As described in Article 2 of the UNFCCC:
The ultimate objective of this Convention and any related legal instruments that the Conference of the Parties may adopt is to achieve, in accordance with the relevant provisions of the Convention, stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a period sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner.
The Kyoto Protocol establishes three market-based mechanisms which are International Emission Trading (IET), Joint Implementation (JI) and the Clean Development Mechanism (CDM). These mechanisms allow international cooperation in the global warming mitigation efforts as well as creating what is known as carbon market.
Kyoto protocol divides countries that ratify the protocol into two. The first one is Annex 1 countries, which consist of industrialized and economies in transition countries such as European Union countries such as Spain, Sweden, France, Netherlands, Italy, UK, Austria, Denmark, Germany, Ex-Soviet Union and Eastern European, and countries such as Russia, Ukraine, Poland, Czech, etc, and other countries such as Norway, New Zealand, Canada, Japan, etc
The second group is Annex II countries which are developing countries that have signed the Kyoto Protocol such as Indonesia, Malaysia, Thailand, India, Vietnam, etc.
Under IET Annex I countries can trade allocated greenhouse gas unit between themselves. IET is a mechanism that reduces the emission by trying to emit less green house gas to the atmosphere. The problem with this is that the only way to reduce the emission is by investing in mostly new technology which can be prohibitively expensive, or by reducing production both of which will inevitably increase the price to the end users. The tradeable greenhouse unit are called ER or Emission Reduction under IET.
JI and CDM on the other hand known as project based mechanism. It means that the reduction achieved by JI and CDM are trough actually capturing greenhouse gas in one part of the world to compensate for pollution in other part of the world. The different with JI is that JI projects are built in another Annex I countries while CDM projects are built in Annex 2 countries. The greenhouse gas unit under JI is known as Emission Reduction Units (ERUs) and under CDM is known as Certified Emission Reduction (CERs).
Each of these greenhouse units represents one tonne of CO2e in reduced emission.
Each element of the UNFCCC and Kyoto is designed to assist in meeting the Article 2 Objective of the UNFCCC. This objective is long-term.
As can be seen above. the Clean Development Mechanism is the only provision of Kyoto that has immediate benefits for both Annex I and Non-Annex I countries. Annex I countries benefit by receiving credit for emissions reductions at a lower cost than may be possible domestically or in other Annex 1 countries and Non-Annex I countries benefit from the increased economic activity generated from the projects as well as a significant transfer of technology and project management expertise.
The CDM is therefore widely embraced by both developed and developing countries. CDM has become the most tangible outcome of the Kyoto Protocol with over 4,000 projects being submitted for validation as at year-end 2009 representing, in theory, over 7 billion tonnes of emission reductions through 2020.