The Kyoto Protocol broke new ground by defining three innovative "flexibility mechanisms" to lower the overall costs of achieving its emissions targets. These mechanisms enable Parties to access cost-effective opportunities to reduce emissions or to remove carbon from the atmosphere in other countries. While the cost of limiting emissions varies considerably from region to region, the benefit for the atmosphere is the same, wherever the action is taken.
Emissions trading, one of the Kyoto's flexibility mechanism set out in Article 17 of the Protocol, provides for Annex I Parties to acquire emission reduction units from other Annex I Parties and use them towards meeting their emissions targets under the Kyoto Protocol. This enables Parties to make use of lower cost opportunities to reduce emissions, irrespective of the Party in which those opportunities exist, in order to lower the overall cost of reducing emissions.
Only Annex I Parties to the Kyoto Protocol with emission limitation and reduction commitments inscribed in Annex B to the Protocol may participate in such trading. Such Parties may therefore be prepared to transfer units when they do not require them for compliance with their own emission targets.
Emissions trading schemes may be established as climate policy instruments at the national and regional levels. Under such schemes, governments set emissions obligations to be reached by the participating entities. Depending on the rules of the scheme, these obligations may be fulfilled through holding either the ERUs, CERs, AAUs and RMUs established under the Kyoto Protocol or other units established specifically for those trading schemes.
The following page provides information on existing emissions trading mechanisms and markets as well as national emissions trading schemes established in Annex I countries to comply with Kyoto requirements and in response to the demand of carbon credits.
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