Dóra Fazekas Carbon Market Implications for new EU - UniCredit ...

hold an amount of AAUs equivalent to how much GHG it has emitted during the period. Countries,
which have reduced their emissions below their allocated allowances, will be able to trade the
surplus allowances to others that have exceeded their cap (Carbon Trust, 2006).
Hungary, Japan and New Zealand have been the first countries to achieve eligibility by the first day
of the Kyoto commitment period, on January 1, 2008. Therefore, they can participate in the
international transaction of UN regulated carbon credits.
(2) Project-based transactions
In the case of project-based transactions, industrialized countries are allowed to take credit for
actions done offshore. The flexibility in the geographical dimension of the actions taken by
industrialized countries to reduce GHGs is justified by the scientific fact that in the case of climate
change the concentration of GHGs in the upper atmosphere is what matters.
(a) Joint Implementation
The Kyoto Protocol allows Joint Implementation between Annex I countries (article 6), which is
supplemental to domestic actions (article 6 (1d)), voluntary, and which contributes to emissions
reduction projects in other Annex B countries. Emissions reduced by JI projects need to be
additional in order to receive emissions credits called Emissions Reduction Units. In 1995, the
Berlin Conference of the Parties decided on a pilot phase for Joint Implementation without crediting
called Activities Implemented Jointly. This program was intended to explore the design of emission
reduction and sequestration projects situated in developing countries and countries in transition; and
was financed through funds from Annex I Governments or private entities.
(b) Clean Development Mechanism
The Kyoto Protocol includes a new way of linking emission reduction with economic development.
The CDM promotes sustainable development and helps developed countries meet their
commitments; contributes to emissions reduction projects in non Annex B countries; and leads to
the creation of Certified Emission Reductions (article 12 (3)). Article 12 (3) states that countries
that fund projects through the CDM get credit for certified emission reductions from these projects
provided benefits accrue to the host country. Besides countries, companies are allowed to invest and
execute projects (article 12 (9)). In contrast to the other flexibility mechanisms, CERs accrue for the
whole period 2000-2012, not just for the commitment period (article 12 (10)). Developed countries
with legally binding targets to achieve compliance can use CERs. A condition for the issue of
credits is that projects generate emissions reductions that are additional to what would have
happened in the absence of the project, a condition referred to as additionality. Emissions
reductions need to be verified and certified by an authorised third party called the Designated
Operational Entity.
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