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Reducing greenhouse gas emissions at home or abroad has become one of the dilemmas within contemporary climate change policy, touching upon various concepts such as cost effectiveness, environmental effectiveness, equity and sustainable development, and challenging the North–South relationship in itself. Although Annex I parties to the Kyoto Protocol are legally obligated, through the supplementarity requirement, to meet their Kyoto Protocol emission reduction targets to a certain extent through ‘domestic actions’, various Annex I parties favour the use of flexibility mechanisms, arguing that actions to reduce emissions should be taken where it is cheapest, given the fact that the effect on the atmosphere will be the same. This article explores the limits to flexibility under the Kyoto regime and elucidates the implications of the supplementarity requirement in Articles 6, 12 and 17 of the Protocol. The article aims to provide an effective and justifiable interpretation of the supplementarity requirement that would be acceptable to both industrialized and developing countries, taking into account cost and environmental effectiveness, as well as equity considerations.