Turning to international policies and measures, the Kyoto Protocol defines three international policy instruments, the so-called Kyoto mechanisms: international emissions trading (IET), joint implementation (JI), and the Clean Development Mechanism (CDM). Each of these international policy instruments provides opportunities for Annex I Parties to fulfil their commitments cost-effectively. IET essentially would allow Annex I Parties to exchange part of their assigned national emission allowances (targets). IET implies that countries with high marginal abatement costs (MACs) may acquire emission reductions from countries with low MACs. Similarly, JI would allow Annex I Parties to exchange emission reduction units among themselves on a project-by-project basis. Under the CDM, Annex I Parties would receive credit – on a project-by-project basis – for reductions accomplished in non-Annex I countries.

Economic analyses indicate that the Kyoto mechanisms could reduce significantly the overall cost of meeting the Kyoto emissions limitation commitments. However, achievement of the potential cost savings requires the adoption of domestic policies that allow individual entities to use the mechanisms to meet their national emissions limitation obligations. If domestic policies limit the use of the Kyoto mechanisms, or international rules governing the mechanisms limit their use, the cost savings may be reduced.

In the case of JI, host governments have incentives to ensure that emission reduction units (ERUs) are issued only for real emission reductions, assuming that they face strong penalties for non-compliance with national emissions limitation commitments. In the case of CDM, a process for independent certification of emission reductions is crucial, because host governments do not have emissions limitation commitments and hence may have less incentive to ensure that certified emission reductions (CERs) are issued only for real emission reductions. The main difficulty in implementing project-based mechanisms, both JI and CDM, is determining the net additional emission reduction (or sink enhancement) achieved; baseline definition may be extremely complex. Various other aspects of these Kyoto mechanisms are awaiting further decision making, including: monitoring and verification procedures, financial additionality (assurance that CDM projects will not displace traditional development assistance flows), and possible means of standardizing methodologies for project baselines.

The extent to which developing country (non-Annex I) Parties will effectively implement their commitments under the UNFCCC may depend, among other factors, on the transfer of environmentally sound technologies (ESTs).

Any international or domestic policy instrument can be effective only if accompanied by adequate systems of monitoring and enforcement. There is a linkage between compliance enforcement and the amount of international co-operation that will actually be sustained. Many multilateral environmental agreements address the need to co-ordinate restrictions on conduct taken in compliance with obligations they impose and the expanding legal regime under the WTO and/or GATT umbrella. Neither the UNFCCC nor the Kyoto Protocol now provides for specific trade measures in response to non-compliance. But several domestic policies and measures that might be developed and implemented in conjunction with the Kyoto Protocol could conflict with WTO provisions. International differences in environmental regulation may have trade implications.

One of the main concerns in environmental agreements (including the UNFCCC and the Kyoto Protocol) has been with reaching wider participation. The literature on international environmental agreements predicts that participation will be incomplete, and incentives may be needed to increase participation (see also Section 10).

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