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Kyoto Mechanisms

In the Kyoto Protocol there are three mechanisms that serve to help developed countries achieve their Kyoto emission reduction targets by lowering the costs of reduction. The so-called Kyoto mechanisms or flexible mechanisms enable developed countries to meet part of their emission reduction commitments abroad.

Emissions Trading

The most well-known of these three instruments is emissions trading. Emissions trading allows trade in emissions units between developed countries. This works as follows: Each country is assigned a certain amount of emissions units. The volume of emissions units allocated to each country is such that a country uses up its entire allocation if it precisely complies with its national emission reduction target. If a country achieves a greater reduction than called for in the Kyoto Protocol, it can sell excess emissions units in the form of licences to another country that has not succeeded in reaching its reduction target. The purchasing country can credit these licences to its own emission reduction. The licences are sold internationally to the highest bidder - in other words, the market determines the price.

However, this regulation has a catch: if there is a wide supply of emissions units available, the price is very low. Developed countries will therefore tend to purchase emissions units instead of reducing their emissions domestically. This is particularly problematic because not every decrease in emissions is the result of effective climate protection policy. For example, Russia and Ukraine have long since exceeded their emission reduction targets, they are emitting 30 40 percent less CO2 than in 1990. However, this is due to the major economic crises they experienced in the 1990s rather than their climate protection policies. This is why these excess emissions units are referred to as "hot air". If other developed countries now purchase these emissions units rather than implementing their own climate protection measures, this poses a threat to the positive impact of the Kyoto Protocol on the climate and also hinders effective investments and innovations for a more climate-friendly economy in developed countries.

The other two Kyoto mechanisms - the clean development mechanism and joint implementation - are project-based mechanisms.

Joint Implementation

Projects carried out jointly by two developed countries that have both committed to an emission reduction target under the Kyoto Protocol fall within the scope of joint implementation. If a developed country carries out or finances a climate protection project in another developed country, it can credit the resulting emission reductions in the form of emission reduction units to its reduction target. The recipient country of course cannot credit these units. Joint implementation projects can contribute to emission reductions first being achieved where it is cheapest.

Clean Development Mechanism (CDM)

The clean development mechanism works in a similar way to joint implementation; the main difference, however, is that CDM projects are jointly carried out by a developed country with a reduction commitment and a developing country without a reduction commitment. With CDM, a developed country carries out an emissions-saving climate protection project in a developing country, and these saved units - certified emission reductions - can be credited to the developed country's account.

The goal of the CDM is not only, as with the first two mechanisms, to make emission reductions more cost effective. It also serves to assist developing countries, through technology transfer, in establishing a climate-friendly economy.

The specific conditions of the CDM were laid down in the Marrakesh Accords. According to these, all CDM projects have to be reviewed and approved in advance. Furthermore, regulations were also laid down on the type of projects that may be considered for CDM: the construction of nuclear power plants is advised against, so-called sink projects, e.g. afforestation measures, may only be credited to a limited degree.

In order to be able to use the Kyoto mechanisms, countries must:

  • have ratified the Kyoto Protocol
  • have taken on emission reduction targets, i.e. be Annex B countries
  • have calculated a national emissions budget and established a national data collection system for drawing up greenhouse gas inventories and for transactions of emissions units.

One point of contention during many climate protection negotiations was the percentage of emission reductions that should be permitted through the Kyoto mechanisms, i.e. abroad. The Kyoto Protocol itself is rather vague on this: the use of the Kyoto mechanisms must be "additional" to national reduction measures. This formulation implies that no country may comply with its reduction commitments exclusively through the use of Kyoto mechanisms. The Parties were unable, however, to agree on a more precise regulation.