From Ecopedia

Overview

Signed in 1997 by 187 states across the globe, the Kyoto protocol is an internationally binding agreement associated with the United Nations Framework Convention on Climate Change (UNFCCC) for achieving reduced greenhouse gases (GHGs) emissions.

The Kyoto Protocol commits all member nations including the US, Canada, Australia, Japan, Belgium, France, Germany and the UK among many others, to set binding targets for minimizing GHG emissions by about 5% against the levels recorded in 1990.

Environmental Information

The protocol's targets apply to basically four greenhouse gases (GHGs), carbon dioxide, methane, sulphur hexafluoride and nitrous oxide and two other groups consisting of perfluorocarbons and hydrofluorocarbons. The gases are translated to carbon dioxide equivalents in determining the emission levels.

Apart from the GHG, reduction targets apply to several industrial gases such as Chlorofluorocarbons (CFCs), dealt under the Montreal Protocol in 1987.

To achieve the target level, the protocol set a time period of five years, starting 2008 to 2012. The rules set for the implementation of the protocol, known as “Marrakesh Accords”, were finalized and adopted at COP7 in the year 2001, in Marrakesh.

While the UNFCCC encouraged industrialized nations to stabilize greenhouse gas emissions, the Kyoto Protocol committed the member countries to reduce the emissions.

Realizing the fact that developed nations are chiefly responsible for the current anthropogenic GHG emission levels in the atmosphere, resulting from 150 years of industrial activities, the Kyoto Protocol places special emphasis on the developed countries under the principle, “common but differentiated responsibilities”.

The Protocol was adopted in Japan’s Kyoto city in December 1997 and entered force later in 2005. Till date, 185 parties ratified the treaty.

Market-based Kyoto Mechanisms

The treaty signed in Kyoto, committed all the member countries to meet the set targets through national measures as well as through three market-based action mechanisms:

-Emissions trading, also known as “the carbon market"

-Clean development mechanism (CDM)

-Joint implementation (JI).

Emissions Trading

As per the protocol, the actual emissions of the countries are to be monitored and an accurate record of trading needs to be maintained. The protocol provides for a trading system (‘cap and trade’) that imposes national-level commitments or ‘caps’ on the emissions of member countries for reducing emission levels.

Other tradeable instruments such as allowances and carbon credits are offered at transparent prices to financial investors interested in buying them in a ‘spot market’.

The Kyoto credit sources are the Joint Implementation and Clean Development Mechanism projects which allow creation of carbon credits through emission reduction projects and conversion of project-specific credits from the already existing credits.

The Kyoto mechanisms aid in stimulating green investments apart from helping the parties in meeting the emission targets cost-effectively.

References

http://en.wikipedia.org/wiki/Kyoto_Protocol http://unfccc.int/kyoto_protocol/items/2830.php http://unfccc.int/kyoto_protocol/items/2830.php