Flexible Mechanism : Kyoto Protocol

  Market Based Mechanisms

Countries with commitments under the Kyoto Protocol to limit or reduce greenhouse gas emissions must meet their targets primarily through national measures

As an additional means of meeting these targets, the Kyoto Protocol introduced three market-based mechanisms, thereby creating what is now known as the “carbon market” 


  Objective of Mechanism

  • Stimulate sustainable development through technology transfer and investment
  • Help countries with Kyoto commitments to meet their targets by reducing emissions or removing carbon from the atmosphere in other countries in a cost-effective way
  • Encourage the private sector and developing countries to contribute to emission reduction efforts

  Eligibility for Mechanisms

Only Countries who have fulfilled following requirement can take part in Kyoto Fexible Mechanisms:

  • They must have ratified the Kyoto Protocol
  • They must have calculated their assigned amount in terms of tonnes of CO2-equivalent emissions
  • They must have in place a national system for estimating emissions and removals of greenhouse gases within their territory (DNA)
  • They must have in place a national registry to record and track the creation and movement of ERUs, CERs, AAUs and RMUs and must annually report such information to the secretariat
  • They must annually report information on emissions and removals to the secretariat

  Units of Measurements


  Emission Trading (ET)

The trading is between Annex I countries

Also known as Cap-and-trade and International Emission Trading

The Emissions Trading-mechanism allows parties to the Kyoto Protocol to buy 'Kyoto Units'(emission permits for greenhouse gas) from other countries to help meet their domestic emission reduction targets

A Party included in Annex I “may transfer to, or acquire from, any other such Party emission reduction units resulting from projects aimed at reducing anthropogenic emissions by sources or enhancing anthropogenic removals by sinks of greenhouse gases” for the purpose of meeting its commitments under the treaty

The trade is done in Assigned Amount Units (AAU)

but the trading “shall be supplemental to domestic actions”;  means priority is always given to domestic efforts in CO2

Goal of ET

The overall goal of an emissions trading plan is to Minimize the cost of meeting a set emissions target or cap

One emissions permit or allowance is considered equivalent to one metric ton of carbon dioxide (CO2) emissions.

Other names for emissions permits are carbon credits, Kyoto Units, assigned amount units, and Certified Emission Reduction units (CER)

Example : European Union Emission Trading Scheme

  Project Based Mechanisms

In project-based Kyoto mechanisms, one country (Annex I) can receive emission reduction credits when it funds a project in another country where the emissions are actually reduced


Technology Transfer Example :

New power station in India - Cost of X Crore

Industrialised country provides technology which costs more say Y Crore

But will result in lower emissions

Industrialised country will only pay the incremental cost of the project i.e. Y - X

In return gets certified emission reductions (CERs), or credits, which it can use to meet its Kyoto commitments

JI  versus CDM

JI enables industrialized countries to carry out joint implementation projects with other developed countries

CDM involves investment in sustainable development projects that reduce emissions in developing countries

  Joint Implementation (JI)

Joint implementation (JI) is a project-based mechanism by which one Annex I Party can invest in a project that reduces emissions or enhances sequestration in another Annex I Party, and receive credit for the emission reductions or removals achieved through that project

1 ERU = one tonne of CO2, ERUs are converted from existing AAUs and RMUs before being transferred

Verification - Track 1 (by host country) andTrack 2 (Joint Implementation Supervisory Committee ,JISC)


  • Host Party and Participant Approval
  • Projects starting as from the year 2000 may be eligible as JI projects if they meet the relevant requirements, but ERUs may only be issued for a crediting period starting after the beginning of 2008

  Clean Development Mechanism (CDM)

CDM is a modified form of Joint Implementation between developed and developing countries

CDM is also a project-based mechanism

CDM credits may be generated from emission reduction projects or from afforestation and reforestation projects in non-Annex I Parties

Projects can earn saleable Certified Emission Reduction (CER) credits, each equivalent to one tonne of CO2