Definition
The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change. Adopted in Kyoto, Japan, in 1997, it commits its member countries to reduce greenhouse gas emissions, recognizing that developed countries are primarily responsible for the current high levels of these emissions in the atmosphere. This is based on the scientific consensus that global warming is occurring and it is extremely likely that human-made CO2 emissions have predominantly caused it.
Key Takeaways
- The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change that commits its participants to reduce greenhouse emissions, with a primary focus on combating global warming.
- Under the Kyoto Protocol, countries are mandated to meet their specific emission reduction targets through national measures. However, the Protocol provides them with an additional means to meet their targets by purchasing Greenhouse Gas reduction units from developed countries. This economic aspect makes the Kyoto Protocol a significant tool in the realm of environmental finance.
- Having entered into force in 2005, the Kyoto Protocol set binding obligations for 37 industrialized nations and the European Community to reduce greenhouse gas emissions. These countries agreed to cut their emissions of carbon dioxide, methane, nitrous oxide, sulphur hexafluoride, hydrofluorocarbons, and perfluorocarbons.
Importance
The Kyoto Protocol is a crucial term in finance due to its relevance to environmental economics and sustainable financing.
Formulated in 1997, it is an international agreement that mandates industrialized nations to reduce their greenhouse gas emissions in an effort to combat global climate change.
This has profound financial implications, as it influences governmental policies and often necessitates significant investments in clean and renewable energy, along with other sustainability-related ventures.
Moreover, it has led to the creation of carbon markets, where emission reductions are commoditized and traded.
Hence, understanding the Kyoto Protocol is instrumental in comprehending the financial landscape of environmental sustainability and the economic complexities of climate change mitigation.
Explanation
The Kyoto Protocol’s primary purpose is to combat environmental degradation and drastic climate change caused by increased levels of greenhouse gases in the Earth’s atmosphere. This globally recognized international treaty commits its state parties to implement strategies that will minimize the emission of these harmful gases.
It was adopted in 1997 in the city of Kyoto, Japan, under the United Nations Framework Convention on Climate Change (UNFCCC). The treaty emphasizes the “common but differentiated responsibilities” principle, recognizing that developed countries, as substantial contributors to global pollution, shall take the lead in reducing emissions. The Kyoto Protocol establishes legally binding obligations for developed nations to reduce their greenhouse gas emissions.
It incorporates various innovative mechanisms, known as the “flexible mechanisms,” used for achieving this reduction. These include International Emissions Trading, Clean Development Mechanism (CDM), and Joint Implementation (JI). These mechanisms enable countries to earn and trade emissions reduction units (ERUs), thereby promoting sustainable development and cost-effective emission reduction strategies.
By such measures, the Kyoto Protocol aims to mitigate the adverse effects of global warming and stimulate a global and national low-emission transition, crucial for sustainable development.
Examples of Kyoto Protocol
European Union Emission Trading Scheme (EU ETS): The biggest carbon market in the world, established in 2005, was created as a result of the Kyoto Protocol. Under the EU ETS, companies receive or buy emission allowances which they can trade with one another as needed. This is a real-world application of the ‘Cap-and-trade’ principle from the Kyoto Protocol that puts a limit on emissions and enables businesses to generate profit from their sustainable practices.
New Zealand Emissions Trading Scheme: Implemented in 2008, this scheme was introduced by the New Zealand government to meet its obligations under the Kyoto Protocol. Under this scheme, businesses in the country are required to purchase carbon credits, which allows them to emit a certain amount of greenhouse gases. If their emissions exceed their credits, they have to buy more.
The Clean Development Mechanism (CDM) in China: The CDM, one of the Kyoto Protocol’s flexible mechanisms, is aimed at promoting sustainable development in developing countries while allowing developed countries to earn emission credits. A large portion of these projects have taken place in China. For instance, the Wind Power Project in Guangdong and the Biomass Power Generation Project in Shandong Province are examples where a developed country (such as the UK) can invest in emission-reducing projects and in return, receive Certified Emission Reduction (CER) units.
FAQs on Kyoto Protocol
1. What is the Kyoto Protocol?
The Kyoto Protocol is an international treaty that commits state parties to reduce greenhouse gas emissions. It was adopted in Kyoto, Japan, on 11 December 1997 and came into effect on 16 February 2005.
2. Why was the Kyoto Protocol created?
The Kyoto Protocol was created to fight against climate change by controlling the emission of harmful gases into the atmosphere. It places a significant burden on developed nations under the principle of “common but differentiated responsibilities.”
3. Who has to follow the Kyoto Protocol?
All the parties that have ratified the treaty have to follow the Kyoto Protocol. This includes developed, developing, and some economies in transition. However, the obligations for emission reductions are primarily on developed nations.
4. How does Kyoto Protocol Work?
The Kyoto Protocol works by setting emission reduction targets for developed countries, which are legally binding. The targets must be met within a commitment period and are calculated as an average over the period to accommodate for fluxes.
5. What is Carbon Trading in the Kyoto Protocol?
One of the mechanisms of the Kyoto Protocol is Carbon Trading. This involves the buying and selling of greenhouse gas emission allowances. Countries that emit less than their target can sell their surplus allowances to countries that exceed their target.
6. What is the relation between the Kyoto Protocol and climate change?
The main aim of the Kyoto Protocol is to combat climate change by reducing the emission of gases that contribute to global warming. Therefore, it is a key instrument in the international effort to limit the earth’s temperature increase.
7. Has the Kyoto Protocol been successful?
The success of the Kyoto Protocol is a topic of debate. While it has helped in awareness and policy framework, the global greenhouse gas emissions have continued to increase. Some also argue that it unfairly burdened developed countries while excluding major polluters among developing countries.
Related Entrepreneurship Terms
- Carbon Credits
- Emissions Trading
- Greenhouse Gases
- Annex I Countries
- Clean Development Mechanism
Sources for More Information
Sure, here are some reliable sources for more information about the finance term “Kyoto Protocol”:
