DOSSIER: International Mechanisms

Published 22:00 on January 1, 2016  /  Last updated at 08:30 on September 13, 2017  /  Conversations, Dossiers  /  No Comments

This dossier provides an overview of the international emissions trading mechanisms created under the Kyoto Protocol: the Clean Development Mechanisms, Joint Implementation and International Emissions Trading. It also examines other mechanisms including REDD, NAMAs, and those currently being developed outside the UNFCCC such as the Pilot Auction Facility and the Nitric Acid Action Group.

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The Kyoto Protocol

Kyoto Protocol – 1st compliance period (CP1) (2008-2012)

There were three carbon market mechanisms defined under the UNFCCC’s 1997 Kyoto Protocol: The Clean Development Mechanism (CDM), Joint Implementation (JI) and International Emissions Trading (IET).

Targets for the first Kyoto Protocol commitment period 2008-2012 initially seemed tough for developed country parties with targets-mainly Kyoto host Japan, and southern European economies Spain and Italy. This spurred demand for trade in the carbon credits created under the three mechanisms, respectively Certified Emission Reductions (CERs), Emission Reduction Units (ERUs) and Assigned Amount Units (AAUs) and briefly pushing prices to above €20 each as developers raced to built the projects.

However, most of that demand outlook was based upon a global successor to the Kyoto Protocol being struck in 2009 in Copenhagen. That deal, which could have resulted in a post-2012 global carbon market, collapsed and resulted in great uncertainty as countries dithered in negotiating a new pact and prices for Kyoto credits plunging to unprofitable levels below $1/tonne. The rate of project registration and issuance nonetheless climbed until 2013 as developers rushed to get their schemes to market, though they have tailed off since to very low levels.

Most AAUs were bought by Japan and Japanese companies, as well as southern European nations, though their demand profile was substantially reduced as their industries slowed drastically following the 2008 economic downturn.

Source: World Bank State and Trends of Carbon Pricing 2015

Source: World Bank State and Trends of Carbon Pricing 2015

 

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