International Emissions Trading (IET)

Countries with emission reduction targets under the Kyoto Protocol (Annex 1 countries) are allocated allowances (Assigned Amount Units or AAUs) equal to their cap on emissions, which they are free to trade with other Annex 1 countries. The rationale for this is that countries have different marginal cost of abatement. IET hence theoretically allows for emissions to be first abated in countries with the lowest marginal cost of abatement, leaving the surplus of AAUs available to countries with a higher abatment cost to use for compliance.

For more information on Emissions Trading, please visit the UNFCCC's website.