The Kyoto Protocol is a protocol to the international Framework Convention on Climate Change with the objective of reducing Greenhouse gases that cause climate change. It was agreed on 11 December 1997 at the 3rd Conference of the Parties to the treaty when they met in Kyoto, and entered into force on 16 February 2005.

As of November 2007, 174 parties have ratified the protocol. Of these, 36 developed countries (plus the EU as a party in its own right) are required to reduce greenhouse gas emissions to the levels specified for each of them in the treaty (representing over 61.6% of emissions from Annex I countries) , with three more countries intending to participate[3]. One hundred and thirty-seven (137) developing countries have ratified the protocol, including Brazil, China and India, but have no obligation beyond monitoring and reporting emissions. Among various experts, scientists and critics there is some debate about the usefulness of the protocol, and there have been cost-benefit studies performed on its usefulness.

The Kyoto Protocol is an agreement made under the United Nations Framework Convention on Climate Change (UNFCCC). Countries that ratify this protocol commit to reduce their emissions of carbon dioxide and five other greenhouse gases, or engage in emissions trading if they maintain or increase emissions of these gases.

The Kyoto Protocol now covers more than 170 countries globally and more than 60% of countries in terms of global greenhouse gas emissions. As of December 2007, the US and Kazakhstan are the only signatory nations not to have ratified the act.

This treaty expires in 2012, and international talks began in May 2007 on a future treaty to succeed the current one.

At its heart, the Kyoto Protocol establishes the following principles:

• Kyoto is underwritten by governments and is governed by global legislation enacted under the UN’s aegis;
• Governments are separated into two general categories: developed countries, referred to as Annex I countries (who have accepted greenhouse gas emission reduction obligations and must submit an annual greenhouse gas inventory); and developing countries, referred to as Non-Annex I countries (who have no greenhouse gas emission reduction obligations but may participate in the Clean Development Mechanism);
• Any Annex I country that fails to meet its Kyoto obligation will be penalized by having to submit 1.3 emission allowances in a second commitment period for every ton of greenhouse gas emissions they exceed their cap in the first commitment period (i.e., 2008-2012);
• As of January 2008, and running through 2012, Annex I countries have to reduce their greenhouse gas emissions by a collective average of 5% below their 1990 levels (for many countries, such as the EU member states, this corresponds to some 15% below their expected greenhouse gas emissions in 2008). While the average emissions reduction is 5%, national limitations range from an 8% average reduction across the European Union to a 10% emissions increase for Iceland; but since the EU's member states each have individual obligations,[5] much larger increases (up to 27%) are allowed for some of the less developed EU countries (see below #Increase in greenhouse gas emission since 1990).Reduction limitations expire in 2013;
• Kyoto includes "flexible mechanisms" which allow Annex I economies to meet their greenhouse gas emission limitation by purchasing GHG emission reductions from elsewhere. These can be bought either from financial exchanges, from projects which reduce emissions in non-Annex I economies under the Clean Development Mechanism (CDM), from other Annex 1 countries under the JI, or from Annex I countries with excess allowances. Only CDM Executive Board-accredited Certified Emission Reductions (CER) can be bought and sold in this manner. Under the aegis of the UN, Kyoto established this Bonn-based Clean Development Mechanism Executive Board to assess and approve projects ("CDM Projects") in Non-Annex I economies prior to awarding CERs. (A similar scheme called "Joint Implementation" or "JI" applies in transitional economies mainly covering the former Soviet Union and Eastern Europe).

 What this means in practice is that Non-Annex I economies have no GHG emission restrictions, but when a greenhouse gas emission reduction project (a "Greenhouse Gas Project") is implemented in these countries, that Greenhouse Gas Project will receive Carbon Credit which can be sold to Annex I buyers.

These Kyoto mechanisms are in place for two main reasons:

• There were fears that the cost of complying with Kyoto would be expensive for many Annex I countries, especially those countries already home to efficient, low greenhouse gas emitting industries, and high prevailing environmental standards. Kyoto therefore allows these countries to purchase (cheaper) carbon credits on the world market instead of reducing greenhouse gas emissions domestically; and,
• This is seen as a means of encouraging Non-Annex I developing economies to reduce greenhouse gas emissions through sustainable development, since doing so is now economically viable because of the investment flows from the sale of Carbon Credits.

All the Annex I economies have established Designated National Authorities to manage their greenhouse gas portfolios under Kyoto. Countries including Japan, Canada, Italy, the Netherlands, Germany, France, Spain and many more, are actively promoting government carbon funds and supporting multilateral carbon funds intent on purchasing Carbon Credits from Non-Annex I countries.

 These government organizations are working closely with their major utility, energy, oil & gas and chemicals conglomerates to try to acquire as many Greenhouse Gas Certificates as cheaply as possible. Virtually all of the Non-Annex I countries have also set up their own Designated National Authorities to manage the Kyoto process (and specifically the "CDM process" whereby these host government entities decide which Greenhouse Gas Projects they do or do not wish to support for accreditation by the CDM Executive Board).

The objectives of these opposing groups are quite different. Annex I entities want Carbon Credits as cheaply as possible, whilst Non-Annex I entities want to maximize the value of Carbon Credits generated from their domestic Greenhouse Gas Projects.

Objective

The United Nations Framework Convention on Climate Change agreed to a set of a "common but differentiated responsibilities." The parties agreed that The largest share of historical and current global emissions of greenhouse gases has originated in developed countries; Per capita emissions in developing countries are still relatively low;

The share of global emissions originating in developing countries will grow to meet their social and development needs. In other words, China, India, and other developing countries were not included in any numerical limitation of the Kyoto Protocol because they were not the main contributors to the greenhouse gas emissions during the pre-treaty industrialization period.

 However, even without the commitment to reduce according to the Kyoto target, developing countries do share the common responsibility that all countries have in reducing emissions.

Financial commitments