The Protocol provides for three principal mechanisms that give countries some flexibility in how they achieve their emission reductions. The mechanisms are International Emissions Trading (IET), Joint Implementation (JI) and the Clean Development Mechanism (CDM).
The Clean Development Mechanism is intended to enable developed countries to finance emissions-reduction projects in developing countries and to claim the "credits" generated by these projects.
There is a reasonably high degree of support for this mechanism from developing countries as many recognise that this may lead to significant inflows of capital and technology. However, it is inevitable that developing countries want to ensure host country control of the projects, and to ensure that each project is subject to detailed scrutiny and that the credits produced from the project are shared. A major issue is to ensure "permanence" of the project and its emission benefits.
Joint Implementation provides for developed country parties to undertake projects in conjunction with, or within, other developed country parties borders.
An international emissions permits trading regime will enable developed country parties to buy and sell emission credits/permits amongst themselves. This scheme has been the most contentious proposal within the Kyoto Protocol, but is now substantially resolved.
New Zealand's main interest in the mechanisms is in a trading regime of emissions permits among developed countries.
New Zealand must take a direct and ongoing interest in the development of the rules for the CDM and JI schemes, as these flexible mechanisms will provide further opportunities for achieving our targets for the first and subsequent commitment period.
The negotiations for the second commitment period (2013-2017) are important to New Zealand. Without the developing countries the Kyoto Protocol will be ineffective as an environmental response, and there will be significant impact on trade and competitiveness.
The target levels for emissions reductions are likely to be more demanding in these negotiations. New Zealand's position needs to reflect its high cost of abatement and growing energy security and supply concerns.