Institutions in conflict? the climate change flexibility mechanisms and the multinational trading system

In an attempt to combat climate change on a global scale, the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) was adopted in conjunction with a wide range of policies both at national and international level. In particular, flexibility mechanisms-emissions trading system, joint implementation (JI) and clean development mechanism (CDM) were incorporated in the Protocol to fulfil the commitment of the Parties by utilising a market system. Under the flexibility mechanisms, an artificial market is created in which the emission allowances or emission reduction units are traded. Not surprisingly, such measures might result in significant impacts on the trade of both goods and services, presumably creating the most complex and dynamic interaction with the Multilateral Trading System (MTS) which is overseen by the World Trade Organisation (WTO). If the implementation of flexibility mechanisms is identified as inconsistent with the requirements of the MTS, enforcement of such policies may prove difficult due to constraints imposed by GATT/WTO provisions.