Kyoto Protocol basics

The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change (UNFCCC). The objective of the treaty is to achieve “stabilisation of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.”

Under the protocol, 38 industrialised countries are required to reduce their greenhouse gas emissions by an average of 5.2 percent below 1990 levels over the period of 2008-2012. The covered gases are: carbon dioxide (CO2), methane (CH4), nitrous oxide (N20), hydrofluorocarbons (HFC-23), perfluorocarbons (PFCs) and sulfur hexafluoride (SF6).

The options for achieving the reduction in these gases are:

• Reducing domestic emissions (through a range of policy and other measures including carbon trading, carbon tax, regulatory standards, etc)
• Trading emissions permits between governments (Assigned Amount Units - AAUs)
• Purchasing emission reduction credits from Clean Development Mechanism (CDM) or Joint Implementation (JI) projects

The Kyoto Protocol established three flexible mechanisms that may be used to meet countries’ reduction targets through emissions trading. These are the: trading of AAUs and Joint Implementation and Clean Development Mechanism. 

For more details on the UNFCCC and Kyoto Protocol click visit the UNFCCC website.

Emissions trading schemes

Many countries have either jointly or alone chosen carbon trading as a key feature of their greenhouse gas reduction strategy and climate change policy.

Currently active schemes include:

• The EU Emissions Trading Scheme (EU ETS) – The EU ETS has allocated the effort to reduce emissions with the EU to the private sector entities responsible for these emissions. The EU ETS currently regulates CO2 emissions from energy intensive installations representing some 40 percent of EU emissions. To meet their compliance requirements, installations may reduce their emissions or use EUAs (European Union Emission Allowances), CERs (Certified Emissions Reductions) and ERUs (Emission Reduction Units). The EU ETS was expanded in 2008 to include Iceland, Norway and Liechtenstein.
• The New Zealand Emissions Trading Scheme regulates all six greenhouse gases identified in the Kyoto Protocol. The target is to cover all sectors of the economy, however, the scheme commenced with forestry only in 2008. Emitters may meet reduction targets by reducing emissions, purchasing permits or CDM/JI credits.
• In Switzerland, companies are able to choose between paying a carbon tax and emissions trading. As in the EU and New Zealand, emitters may meet reduction targets by reducing emissions, purchasing permits or CDM/JI credits.

Countries that intend to introduce emissions trading by 2010 include Australia (through the Carbon Pollution Reduction Scheme, or CPRS) and Japan.