BALI, Indonesia, Dec. 5 (Xinhua) -- Emissions trading, as set out in Article 17 of the Kyoto Protocol, provides for Annex I Parties to acquire units from other Annex I Parties and use them towards meeting their emissions targets under the Kyoto Protocol.

It is an administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants, which is sometimes seen as better approach than a direct carbon tax or direct regulation.

Under the United Nations Framework Convention on Climate Change(UNFCCC), countries are permitted to use a trading system to help meet their emissions targets. In principle, a country may allocate permits to individual companies for the emission of a certain quantity of greenhouse gases. If permits are only issued to a level equal to or below the assigned amount, then a country should meet its Kyoto commitment (assuming that the measures of its emissions are accurate). If a country is incapable of meeting its target, it can buy permits from countries that are under their targets. Similarly, companies within a country that prove more able to reduce their emissions are allowed to trade excess permits to other, more polluting, enterprises.

The Clean Development Mechanism (CDM) is the entry point for developing countries (non-Annex I) into the Kyoto Protocol on Climate Change. The mechanism was established under Article 12 of the Kyoto Protocol adopted by the Third Conference of the Parties to the UNFCCC on December 11, 1997.

The dual goals of the CDM are to promote sustainable development in developing countries, and to allow industrialized countries to earn emissions credits from their investments in emission-reducing projects in developing countries. To earn credits under the CDM, the project proponent must prove and have verified that the greenhouse gas emissions reductions are real, measurable and additional to what would have occurred in the absence of the project.