Before agreeing to the Protocol, some industrialized countries insisted on a number of compromises called flexibility mechanisms (or loopholes, according to many environmentalists). These mechanisms involve carbon credits. If a country lowers its emissions more than its target, it receives a carbon credit for the extra reduction. (It's similar to what happens if you pay more than you owe on your credit card bill; you get a credit that goes toward your next bill.) The country can decide to either apply this credit to the next commitment period (when it sets its second set of targets) or sell the credits to another country that's having trouble meeting its targets now.
Because of the flexibility mechanisms, countries can actually make money if they lower their emissions more than they said they would. Of course, the downside of this trading is that some countries would prefer to buy credits, instead of actually reducing their own emissions. The good news is that the mechanisms convinced more countries to commit to the Kyoto Protocol.
The Protocol set out three specific flexibility mechanisms for Annex 1 countries:
i Clean Development Mechanism: Annex 1 countries get credits for funding emission-reducing projects in developing countries. (See Chapter 12 for more.)
i Emissions Trading: Countries that exceed their reduction targets can sell their extra reductions (carbon credit) to other countries. (We talk about how governments can implement emissions trading nationally in Chapter 10.)
i Joint Implementation: Former Soviet Union countries such as Ukraine and the Czech Republic (the Economies in Transition group — refer to the section, "The United Nations Framework Convention on Climate Change," earlier in this chapter) can sell their credits to those Annex 1 countries that have reduction targets. Annex 1 countries can also get credits for funding projects that reduce GHG emissions in former Soviet countries.
Emissions trading is the most controversial flexibility mechanism because it benefits one party almost exclusively. The USSR broke into smaller countries in the years that followed its collapse in 1991 — industry declined, and so did the emissions. But because Russia's targets were based on its 1990 emissions, it has already reduced emissions below its Kyoto targets and can sell its carbon credits — though it's not actually reducing its current greenhouse gas emissions. Of course, Russia hasn't always been just Russia. It, along with other countries that were part of the Union of Soviet Socialist Republics (USSR) (such as Ukraine and Belarus), has its own benchmarks, which represent a proportion of the old Soviet total. These other former Soviet countries also have credits to sell. No countries have purchased carbon credits from Russia (or other former Soviet countries) yet; industrialized countries consider buying carbon credits from former Soviet countries an ineffective option because no actual greenhouse gas reductions are being made. The goal is to further reduce emissions, not pay for reductions from almost 20 years ago.
The Kyoto Protocol includes one other way participating countries can score carbon credits. Annex 1 countries can get credit for enhancing carbon sinks — those natural ecosystems (such as forests) that soak up carbon, keeping it out of the atmosphere. The Kyoto Protocol grants credits for undertaking afforestation (planting trees on previously treeless land) and reforestation (replanting on land that used to be forest). (Commercial logging can't receive these credits — you can't get credit for planting a forest after cutting one down!)
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