The Kyoto Protocol went into force on February 16, 2005, using an innovative market-oriented carbon trading scheme. It has three market-based "flexibility mechanisms": Joint Implementation (JI), the Clean Development Mechanism (CDM), and International Emissions Trading (IET).
These mechanisms are described in detail in a report that I co-authored with Christine Loh of Civic Exchange in Hong Kong for CLSA, entitled The Emissions Game: How Markets Can Help Save the Planet.
I had worked with the Regulatory Reform Staff of the U.S. EPA in the early 1980s on such ideas. The State of Illinois provided financial support when we established an emissions brokerage in Chicago in 1981 – obviously a bit ahead of our time!! – and then U.S. EPA funded my Ph.D. dissertation research to help develop such mechanisms to address the problem of acid rain.
(Check out my 1987 book, Acid Rain & Emissions Trading)
In the late 1990s, I worked with a number of students at the University of Pennsylvania to study how such mechanisms could work for regional ozone control (and we published an oft-cited paper in Resource & Energy Economics, available upon request).