This project focused on three issues. The first one was an analysis of the progress made in international climate negotiations, particularly with regard to the overall conditions for the national and international application of instruments for geographical flexibility (trade in emission permits, Joint Implementation, Clean Development Mechanism). These conditions will facilitate the fulfillment of the reduction commitments contained in the Kyoto Protocol for the first commitment period (2008 to 2012). The second focal issue consisted in devising a concept of how the application of flexible instruments can encourage avoidance activities in Germany even before 2008 ("Early Crediting"). In the process, we took the existing legal and institutional framework into account. The third focal issue was concerned with a quantification of the effects the use of flexible instruments has on the German economy. On the basis of a macroeconomic global model we pointed out the international and sectoral effects on competition and employment for various scenarios, so that the merits and/or the possible risks of these instruments can be assessed more accurately.