The Kyoto Protocol: Understanding what it means to enterprise carbon emissions management

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The Kyoto Protocol is an international agreement that was created out of the non-binding United Nations Framework Convention on Climate Change (UNFCCC). The UNFCCC is an international treaty that was created to encourage participating countries to stabilize the level of greenhouse gases (GHGs) in the earth's atmosphere.

It was created out of the UN “Earth Summit” in Rio De Jeneiro in 1992. As the UNFCCC is a non-binding international agreement, it was decided that at a later date updates called protocols would be created with specific limits on greenhouse gas and carbon (CO2e) equivalent emissions. The Kyoto Protocol is the first major update to be put into effect.

The Kyoto protocol was created with the specific aim of having all ratifying member countries make commitments to reduce greenhouse gas production. Overall 183 countries have ratified the protocol and put it into practice. Thirty-seven industrialized nations and the European Union (Annex B countries) were given the more defined target of reducing greenhouse gases an average of 5% compared to 1990 levels. Each country has a different specific target to reach so that on the whole a 5% reduction is achieved between the specified period of 2008-2012.

The strength of the Kyoto Protocol lies in its unique emissions trading system. Emissions trading is simply a system that allows parties with defined targets to trade emission allowances. Therefore, if one member is under their allowances they can sell to a country that is above their assigned emission allowances. Under the protocol, member countries can participate in the simple 'cap and trade' form of emissions trading described above, or they can choose a less traditional Joint Implementation (JI) or Clean Development Mechanism (CDM) approach.

The JI approach to emissions trading allows an Annex B country to invest in emissions reducing projects in another Annex B country. The first country earns an emissions reduction unit (ERU) equal to one ton of CO2 for their investment. This allows countries to lower the costs associated with adhering to their Kyoto targets by investing in a country with cheaper alternatives.

The CDM approach is similar to the JI approach in that it allows for an investment in reduction projects to be undertaken in lieu of domestic reduction. The difference between the approaches is that CDMs require an Annex B country to invest in a developing nation as opposed to a fellow Annex B nation.

The investing country is awarded a certified emissions reduction credit (CER) that is also equal to one ton of CO2. This is an especially helpful system as it encourages development in countries without the needed resources. CDM activities can also include afforestation and reforestation projects to help reduce the net total of greenhouse gases produced by developing nations.

In order to assure that these transactions are tracked appropriately and that emissions are correctly reported, a set of reporting protocols is laid out explicitly in the Kyoto Protocol. These build on existing measures put into place by the UNFCCC. There are also provisions made to track the emissions trading units described above.

The reporting protocols require each Annex B country to develop a national system for the estimation of greenhouse gas emissions. The countries then must submit an annual report to demonstrate their efforts to comply with the Kyoto Protocol. There are also provisions made so that teams of experts will review the annual reports.

After 2012, the Kyoto Protocol first phase will be completed. The next step for the global community is still uncertain, but with the framework created by the Kyoto Protocol a second phase of greenhouse gas reduction activities is likely to be put into effect with the EPA and the pending regulations on mandatory carbon emissions management and reporting leading the way in the United States.

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