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Kyoto Protocol


The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change. It commits its signatories, primarily industrialized nations, to reducing greenhouse gas emissions to combat global warming. The agreement, signed in Kyoto, Japan in 1997, stipulates emissions reduction targets which are legally binding on the participating countries.


The phonetic pronunciation of “Kyoto Protocol” is: /kɪˈoʊtoʊ ˈproʊtəkɔːl/

Key Takeaways

  • The Kyoto Protocol is an international treaty aimed at combating global warming by reducing greenhouse gas emissions. It came to effect in 2005, after being adopted in Kyoto, Japan, in 1997.
  • Under the Kyoto Protocol, 37 industrialized nations and the European community have committed to reducing their emissions by an average of 5 percent against 1990 levels over the five-year period 2008 – 2012.
  • The Protocol introduced three market-based mechanisms to assist countries in meeting their reduction targets – Emissions Trading, the Clean Development Mechanism, and Joint Implementation. These innovative mechanisms are designed to facilitate cost-effective reductions, foster green investments and help build a global carbon market.


The Kyoto Protocol is a significant term in the realm of business and finance because it has reshaped how global industries understand their environmental impact and responsibility. Adopted in 1997 in Kyoto, Japan, the treaty is a legal instrument under the United Nations Framework Convention on Climate Change, representing international commitment to reducing greenhouse gas emissions. These agreed-upon reductions place a particularly strong emphasis on developed countries, acknowledging their historical role in the majority of emissions. For businesses, the protocol established a market for carbon credits and influenced strategic decisions, often requiring them to employ cleaner technologies or face fines. Hence, the protocol has had profound implications for financial practices, operational costs, and investment decisions in businesses worldwide, marking the beginning of environmental consciousness and accountability on an international scale.


The Kyoto Protocol primarily serves the purpose of tackling global warming and climate change issues, which have implications for both the environment and economy worldwide. It is an international agreement linked to the United Nations Framework Convention on Climate Change (UNFCCC) that commits its parties to reduce greenhouse gas emissions. The Protocol recognizes that developed countries are principally responsible for the high levels of existing greenhouse gases in the atmosphere owing to their extensive industrial activities. Therefore, it places a heavier burden on developed nations and encourages them to take the lead in reducing emissions.

The Kyoto Protocol operates on the principles of ’emissions trading’ or ‘carbon trading’ , a market-based approach to address climate change. Essentially, the Protocol caps the amount of greenhouse gases that can be emitted by a country. If a country emits less than its cap, it gets emission reduction credits, commonly known as carbon credits. These credits can be sold on the global market, specifically to countries that have struggled to meet their own emission targets. Therefore, not only does the Kyoto Protocol aim to reduce overall global emissions, but it also promotes investment and funding in sustainable, low-carbon technologies and solutions.


1. European Union (EU) Emissions Trading System: The EU established the first and the largest international scheme for the trading of carbon dioxide (CO2) emissions allowances in response to its commitment to the Kyoto Protocol in 2005. Various sectors from static installations, aviation, to other industries participate within the trading system.2

. Brazil’s Efforts in Reducing Deforestation: Brazil utilized the principles laid out by the Kyoto Protocol and created practices to reduce deforestation in the Amazon rainforest, which contributed to a considerable reduction in carbon dioxide emissions. From 2005 to 2012, deforestation in the Amazon decreased by approximately 70%.

3. Japanese Carbon Market: Under the Kyoto Protocol, Japan committed to decrease its emissions. This commitment resulted in the launch of a Voluntary Emissions Trading Scheme (JVETS), which aimed at reducing carbon emissions. In addition, Japan also initiated a Joint Implementation (JI) mechanism, which allows a country to implement emission-reducing projects in other countries and in return earns emission reduction units (ERUs) which count towards its Kyoto targets.

Each of these examples involves commitments to the Kyoto Protocol and measures to reduce greenhouse gas emissions, showing real-world impacts of the agreement.

Frequently Asked Questions(FAQ)

What is the Kyoto Protocol?

The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change (UNFCCC), which commits its parties to reduce greenhouse gas emissions. It was adopted in Kyoto, Japan, in December 1997 and entered into force in 2005.

Why was the Kyoto Protocol created?

The Kyoto Protocol was created to fight global warming by reducing greenhouse gas concentrations in the atmosphere to a level that will prevent dangerous human interference with the climate system.

How does the Kyoto Protocol aim to reduce greenhouse gas emissions?

This agreement sets binding emission reduction targets for developed countries that vary but average 5 percent against 1990 levels over the five-year period between 2008-2012.

Who are the participants in the Kyoto Protocol?

As of 2020, 192 states have accepted the protocol, but only developed countries are required to meet emission reduction targets.

What are Kyoto Protocol’s Flexible Mechanisms?

These mechanisms allow countries to meet their greenhouse gas emission limitations by buying greenhouse gas reduction units from elsewhere. These can be through the international emissions trading (IET), the clean development mechanism (CDM), and joint implementation (JI).

What are the criticisms of the Kyoto Protocol?

Critics say that not all countries contribute equally and developing nations, such as China, India, and Brazil, are not required to reduce carbon emissions under the Kyoto Protocol.

What happened after the Kyoto Protocol’s first commitment period ended in 2012?

The Kyoto Protocol was extended until 2020 at the Doha Amendment in 2012, with some changes and new commitments for participating countries.

What is the relationship between the Kyoto Protocol and the Paris Agreement?

The Paris Agreement, adopted in 2015, marks a new course in the global climate effort and builds upon the Kyoto Protocol, extending the commitment to combat climate change with the aim to limit global warming well below 2 degrees Celsius. It covers all countries, not just developed ones.

Related Finance Terms

  • Greenhouse Gas Reduction
  • Carbon Emissions Trading
  • Climate Change Mitigation
  • Annex I Countries
  • Flexible Mechanisms

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