Parties under the UNFCCC (virtually, all the countries of the world) have the possibility to build protocols. A protocol is a text that defines the modalities to be implemented to fulfill the very broad goals of the UNFCCC. It was at COP3 (in Kyoto), that the parties set up the Kyoto Protocol (KP) after exhausting rounds of negotiations.
This protocol is as complex as the UNFCCC and this is an attempt to discuss its main points. The KP, in accordance to the principle of common but differentiated responsibilities, sets certain greenhouse gases emissions reduction targets. All developed countries (and developed countries only) agreed to reduce their greenhouse gases emissions proportionally to their capacities. The reductions under the KP are calculated in percent of reduction compared to a reference level (most usually, the year 1990). At that time, considering the remaining scientific uncertainty and the economical implications, developed countries only agreed to reduce their emissions by a little percent based on the year 1990. These targets were set for a period ranging from the adoption of the protocol to the year 2012. They also agreed on an obligation to report on their emissions on an annual basis.
The developing nations opposed strongly to any quantified target, and as an outcome, the KP mentions that they only should make efforts in reducing their emissions. Not to be economically penalized, developed countries asked for mechanisms of implementation and for the creation of an international Carbon market. This market would allow them to invest in developing countries and account the GHG reductions in their own performances.
Practically, this is how it works: let’s say a developed country (France, for instance) wants to achieve a net reduction in its GHG emissions. It can either put its industries or citizens under pressure by imposing them a reduction obligation, or it can (to a limited extent), finance a project in a developing country (China, for instance). This project would result in a diminution of China’s emissions compared to the reference scenario. France can then account the number of tons of GHG not released and compensate emissions that occurred in France. These mechanisms are called JI (Joint Implementation) and CDM (Clean Development Mechanisms). The theory behind these mechanisms is very consensual, but their enforcement and control is very conflictive. The carbon market within which the CDM and JI mechanisms work, also allows countries to directly exchange emissions. Thus, a country that reduces its emissions under the objective given in the KP, gets paid to account on his own carbon bill the emissions of a country that has exceeded its objectives.
Billions of dollars in terms of carbon are exchanged this way. However, the system is still very young and CO2 is not valued as it should to make the market really incentive. The KP was adopted by most of the parties, but not ratified by several of them including the United States. The parties that did not ratify the KP have no reduction obligations, nor can they be part of the carbon market. The KP is almost at the end of its first commitment period, and objectives and modalities for the new commitment period are being discussed right now in Copenhagen. If no agreement is reached before the end of the first commitment period, the Kyoto Protocol will become useless and all consistent efforts to enforce it, worthless.