Carbon credits originated from the Kyoto Protocol, signed in 1997 and entered into force in 2005. This international treaty aimed to reduce greenhouse gas (GHG) emissions by establishing flexibility mechanisms for industrialized countries. :
The Kyoto Protocol introduced three major mechanisms that led to the creation of carbon markets.
Emissions trading (Article 17)
Also called international emissions trading, it allows Annex I countries (of the said protocol) to sell or buy emission allowances (Allocated Quantity Units – AQU).
Objective: to promote emission reduction where it is least costly.
Joint Implementation (MOC – Article 6)
This is a mechanism that allows an Annex I country to finance an emissions reduction project in another Annex I country, and in return, it receives Emission Reduction Units (ERUs).
Clean Development Mechanism (CDM – Article 12)
The CDM, established by Article 12 of the Kyoto Protocol, is a climate cooperation tool between industrialized countries (Annex I) and developing countries (non-Annex I). It allows the former to finance greenhouse gas (GHG) emission reduction projects in the latter, in exchange for emission reduction certificates (CERs).
Thus, an industrialized country finances a project in a developing country and receives Emission Reduction Certificates (ERCs), the objective is twofold: to reduce GHGs and the impacts of climate change and to establish a culture of sustainable development in the developing host country.
The implementation of this crucial mechanism, essential for the global valorization of carbon credits, is ensured by the CDM Executive Board, which represents the central governance body of the CDM within the United Nations Framework Convention on Climate Change (UNFCCC). It was established by the Marrakech Agreements in 2001 and operates under the authority of the Meeting of the Parties to the Kyoto Protocol.