Annex B JI allows cost-reducing international trading to bridge across an assortment of domestic compliance options. With appropriate domestic investments in GHG monitoring, investments that would be needed in any case to comply with the Kyoto Protocol, GHG trading can be an environmentally credible alternative to domestic compliance. Since emission trading lowers the cost of attaining environmental targets like the Kyoto GHG limits, it avoids the waste of resources. From a political perspective, lower compliance cost makes it politically less difficult to agree to targets. The cost savings from international GHG trading may be considerable, depending on the amount of gains from trade that the international community allows countries to reap and the organization of the emission reduction markets.
Actual savings are likely to be lower, but the potential still is significant.
A second benefit associated with global emission trading benefit derives from the fact that it separates who pays for emission reductions from who undertakes the reductions. Those countries which find themselves with lower abatement costs and more generous emission ceilings can generate a valuable commodity to export. Emission trading thus can be used to provide financial inducements for participation to those countries that because of lower incomes or other reasons are less eager to join in meeting numerical emission targets. This kind of differentiation was built into the Kyoto Protocol, with Russia and Ukraine even receiving targets in excess of what projected emissions over 2008-2012. In the future, this same approach may lead developing countries to find it advantageous assume national emission limits which provide room for future emissions growth and nearer-term opportunities for emission permit sales to developed countries that generate badly needed investment capital.