In the Kyoto Protocol there are three mechanisms that aim to support developed countries in achieving their emission reductions. The so-called Kyoto mechanisms, or flexible mechanisms, enable developed countries to meet part of their emission reduction commitments abroad.
The most well-known of these three instruments is emissions trading, which enables trade in emission units between developed countries. This works as follows: Each country is assigned a certain amount of emission units. The volume of these units allocated to each country is such that a country uses up its entire allocation if it precisely complies with its national Kyoto emission reduction target. If a country achieves a greater reduction than called for in the Kyoto Protocol, it can sell surplus emission units in the form of licences to another country. A country that does not succeed in reaching its Kyoto target can purchase these units and credit them to its own emission reduction. The licences are sold internationally to the highest bidder – in other words, the market determines the price. The other two Kyoto mechanisms – the clean development mechanism and joint implementation – are project-based mechanisms.
Joint Implementation (JI)
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 project in another developed country, it can credit the resulting emission reductions in the form of emission reduction units to its target. The host country of course cannot credit these units and must reduce its own units by the amount that was exported. Joint implementation projects can contribute to emission reductions first being implemented where it is most convenient.
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 carried out in a developing country that has no reduction obligation. The emission savings that are achieved through a CDM project are certified and these certified emission reductions (CERs) can be credited to the developed country's account. Developed countries obtain access to these CERs either by directly participating in a CDM project or by purchasing them. 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, for example through technology transfer, to achieve sustainable development.
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 by a body in advance before they can be credited. Furthermore, the Parties also adopted regulations in Marrakesh on the type of projects that cannot be considered for CDM: the construction of nuclear power plants is not recommended, sink projects, e.g. afforestation measures, may only be credited to a limited degree. In order to use the Kyoto mechanisms, countries must
- have ratified the Kyoto Protocol
- have taken on emission reduction targets, in other words 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 involving emission units.
One point of contention during many climate negotiations was the percentage of emission reductions that should be permitted through the Kyoto mechanisms, in other words abroad. The Kyoto Protocol itself is rather vague on this: the use of the Kyoto mechanisms must be "additional" to national reduction measures. This wording implies that no country may comply with its reduction commitments exclusively through the use of the Kyoto mechanisms. The Parties were unable, however, to agree on a more precise regulation.
Expanding CDM and JI: Programmatic approach
The programmatic approach is an innovative addition to the project-based Kyoto mechanisms. Since 2007 it has been possible to register Programmes of Activities (PoA) under JI and CDM. Using PoAs, a number of individual measures can be brought together in an overarching programme. Examples of individual measures include a change in fuel in rural areas, support for solar panels for private households and building modernisation measures. Due to the small scale of each individual measure, there is barely any economic possibility to incorporate it into a traditional CDM project – the transaction costs would be too high for project preparation, validation and registration. To ensure that the considerable potential for CO2 reduction of individual measures can be tapped as part of the Kyoto mechanisms, such activities are brought together in a PoA.
PoAs create incentives to achieve a far-reaching and long-term change in behaviour in households and companies. They generally make a substantial and effective contribution to sustainable development in partner countries that could not be achieved through individual projects alone.