Implementing the Kyoto protocol: why JI and CDM show more promise than international emissions trading

The Kyoto protocol allows developed countries to achieve cost-effective greenhouse gas emission reductions abroad by means of international emissions trading (IET), joint implementation (JI) and the clean development mechanism (CDM). The article argues that JI and CDM projects will be more effective, efficient and politically acceptable than an IET system. Firstly, ex post baselines will ensure real abatement for JI and CDM projects, while the allocation of `hot air’ entails the trading of fake emission reductions under IET. Secondly, region-by-project baseline matrices will reduce transaction costs for JI and CDM, while transaction costs may increase for IET both under various trading rules and in an upstream, hybrid or mixed domestic trading system design. Thirdly, JI and CDM have more competitive advantages than IET, for example the possibility of pre-budget banking for CDM. Fourthly, analyses of about one hundred pilot phase projects and twenty permit trading simulation studies indicate that JI and CDM will be cheaper than IET. Fifthly, JI and CDM will be more politically acceptable than IET, since they avoid the macro-level (re)distribution of property or user rights.