Countries with commitments under the Kyoto Protocol to limit or reduce greenhouse gas emissions must meet their targets primarily through national measures. As an additional means of meeting these targets, the Kyoto Protocol introduced three market-based mechanisms, thereby creating what is now known as the “carbon market.”  

The Kyoto mechanisms are:

• Clean development mechanism (CDM)
• Joint implementation (JI)
• Emissions trading (ET)

The Kyoto mechanisms:

• Stimulate sustainable development through technology transfer and investment
•  Help countries with Kyoto commitments to meet their targets by reducing emissions or removing carbon from the atmosphere in other countries in a cost-effective way
• Encourage the private sector and developing countries to contribute to emission reduction efforts

CDM and JI are the two project-based mechanisms which feed the carbon market. The CDM involves investment in emission reduction or removal enhancement projects in developing countries that contribute to their sustainable development, while JI enables developed countries to carry out emission reduction or removal enhancement projects in other developed countries.

Annex I Parties under the Convention must provide information in their national communications under the Kyoto Protocol to demonstrate that their use of the mechanisms is “supplemental to domestic action” to achieve their targets. This information is assessed by the facilitative branch of the Compliance Committee

To participate in the Kyoto mechanisms, Annex I Parties must meet, among others, the following eligibility requirements:

• They must have ratified the Kyoto Protocol.
• They must have calculated their assigned amount in terms of tonnes of CO2-equivalent emissions.
• They must have in place a national system for estimating emissions and removals of greenhouse gases within their territory.
• They must have in place a national registry to record and track the creation and movement of ERUs, CERs, AAUs and RMUs and must annually report such information to the secretariat.
• They must annually report information on emissions and removals to the secretariat.

Detailed eligibility requirements can be found under the respective decisions agreed by the CMP, as follows:

• CDM eligibility requirements are reflected in section F of the Modalities and procedures for a clean development mechanism ( decision 3/CMP.1);
• JI eligibility requirements are reflected in section D of the Guidelines for implementation of Article 6 of the Kyoto Protocol ( decision 9/CMP.1);
• ET eligibility requirements are reflected in in the Modalities, rules and guidelines for emissions trading under Article 17 of the Kyoto Protocol ( decision 11/CMP.1);

Businesses, non-governmental organizations and other legal entities may participate in the three mechanisms under the authority and responsibility of governments.