The market established by the Kyoto Protocol is the largest potential market. However, the European ETS, which taps into the same mechanisms, has already now initiated a thriving market in the trade of EU allowances and for the import of project-based reductions. Besides those major schemes that are linked, there are two further mandatory greenhouse gas emissions trading schemes: The GGAS and the UK Emission Trading scheme.

Kyoto Protocol

This international treaty limits developed countries emissions from 2008-12. It has been created with the aim of "stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system."

"The Kyoto Protocol is an agreement under which industrialised countries will reduce their collective emissions of greenhouse gases by 5.2% compared to the year 1990 (but note that, compared to the emissions levels that would be expected by 2010 without the Protocol, this target represents a 29% cut)." (press release from the United Nations Environment Programme)

169 countries have ratified the Protocol to date. Of these, 35 countries and the EU are required to reduce greenhouse gas emissions below levels specified for each of them in the treaty.

The underlying principle is that climate change is a global problem and therefore emissions reductions can be solved on a global scale, through the following mechanisms:

• Clean Development Mechanism (CDM)
  The CDM allows Annex 1 countries or companies to buy "certified emission reductions" (CER's)generated from emission reduction projects in non-Annex 1 countries (developing countries).
• Joint Implementation (JI)
  JI is a similar mechanism to CDM, for transactions of carbon credits between Annex I countries. It allows Annex 1 countries to invest in emission reducing projects in another industrialised country, but the actual transfer of credits will only begin in 2008.
• Emissions Trading (Allowance trading under the cap & trade scheme)
  Countries that ratify Kyoto commit to reduce their GHG emissions and can engage in emissions trading to achieve their targets. Although the commitments are at national-level, in practice most countries will devolve their emissions targets to individual industrial entities. In fact, all Annex 1 countries have established Designated National Authorities to manage their GHG portfolios under Kyoto.
  More on the Kyoto Protocol

EU Emissions Trading Scheme (ETS)

The EU ETS has been set up to help member countries to achieve their Kyoto commitments. It is allocating GHG emission limitations on a number of installations within specific industry sectors in each country (approximately 11,000 installations throughout Europe), in the period from 2005 to 2012. On the other side, it creates a market for carbon trading, by allowing emission targets to be met through trading of EU emission allowances (EUAs), and carbon credits from CDM and JI projects under Kyoto. It is therefore linked to Kyoto.
More on the EU ETS

The NSW GHG Abatement Scheme (GGAS)

The NSW Greenhouse Gas Reduction Scheme (GGAS) creates emissions benchmarks for electricity retailers in the Australian state of New South Wales.
More on GGAS

The UK Emissions Trading Scheme

The UK Emissions Trading Scheme (ETS) commenced in 2002 and is the world's first national greenhouse gas emissions trading scheme. The scheme is unique in that it allows for voluntary entry, but imposes mandatory penalties upon participants which have once committed to the programme.
More on the UK ETS