These mechanisms enable Parties to achieve emission reductions or to remove carbon from the atmosphere cost-effectively in other countries.
There was concern that the mechanisms do not confer a "right to emit" on Annex 1 Parties or lead to exchanges of fictitious credits which would undermine the Protocol's environmental goals.
The negotiators of the Protocol and the Marrakesh Accords therefore sought to design a system that fulfilled the cost-effectiveness promise of the mechanisms, while addressing concerns about environmental integrity and equity.
The project-based mechanisms allow Annex I countries with efficient, low GHG-emitting industries, and high prevailing environmental standards to purchase carbon credits on the world market instead of reducing greenhouse gas emissions domestically.
Although these caps are national-level commitments, in practice, most countries will devolve their emissions targets to individual industrial entities, such as a power plant or paper factory.
The ultimate buyers of credits are often individual companies that expect emissions to exceed their quota, their assigned allocation units, AAUs or 'allowances' for short.
National governments, some of whom may not have devolved responsibility for meeting Kyoto obligations to industry, and that have a net deficit of allowances, will buy credits for their own account, mainly from JI/CDM developers.
The PCF, for example, represents a consortium of six governments and 17 major utility and energy companies on whose behalf it purchases credits.
[citation needed] The sources of Kyoto credits are the Clean Development Mechanism (CDM) and Joint Implementation (JI) projects.
Since the creation of Kyoto is subject to a lengthy process of registration and certification by the UNFCCC, and the projects themselves require several years to develop, this market is at this point largely a forward market where purchases are made at a discount to their equivalent currency, the EUA, and are almost always subject to certification and delivery (although up-front payments are sometimes made).
An obvious precondition, however, is a realignment of penalties and fines to similar levels, since these create an effective ceiling for each market.
[6] Differing views on flexibility were summarized in the Intergovernmental Panel on Climate Change's (IPCC) Second Assessment Report.
[17] Criticisms have also been made of the various emissions trading schemes set-up by developed countries to meet their first-round Kyoto targets.
Cooperative Mechanisms under Article 6 of the Paris Agreement is the successor and the transition is expected to be completed by 2025: what to do about the old carbon credits has to be decided.