International Tradable Carbon Dioxide Permits and their Application under the Kyoto Protocol

Abstract

The Kyoto Protocol has set binding targets for the reduction of greenhouse gas emissions by a large group of developed nations for the first time. This paper looks at the different policy instruments that may be used to help reach these goals, focusing on the tradable emissions permit scheme outlined by the Protocol. International trading of CO2 credits is explicitly allowed under the Protocol, but the mechanisms for monitor­ ing, certifying, and enforcing compliance has not yet been developed. In order to encourage countries to participate in such a scheme, a supranational organization-either an exist­ing agency or a newly created one-must take on these responsibilities. While the first five-year budget period does not begin until 2008, countries must begin making transitions now. Procedures must be drawn up for the accounting of reductions, dispute resolution, and penalties for noncompli­ance. Options for individual countries to meet their reduction targets are also discussed.