Kyoto Protocol envisages three flexible mechanisms:

International emissions trading
Industrialised countries (Annex 1 countries) that have committed themselves to reducing their emissions of greenhouse gases receive a quota of CO2 emission rights, so-called CO2 allowances. If converting to a cleaner economy gives a country an excess of CO2 allowances in their quota, it can choose to sell those allowances to other countries. This type of trade in CO2 quotas is already possible in the EU.

Clean Development Mechanisms and Joint Implementation
Industrialised countries (Annex 1 countries) may choose to implement climate projects in other countries as a way of adjusting their emission rights. Joint Implementation projects are specific climate projects in countries that have committed themselves the Kyoto Protocol. These projects are primarily located in Eastern Europe and Russia. Another type of project, Clean Development Mechanism projects are projects in countries that have not committed themselves to reduce their emissions. These projects are carried out in developing countries.

The goal of JI and CDM projects is to reduce greenhouse gas emissions where it is most efficient and to promote climate-friendly, sustainable development in less developed countries. These projects generate CO2 credits, equal to the greenhouse gas reduction the project achieves. Before the credits can be traded, an independent body must determine that the measures have led to real emissions reductions. The country hosting a JI or CDM project can sell the credits it acquires to companies or developed countries, which can in turn use the credits to supplement domestic or internal efforts. One CO2 credit is equivalent to one tonne of CO2 emissions.

As of October 2008 around 1,200 CDM projects have been approved, representing a combined emissions reduction of greenhouse gases of roughly 200 million tonnes of CO2 equivalent. The UN Climate Secretariat in Bonn expects that CDM projects accounting for a total of 2.7 billion tonnes of CO2 equivalent will be initiated over the period 2008-2012. There have been significantly fewer JI projects and as of October 2008 only 22 had been approved.