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Background

Emissions trading, as set out in Article 17 of the Kyoto Protocol, provides for Annex I Parties to acquire units from other Annex I Parties and use them towards meeting their emissions targets under the Kyoto Protocol. This enables Parties to make use of lower cost opportunities to reduce emissions, irrespective of the Party in which Party those opportunities exist, in order to lower the overall cost of reducing emissions.

Only Annex I Parties to the Kyoto Protocol with emission limitation and reduction commitments inscribed in Annex B to the Protocol may participate in such trading. Such Parties may therefore be prepared to transfer units when they do not require them for compliance with their own emission targets.

The units which may be transferred under Article 17 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 pursuant to Articles 3.7 and 3.8 of the Protocol.
• 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.

Parties may also authorize legal entities (e.g. businesses, non-governmental organizations and other entities) to participate, under their responsibility, in Article 17 emissions trading. Accounts may be created in national registries to provide for such participation by legal entities.