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Emissions Trading
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Greenhouse gas emissions – a new commodity
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Parties with commitments under the Kyoto Protocol (Annex B Parties) have accepted targets for
limiting or reducing emissions. These targets are expressed as levels of allowed emissions, or
“assigned amounts,” over the 2008-2012 commitment period. The allowed emissions are
divided into “assigned amount units” (AAUs).
Emissions trading, as set out in Article 17 of the Kyoto Protocol, allows countries that have
emission units to spare - emissions permitted them but not "used" - to sell this excess
capacity to countries that are over their targets.
Thus, a new commodity was created in the form of emission reductions or removals. Since carbon
dioxide is the principal greenhouse gas, people speak simply of trading in carbon. Carbon is now
tracked and traded like any other commodity. This is known as the "carbon market."
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Other trading units in the carbon market
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More than actual emissions units can be traded and sold under the Kyoto Protocol’s emissions
trading scheme.
The other units which may be transferred under the scheme, each equal to one tonne of CO2, may be in
the form of:
Transfers and acquisitions of these units are tracked and recorded through the registry systems under the Kyoto
Protocol.
An international
transaction log ensures secure transfer of emission reduction units between countries.
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The commitment period reserve
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In order to address the concern that Parties could “oversell” units, and subsequently be
unable to meet their own emissions targets, each Party is required to hold a minimum level of ERUs,
CERs, AAUs and RMUs in its national registry. This is known as the “commitment period
reserve.”
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Relationship to domestic and regional emissions trading schemes
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Emissions trading schemes may be established as climate policy instruments at the national level and
the regional level. Under such schemes, governments set emissions obligations to be reached by the
participating entities. The European
Union emissions trading scheme is the largest in operation.
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Key Documents
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Decision 18/CP.7
on modalities, rules and guidelines for emissions trading under Article 17 of the Kyoto Protocol
more >> (171 kB)
Decision 19/CP.7
on modalities for the accounting of assigned amounts under Article 7.4 of the Kyoto Protocol more >> (171 kB)
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