Carbon market overview

Climate change is mainly caused by an accumulation of greenhouse gases (GHGs) in the atmosphere. At the Rio Conference in 1992, there was a broad international recognition of the need for a common effort in order to mitigate climate change. This resulted in the first international legally binding agreement aiming to curb greenhouse gas emissions – the United Nations Framework Convention on Climate Change (UNFCCC). According to the UNFCCC, industrialised countries, or Annex I countries, have the main responsibility to mitigate climate change.

In 1997, concrete targets for curbing GHG emissions were established in the Kyoto Protocol. Each Annex I country that has ratified the Kyoto Protocol is obliged to reach a domestic target for carbon dioxide (CO2) equivalent emissions, on average of 5.2 % below 1990 emission levels, by the first commitment period of 2008 to 2012. Annex 1 parties emitted around 64 % of total global GHGs in 1990. Non-Annex 1 countries (primarily developing countries) do not have binding targets under the Kyoto Protocol, but must ratify the Protocol in order to be hosting emission reduction projects under the flexible mechanisms (see below). As of 15 January 2008, 177 countries, plus the European Union, have ratified the Kyoto Protocol.

The reduction targets established in the Kyoto Protocol can be met by reducing domestic GHG emissions (through domestic/regional emissions trading schemes and other policy measures), or by utilising the flexible mechanisms allowed under the Kyoto Protocol: Clean Development Mechanisms (CDM) and Joint Implementation (JI).

Certified Emission Reductions (CERs) accruing from CDM projects can be used for compliance by installations covered by the European Union Emission Trading Scheme (EU ETS). Both CERs and Emission Reduction Units (ERUs) accruing from JI projects can be used for compliance with the Kyoto Protocol in the first commitment period 2008-2012.

A beginner’s guide to the UNFCCC and the Kyoto Protocol: http://unfccc.int 

Participants to the Kyoto Protocol

The map shows various categories of participants to the Kyoto Protocol. We distinguish between EU-15 countries, European countries with economies in transition, other countries with emission targets, Annex 1-countries that have not ratified the Kyoto Protocol and non-Annex 1 countries:


 

Blue: The European Union (EU) (EU-15)

All EU members are Annex I countries, and the EU-15 has taken on a common commitment to reduce their average greenhouse gas emissions by 8 % in the first Kyoto commitment period (2008-2012) compared to 1990 level. EU-15 emitted around 23 % of the global greenhouse gases in 1990. Their emissions reduction commitment is shared differently between each member state. In the carbon market, these countries are usually net buyers of emission permits.
On 01.01.2005, the EU Emission Trading Scheme (EU ETS) entered into force, making it the largest carbon trading scheme in the world. It currently covers around 45 % of the total EU GHG emissions.

EU countries having ratified the Kyoto Protocol and their percentage of total global greenhouse gas emissions in 1990:

Yellow: Countries undergoing the process of transition to a market economy

These countries have emission caps and are usually net sellers in the carbon market. JI projects are hosted mostly in these countries. All of these countries, except Russia, Ukraine and Croatia, are members of the European Union and thus are part of the EU ETS. These countries emitted around 31 % of the global GHG in 1990.

Economies in transition that have ratified the Kyoto Protocol and their percentage of total global greenhouse gas emissions in 1990:

Bulgaria	0,6
Croatia	0.2
Czech Republic	1,2
Estonia	0,3
Hungary	0,5
Latvia	0,3
Poland	3,0
Romania	1,2
Russian Federation	17,4
Slovakia	0,4
Slovenia	0,1
Ukraine	5.4

Red: Annex II non-EU countries that ratified the Kyoto Protocol

These countries have ratified the Kyoto Protocol, have compliance targets, but are not part of the EU or are not economies in transition. GHG emissions from these countries were nearly 15 % of the total global emissions in 1990. Australia was the last country to ratify the Protocol, in December 2007.

Annex I countries outside the EU that have ratified the Kyoto Protocol and their percentage of total global greenhouse gas emissions in 1990: 

White: Annex I parties not ratified

Green: Non-Annex I countries having ratified the Kyoto Protocol