When the Kyoto Protocol was signed, a new arrangement was set up by the United Nations Framework Convention on Climate Change (UNFCCC), called the Clean Development Mechanism.
The purpose of this mechanism is to help non-polluting countries achieve sustainable development and, at the same time, help industrialized countries meet emission reduction quotas they have committed to in Kyoto.
The science that supports the Clean Development Mechanism is that since the whole world is like a greenhouse, CO2 and Greenhouse Gases (GHG) emitted by industry in any one part of the globe can get sequestered in any other part of the world. While most countries of the world have accepted the measurements that support this science, USA and a few others contest it and refuse to sign the Kyoto Protocol.
The economics that supports the Clean Development Mechanism is that it is much cheaper for polluting Parties (i.e. factories, industry, sectors and countries listed in Annex I of the Kyoto Protocol) to purchase credits for emission reduction and/or sequestration by non-polluting Parties (i.e. developing and under-developed countries), than to themselves install expensive clean-up mechanisms.
The globally accepted currency for purchase/sale of these carbon credits is Certified Emission Reductions or CERs. Trading in CERs is currently done under the EU Emission Trading System which operates just like any stock market.
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