The reduction of greenhouse gas emissions is the aim of the Kyoto Protocol, which at the time of writing has been ratified by all industrialized countries except the US. The countries listed in its Annex B of the Protocol have agreed to reduce their collective emissions during 2008-2012 by an average of 5.2 percent relative to a 1990 baseline (United Nations, 1998). In-country policies to achieve Kyoto emission targets vary. They can include subsidies for switching to renewable energy or to low emission power generation, taxes on carbon emissions, caps on industrial emissions, or a mixture of measures. Where caps are applied, for example in the European Union's Emission Trading Scheme, emission allowances are allocated to polluters which are less than industries' current emissions; penalties for non-compliance are the incentive to abate emissions to comply with the cap.
Annex B countries can purchase or sell emission allowances, which have a scarcity value, in a global market. The decision to purchase or sell allowances will depend on the costs of abatement relative to the cost of allowances. Making allowances tradable engenders efficiency into the process but does not affect the overall cap which is determined by the number of allowances issued. The reduction in greenhouse gas emissions achieved in the land use, land-use change and forestry sector are entered in a nation's national accounts. Annex B countries can also offset a proportion of their emissions through projects that bio-sequester carbon in developing countries. The workings of the markets for carbon sequestered in forests are dealt with in Chapters 1, 2 and 3.
The natural process responsible for the accumulation of carbon in the biomass of trees is photosynthesis, which removes carbon dioxide from the atmosphere. An understanding of the linkage between carbon dioxide removed and carbon sequestered in forests is important, given that the world's carbon markets are in terms of carbon dioxide rather than carbon (see Box 5.1).
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