Emissions Trading (ET) is the only administrative based mechanism of the three Kyoto mechanisms; Joint Implementation (JI) and Clean Development Mechanism (CDM) are both project based. Under ET, countries are allowed to transfer parts of their allowed emissions (assigned amount units, or AAUs). An annex I country can acquire units from another annex I party and use the acquired units towards meeting her emissions targets under the Kyoto protocol. For instance, an annex I nation (with emission commitment as stipulated in annex B of the Kyoto Protocol) that has met and exceeded her emission reduction target, can sell units to another annex I country (also with emission commitment recommended in annex B of Kyoto Protocol) and has not met her emission target.

Emissions trading is sometimes referred to as Cap and Trade System. The goal of the Kyoto Protocol is to lower the overall emissions of the greenhouse gases by developed countries (Annex I countries), calculated as an average, over the five-year period of 2008-12 (which is the first commitment period) by 5.2 percent of 1990 levels (Cap). Different developed countries agreed to different targets (emission levels) - see Annex B of the Kyoto Protocol. For instance, the United States and Canada, respectively agreed to 7% and 6% below their 1990 GHG emission levels (i.e. US's emission level should be at 93%, while Canada's emission level should be 94% of their respective 1990 emission levels by the end of the first commitment period of the Kyoto Protocol). Under the ET Trading (or Cap and Trade) system, these countries are assigned Allowances (or credits), which permit them to pollute to their committed emission levels. If US pollutes more and exceed her emission level, she can buy allowances (credits) that allow her to pollute more from Canada (Trading).

Only Annex I Parties to the Kyoto Protocol with emission limitation and reduction commitments prescribed in Annex B to the Kyoto Protocol may participate in emission trading.

The units which may be transferred under emissions trading, each equal to one metric tonne of emissions (in CO2-equivalent terms), may be in the form of:

• An assigned amount unit (AAU) issued by an Annex I Party on the basis of its assigned amount.
• A removal unit (RMU) issued by an Annex I Party on the basis of land use, land-use change and forestry (LULUCF) activities under Articles 3.3 and 3.4 of the Kyoto Protocol.
• An emission reduction unit (ERU) generated by a joint implementation project under Article 6 of the Kyoto Protocol.
• A certified emission reduction (CER) generated from a clean development mechanism project activity under Article 12 of the Kyoto Protocol.

Transfers and acquisitions of these units are to be tracked and recorded through the registry systems under the Kyoto Protocol. These include a national registry to be established and maintained by each Annex I Party.

Cap and Trade at National and Organizational Levels

Parties may also authorize legal entities (e.g. businesses, non-governmental organizations and other entities) to participate, under their responsibility, in emissions trading. Accounts may be created in national registries to provide for such participation by legal entities. A nation (e.g. Switzerland) may specify a CAP (emission target) and divide the CAP on its industries or individuals. An industry or organization that has polluted beyond assigned emission target can purchase credits (that allows further pollution) from industries or organizations that are polluting below their set targets.

Other Sources of Information:

• Causes of Climate change - Edugreen
• Intergovernmental Panel on Climate Change (IPCC)
• United Nations Framework Convention on Climate Change
• World Meteorological Organization (WMO)
• United Nations Environmental Programme (UNEP).