The Kyoto Protocol is an agreement made under the United Nations Framework Convention on Climate Change (UNFCCC). Countries that ratify kyoto protocol commit to reducing their emissions of carbon dioxide and five other greenhouse gases (GHG), or engaging in emissions trading if they maintain or increase emissions of these gases.
The Clean Development Mechanism (CDM), under the Kyoto Protocol, allows industrialized countries to achieve part of their emission reduction commitments by conducting emission reducing projects abroad, and counting the reductions achieved toward their own commitments. CDM projects will take place in countries without targets, i.e. developing countries. A condition for the issue of credits in respect of the reductions achieved is that the projects result in real, measurable and long-term climate change benefits.
The rationale behind the mechanisms is that greenhouse gas emissions are a global problem and that the place where reductions are achieved is of less importance. In this way, reductions can be made where costs are lowest, at least in the initial phase of combating climate change. It is estimated that the linking of project credits to the emissions trading system will lower the annual compliance costs for companies covered by the scheme. CDM will also transfer environmentally sound technology to countries with economies in developing countries (CDM), which will help them move onto a sustainable path of development.
According to Kyoto Protocol, reducing these emissions is crucially important, as carbon dioxide is causing the earth's atmosphere to heat up.