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Flexible Mechanisms

The Kyoto Protocol opens for the use of four so-called flexible mechanisms for its signatories

  • Bubbles - where a group of countries sums up their targets and redistributes them internally;
  • Joint Implementation (JI) projects in other Annex B countries that lead to Emission Reduction Units (ERUs);
  • The Clean Development Mechanism: Projects in countries without emission reductions targets (that lead to ertified Emission Reductions (CERs);
  • International emissions trading (IET) of Assigned Amount Units (AAUs) among Annex B countries

Bubbles and the European Trading Scheme

A bubble is created when an association of actors/states with common goals team together to reach their targets. The European Union (EU) member states is an example of a bubble. The EU has chosen to take one joint emission reduction target and redistribute the targets between its member states.

The Clean Development Mechanism

The Clean Development Mechanism (CDM)is the only mechanism under the Kyoto Protocol involving countries that are not subject to binding greenhouse gas emission caps by the protocol – so-called non-Annex I countries. The CDM is mandated under Article 12 of the Kyoto Protocol and oversees emission reductions in projects carried out in developing nations. Under the CDM, investors from Annex I states receive Certified Emissions Reduction units (CERs) for the actual amount of greenhouse gas emissions reduction achieved, subject to host and investor country agreement, third party assessment, and registration by the Clean Development Mechanism (CDM) Executive Board (EB). The CDM allows CERs from projects initiated after 2000.

A key component of the CDM is the requirement of additionality. Certified Emission Reductions generated under the CDM will only be recognised when the reductions of greenhouse gas emissions are additional to any that would occur in the absence of the certified project activity.

Joint Implementation

Under Joint Implementation (JI), greenhouse gas emission reduction projects can be implemented jointly between two or more developed Annex I countries. JI is mandated under Article 6 of the Kyoto Protocol and applies only to nations with quantified emissions caps, whose projects will ultimately generate emissions reduction allowances. The actual transfer of allowances will not begin until 2008.
There are two broad categories under JI. These are called track 1 and track 2. Whereas track 2 is essentially the same as the CDM (see above), track 1 is a very simplified procedure. The issuance of ERUs from a track 1 project activity can be done provided the following criteria are fulfilled by both buyer and seller:

1) Both participants are parties of the Kyoto Protocol
2) Both participants have a national system for identification of GHG emissions from sources and storage using sinks.
3) Both participants have a computerised national registry compliant with international requirements.
4) Both participants have submitted a report for determining their initial assigned amounts.
5) Both participants annually submit a current inventory protocol fully compliant with Kyoto requirements.

Under Track 1, verification does not have to be conducted by an accredited third party. Hence, the track 1 system leaves much more up to the host nation than does track 2 and the CDM. Track 1 JI projects are still, however, required to substantiate additionality.

Emissions Trading

International Emissions Trading (IET) of assigned amount units (AAUs) allows Annex B parties to exchange emissions reductions via a cap-and-trade system to meet their Kyoto targets. International emissions trading is mandated under Article 17 of the Kyoto Protocol, and will be initiated in 2008. Unlike CDM and JI, IET is not project based.