Climate Change 2001: Working Group III: Mitigation

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7.6.6.3 International Co-operative Mechanisms

Mitigation costs vary across countries with different resource endowments, economic structure and development, institutional structure, and various other factors. These cost differences provide the opportunity to create and capture the gains from exchange that arise through international co-operative flexibility mechanisms. Mechanisms such as international carbon trading can facilitate collaborative emission reductions across countries and regions, and thereby minimize global control costs (see Chapter 6 for a detailed discussion on the issues involved in establishing such mechanisms).

The assumptions on international co-operative mechanisms include:

• Sectors and GHGs, which are included in the mechanisms.
  
• Specific constraints on countries and regions included in the trading regimes.
  
• Specific constraints on different co-operative mechanisms like those established by the Kyoto Protocol. The Protocol includes two project-based mechanisms: Article 6 on JI and Article 12 on CDM. Both JI and CDM aim to establish exchange institutions for projects to reduce GHG emissions. JI projects are between Annex I countries of the UNFCCC, and CDM projects are between countries with a reduction commitment specified in the Kyoto Protocol (termed Annex B countries) and countries without such a commitment. Another mechanism of the Kyoto Protocol is Article 17 that facilitates emissions trading among Annex B countries.
  
• Boundaries on GHG emissions trading markets, for example that set the minimum amount of domestic emission reductions for developed countries, specify a relationship between domestic GHG emissions reduction efforts and the GHG emissions reduction they can implement in collaboration with international partners.

Mitigation costs usually fall with greater flexibility for international emissions trading. This suggests that constraints on trading increase the costs of any emission target. Some critics point out that this argument does not address the potential positive impacts on technological development that can arise from implementing GHG emissions reduction policies domestically in developed countries, such as incentives for innovation and R&D.