Kyoto Protocol

The Kyoto Protocol is an international treaty which came into force in 2005. In the treaty, most developed nations agreed to legally binding targets for their emissions of six major greenhouse gases. Emission quotas were agreed by each participating developed country, with the intention of reducing the overall emissions by 5.2% from their 1990 levels by the end of 2012. The United States is the only industrialized nation that has not ratified the treaty, and is therefore not bound by it.

The Protocol defines several flexible mechanisms that are designed to allow developed countries to meet their emission reduction commitments (caps) with reduced economic impact. It is possible for developed countries to sponsor carbon projects that reduce greenhouse gas emissions in other countries. These projects generate tradable carbon credits that can be used by developed countries in meeting their caps. The project-based Kyoto Mechanisms are the Clean Development Mechanism (CDM) and Joint Implementation (JI).

The CDM covers projects taking place in developing countries, while JI covers projects taking place in developed countries (usually central and eastern Europe). CDM projects are supposed to contribute to sustainable development in developing countries. Companies participating in the EU ETS can also fulfill their part of their obligations through investments in the Kyoto Protocol’s flexible mechanisms. However, few companies invest in projects directly; they generally purchase already issued ‘carbon credits’ at carbon exchanges or banks. For more information, visit the UN's website at www.unfccc.int.