Role of Market-based Mechanisms
Countries with commitments under the Kyoto Protocol to limit or reduce GHG 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 â€˜Carbon Marketâ€™.
The Kyoto mechanisms are as follows.
Click each mechanism to know more about it.
- Emissions Trading
â€˜Emissions tradingâ€™ allows countries that have emission units to spare (emissions permitted to them but not â€˜usedâ€™) to sell their excess capacity to countries that are over their targets. The allowed emissions are divided into â€˜assigned amount unitsâ€™. Thus, a new commodity was created in the form of emission reductions or removals. Since carbon dioxide is the principal greenhouse gas, people speak simply of trading in carbon. Carbon is now tracked and traded like any other commodity. This is known as the â€˜Carbon Marketâ€™.
The other units which may be transferred under the scheme (each equal to one tonne of CO2) maybe in the form of the following.
- A RMU (Removal Unit) on the basis of LULUCF (Land use, Land-use change and Forestry) activities such as reforestation.
- An ERU (Emission Reduction Unit) generated by a joint implementation project.
- A CER (Certified Emission Reduction) generated from a clean development mechanism project activity.
What is the difference between CER (Certified Emission Reduction) and VER (Voluntary Emission Reduction)? To know more, listen to an audio podcast from cdm.unfccc.int.
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- CDM (Clean Development Mechanism)
CDM (Clean Development Mechanism)
It allows a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol (Annex II Party) to implement an emission-reduction project in developing countries. Such projects can earn saleable CER (Certified Emission Reduction) credits, each equivalent to one tonne of CO2, which can be counted towards meeting Kyoto targets.
A CDM project activity might involve, for example, a rural electrification project using solar panels or the installation of more energy-efficient boilers. The mechanism stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction or limitation targets.
Case Study: Who benefits from CDM?
To know who benefits from CDM, please listen to an audio podcast from cdm.unfccc.int.
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- JI (Joint Implementation)
JI (Joint Implementation)
It allows a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol (Annex II Party) to earn ERUs (Emission Reduction Units) from an emission-reduction or emission-removal project in another Annex II Party, each equivalent to one tonne of CO2, which can be counted towards meeting its Kyoto target. Joint implementation offers Parties a flexible and cost-efficient means of fulfilling a part of their Kyoto commitments, while the host Party benefits from foreign investment and technology transfer.
Implementation of Kyoto mechanisms has the following benefits.
- Stimulates sustainable development through technology transfer and investment.
- Allows countries with Kyoto commitments to meet their targets by reducing emissions or helping other countries to reduce carbon emissions in a cost-effective way.
- Encourages developing countries and the private sector to contribute to emission-reduction efforts.
JI and CDM are the two project-based mechanisms, which feed into the Carbon Market. JI enables industrialized countries to carry out joint implementation projects with other developed countries, while CDM involves investment in sustainable development projects that reduce emissions in developing countries. The Carbon Market is a key tool for reducing emissions worldwide. It was worth US$ 30 billion in 2006 and continues to grow in size.
You can watch two videos illustrating Kyoto Protocol on YouTube.
Click the following links to watch now.
Just like adaptation, mitigation too needs to be integrated into development policies. Let us know more about it.