The Kyoto Protocol is an agreement that was reached under the United Nations Framework Convention on Climate Change (UNFCCC) in Kyoto, Japan in December 1997. It involves countries agreeing to reduce their emissions of carbon dioxide and other Greenhouse Gases. If they do not succeed in reducing their emissions, or actually increase them, then they must participate in carbon trading to compensate for this usage.

The 169 countries which have now agreed to abide by the Kyoto Protocol are split into two categories. Developed countries are in the segment labelled Annex 1, and must account for their emissions by submitting an inventory of their greenhouse gas usage annually. Developing countries (Annex 2) have no emission restrictions to abide by/achieve, but may have chosen to participate in the Clean Development Mechanism, where developed Annex 1 countries invest in emission reducing projects in their countries. This is thought in many cases to be cheaper for Annex 1 countries than reducing emissions in their own country, so therefore suits all concerned.

Annex 1 countries must reduce their carbon emissions by a set amount in the first period of the Kyoto Protocol - 2008-2012. Any that fail to meet this target will be penalised in the next period. On average, countries have been set a target 5% below their 1990 emissions, which will have been significantly lower than their emissions now. Some less developed countries however, are still allowed to increase their emission by an allowed amount.

As Annex 2 countries have no restrictions to meet, any GHG Projects (projects to cut emissions) are carried out, they will earn Carbon Credit, which can then be sold to Annex 1 countries struggling to stay within their emissions allowance. This means bargaining will take place between Annex 1 countries wishing to buy Carbon Credit as cheaply as possible, whilst non-Annex 1 countries of course want as much as possible to help their economic growth. It is this promised sale of Carbon Credit which is helping the environment by encouraging non-Annex 2 countries to embark on GHG projects.

Currently, Australia and the US have signed the agreement, but are yet to agree to partake in the reduction of emissions. Meanwhile, China and India, despite being fully involved, are not required to reduce their emissions, despite their size/populations. This is due to India and China not being major contributors during the industrialisation period which is thought to be a major factor towards today's climate change. China see themselves as a contributor to the world's environment, having introduced population control policies. However, it is estimated that by 2010 they will have over taken the US as the largest emitter of Greenhouse gases. Meanwhile, Australia were granted an 8% increase in emissions due to their relative size, but Australian Prime Minister, John Howard has still refused to abide by the protocol, unhappy with the idea of China's industrial growth.

References: www.wikipedia.org