The Kyoto Protocol defines three mechanisms to assist Annex I Parties in meeting their emission targets.

"Joint implementation" (Article 6) allows Annex I Parties to implement projects that reduce greenhouse gas emissions by sources, or enhance removals by "sinks", in the territories of other Annex I Parties, and to credit the resulting "emission reduction units" against their own emission targets. (The term "joint implementation" does not appear in Article 6, but it has entered into common usage as convenient shorthand).

The clean development mechanism (CDM) defined in Article 12 allows Annex I Parties to implement projects that reduce greenhouse gas emissions in non-Annex I Parties and has the additional goal of assisting non-Annex I Parties in achieving sustainable development and contributing to the ultimate objective of the Convention. Under the CDM, Annex I Parties may use "certified emission reductions" generated by project activities in non-Annex I Parties to contribute to compliance with their emission commitments. The CDM will be supervised by an executive board, and a "share of the proceeds" from project activities will be used to assist particularly vulnerable developing countries in meeting the costs of adaptation.

Emissions trading, as set out in Article 17, permits an Annex I Party to transfer part of its "assigned amount" (the target level of emissions for the Party during the commitment period) to another Annex I Party.

At COP 4 (Buenos Aires, November 1998), Parties agreed on a work programme, as part of the "Buenos Aires Plan of Action", to elaborate principles, modalities, rules and guidelines on all three mechanisms (with priority to be given to the CDM), with a view to taking decisions on these at COP 6 (The Hague, November 2000). These included decisions to be recommended for adoption to the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol at its first session (COP/MOP 1).

Key issues under negotiation on the Kyoto Protocol mechanisms have included: the question of "supplementarity" (whether a limit should be placed on the use of the mechanisms); which projects should be eligible for the CDM (particularly whether sink projects and nuclear energy projects should be permitted); whether the "share of proceeds" including "adaptation levy" applied to the CDM should be extended to all three mechanisms; who should be liable if a Party that has transferred a part of its assigned amount under emissions trading is found to be in non-compliance with its target; and what the membership of the CDM executive board should be.

Negotiations on the mechanisms have been conducted jointly by both subsidiary bodies. In addition, several inter-sessional technical workshops and informal consultations have been held to advance work.

At COP 6, however, Parties failed to reach agreement on a package of decisions under the Buenos Aires Plan of Action. The negotiating texts on the mechanisms, together with texts on other issues, were therefore forwarded to a resumed session of COP 6 for further negotiation.

At COP 6 part II (Bonn, July 2001), Parties adopted the Bonn Agreements on the Implementation of the Buenos Aires Plan of Action, registering political agreement on key issues, including on the Kyoto Protocol mechanisms. Parties did not, however, complete their work on detailed decisions on the mechanisms based on the Bonn Agreements, and the draft texts were referred to COP 7 (Marrakesh, October/November 2001) for further consideration.

Among other provisions, the Bonn Agreements specify that the use of the mechanisms shall be supplemental to domestic action, and that domestic action shall thus constitute a significant element of the effort made by each Annex I Party in meeting its emission commitments under the Protocol. Annex I Parties are to provide information concerning this provision, which shall be considered by the facilitative branch of the Compliance Committee if questions of implementation are raised. According to the Bonn Agreements, the eligibility of a Party to participate in the mechanisms is dependent on compliance with methodological and reporting requirements under the Protocol and acceptance of the Protocol's compliance regime. The Bonn Agreements further stipulate that Annex I Parties are to refrain from using credits from "joint implementation" or the CDM that are generated from nuclear facilities.

Concerning CDM projects, the Bonn Agreements state that the CDM executive board shall develop and recommend to COP 8 (October/November 2002) simplified modalities and procedures for small-scale projects, including renewable energy and energy efficiency projects. Afforestation and reforestation will be the only eligible land-use, land-use change and forestry projects under the CDM in the first commitment period, and the SBSTA will further develop modalities and procedures for addressing such concerns as non-permanence, leakage and socio-economic and environmental impacts. Public funding by Parties is not to result in a diversion of overseas development aid. The "adaptation levy" will amount to 2% of the certified emission reductions issued for a CDM project activity. The CDM executive board will comprise ten Parties to the Kyoto Protocol, including one from each of the five UN regional groups, plus two other members from Annex I Parties, two from non-Annex I Parties, and one representative of the small island developing states.

Regarding emissions trading, the Bonn Agreements require each Annex I Party to maintain a "commitment period reserve" which should not drop below 90% of the Party’s assigned amount or 100% of five times its most recently reviewed inventory, whichever is the lowest. This is to prevent "over-selling" by a Party, which might then not be able to meet its own commitments.

Parties will continue their negotiations at COP 7, in order to complete and adopt decisions on all the mechanisms at that session, including recommendations for COP/MOP 1.

In order to facilitate the prompt start of the CDM, COP 7 is also expected to elect the members of the CDM executive board. The President will promote the necessary consultations on this matter among the constituency groups.