Carbon Market

Our natural climate control system depends most importantly on carbon dioxide (CO2). However, our Earth's system has been affected mainly due to the burning of fossil fuels which has significantly increased CO2 levels in the atmosphere. Global climate is changing. Earth is growing warmer. To deal with global warming now is through human intervention.

The Kyoto Protocol

In 1994, member countries joined an international treaty, the United Nations Framework Convention on Climate Change (UNFCCC) to tackle the problem on global warming.

In 1997, the UNFCCC established an international agreement called the Kyoto Protocol committing the Annex 1 countries (developed countries) to stabilize greenhouse gas emissions (GHG). However, it was only in 2005 that the Kyoto protocol entered into force. More than 160 nations other than United States and Australia ratified this protocol.

The Kyoto Protocol strengthens the international response to climate change. It commits the Annex 1 countries to reduce GHG emissions by at least 5% from 1990 levels within a five year timeframe from 2008 to 2012.

Emission Trading and CDM/JI

To help these countries meet their emission reduction targets, the protocol created three mechanisms - Emission Trading, Joint Implementation (JI) and Clean Development Mechanism (CDM):

• Emission Trading allows Annex 1 countries to buy and sell emissions credits amongst themselves.
• Joint Implementation allows Annex 1 countries to acquire emissions reduction units by financing projects in other Annex 1 countries.
• Clean Development Mechanism allows Annex 1 countries to finance emissions-reduction projects in non-Annex 1 countries (developing countries) and receive credit for doing so.

Emission reduction generated through the above mechanisms is referred to as "carbon credits" or Certified Emission Reductions (CERs). The mechanisms allow Annex 1 countries to earn and trade carbon credits through projects implemented in other Annex 1 countries or in developing countries in meeting their emission reduction commitments.

In the advent of the Kyoto Protocol governments and private companies in Annex 1 countries are committing billions of dollars for emission reductions in other parts of the world. The carbon market now offers an important opportunity to help boost climate change solutions all over the world.