The voluntary implementation of the Kyoto Protocol creates new markets for carbon trading through the Clean Development Mechanism (CDM). Kyoto-ratified countries have the goal of reducing emissions to levels 5% lower than those recorded in 1990. In order to do this, Kyoto’s CDM implemented a market that allows Annex I countries (countries with an emissions reduction plan) to invest in developing countries to generated Certified Emission Reductions (CERs). The goal of this plan is to allow developing countries access to emissions reducing technology, while generating CER credits. The program officially begins in 2008, but CERs may be generated from projects beginning in 2000. Each country involved in the CDM has a Designated National Authority charged with the development of a plan for sustainable development. These groups approve CER-generating renewable projects, and review business plans to ensure that they are sustainable before any potential CER-generating project is undertaken. These projects are also reviewed by third-party auditors certified by the CDM Executive Board.

In the United States there are two developing compliance markets and one voluntary market; The Regional Greenhouse Gas Initiative (RGGI) and California both will be participating in mandated carbon trading, the Chicago Climate Exchange participates on a voluntary basis. Some companies choose to procure offsets as a part of corporate responsibility for Voluntary Emissions Reductions (VERs). RGGI consists of eight Northeastern states, Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, Vermont and Massachusetts. Rhode Island and Maryland are currently acting as observers, but may join the program at any time. Scheduled implementation is on January 1st, 2009. Current members of the RGGI Memorandum of Understanding committed to a regional cap of 120 million tons through 2014. This cap will be reduced by 2.5% per year through 2018. The RGGI has two price triggers built in, that when triggered increase the total number of allowances. The Price Triggers are designed to keep allowance prices relatively low, but this part of the program may be subject to change, as it reduces market liquidity and the incentive to innovate.

California’s greenhouse gas market is much more defined, with some regulations in place and a final goal in mind. A statewide program, beginning in 2012, will be used to reduce emissions to levels recorded in 2000 by 2010, to 1990 levels by 2020, and to 80% below 1990 levels by 2050. California will also be joining with Oregon, Arizona, New Mexico, Utah, British Columbia and Washington state (The Western Regional Climate Initiative) to reduce emissions region-wide. Once targets are set, regional cap-and-trade will cover all six greenhouse gasses; Carbon Dioxide (CO₂), Methane (CH₄), Nitrous Oxide (N₂O), Hydrofluorocarbons (HFCs), Perfluorocarbons (PFCs) and Sulfur Hexafluoride (SF₆).

Voluntary Emissions Reductions (VERs) are emissions reductions done by companies as part of their social responsibility programs, or by government agencies. Pending legislation has motivated many companies to make the first move in establishing their carbon reduction strategies prior to reductions becoming mandatory.

The Chicago Climate Exchange (CCX) is a voluntary carbon-reduction market, consisting of companies, government agencies and state branches, and institutions working to reduce emissions through offset trading. Participation in the CCX is entirely voluntary. Spectron is a participant member of the CCX.

Glossary: Greenhouse Gas Terms