Carbon Credit Terms

Accrdited Independent Entity (AIE)
Accreditedindependent entities (AIEs) are independent auditorsthat assess whether a potential project meets all theeligibility requirements of the JI (determination) andwhether the project has achieved greenhouse gas emissionreductions (verification).
A project activity is additional if anthropogenicGHG emissions are lower than those thatwould have occurred in the absence of the project activity.
A project activity is additional if anthropogenicGHG emissions are lower than those thatwould have occurred in the absence of the project activity.
The process of establishing and growingforests on bare or cultivated land, which has not beenforested in recent history.
Annex I (Parties)
Annex I Parties include the industrializedcountries that were members of the OECD(Organisation for Economic Co-operation and Development)in 1992, plus countries with economiesin transition (the EIT Parties), including the RussianFederation, the Baltic States, and several Central andEastern European States.
Annex B (Parties)
The 39 industrialized countries (includingthe European Economic Community) listedin Annex B to the Kyoto Protocol have committed tocountry-specific targets that collectively reduce theirGHG emissions by at least 5.

2% below 1990 levels onaverage over 2008–12.

Assigned Amount Unit (AAU)
Annex I Parties are issuedAAUs up to the level of their assigned amount,corresponding to the quantity of greenhouse gases theycan release in accordance with the Kyoto Protocol (Art.3), during the first commitment period of that protocol(2008–12). One AAU represents the right to emitone metric ton of carbon dioxide equivalent.
A downward sloping forward curve(i.e., the price of the future is less than the spot price ofunderlying commodity).

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Antonym: contango.

Banking or carry over
Compliance units under thevarious schemes to manage GHG emissions in existencemay or may not be carried over from one commitmentperiod to the next. Banking may encourageearly action by mandated entities depending on theircurrent situation and their anticipations of future carbon constraints.

In addition banking brings marketcontinuity. Banking between Phase I and Phase II ofthe EU ETS is not allowed but is allowed betweenPhase II and further Phases. Some restrictions on theamount of units that can be carried over may apply:for instance, EUAs may be banked with no restrictionwhile the amount of CERs that can be carried over by aKyoto Party is limited to 2.5% of the assigned amountof each Party.

The emission of greenhouse gases that wouldoccur without the policy intervention or project activityunder consideration.
Biomass Fuel
Combustible fuel composed of a biologicalmaterial, for example, wood or wood by-products,rice husks, or cow dung.

California Global Warming Solution Act AB32(AB32)
The passage of Assembly Bill 32 (CaliforniaGlobal Warming Solution Act AB32) in August 2006sets economy-wide GHG emissions targets as follows:Bring down emissions to 1990 levels by 2020 (consideredto be at least a 25% reduction below business-asusual)and to 80% of 1990 levels by 2050. Coveringabout 85% of GHG emissions, a cap and trade scheme(still under design) would be a major instrument, alongwith renewable energy standards, energy efficiencystandards for buildings and appliances as well as vehicleemissions standards.
Cap and trade
Cap and trade schemes set a desiredmaximum ceiling for emissions (or cap) and let themarket determine the price for keeping emissions withinthat cap.

To comply with their emission targets atleast cost, regulated entities can either opt for internalabatement measures or acquire of allowances or emissionreductions in the carbon market, depending onthe relative costs of these options.

Carbon Asset
The potential of greenhouse gas emissionreductions that a project is able to generate andsell.
Carbon Finance
Resources provided to activities generating(or expected to generate) greenhouse gas (orcarbon) emission reductions through the transaction ofsuch emission reductions.
Carbon Dioxide Equivalent (CO2e)
The universalunit of measurement used to indicate the global warmingpotential of each of the six greenhouse gases regulatedunder the Kyoto Protocol. Carbon dioxide—anaturally occurring gas that is a byproduct of burningfossil fuels and biomass, land-use changes, and otherindustrial processes—is the reference gas against whichthe other greenhouse gases are measured, using theirglobal warming potential.
Certified Emission Reductions (CERs)
A unit ofgreenhouse gas emission reductions issued pursuantto the Clean Development Mechanism of the KyotoProtocol, and measured in metric tons of carbon dioxideequivalent.

One CER represents a reduction ingreenhouse gas emissions of one metric ton of carbondioxide equivalent.

Chicago Climate Exchange (CCX)
Members to theChicago Climate Exchange make a voluntary but legallybinding commitment to reduce GHG emissions.By the end of Phase I (December, 2006), all Memberswill have reduced direct emissions 4% below a baselineperiod of 1998–2001. Phase II, which extends theCCX reduction program through 2010, will require allMembers to ultimately reduce GHG emissions 6% belowbaseline. Among the members are companies fromNorth America as well as municipalities or U.

S. Statesor Universities. As new regional initiatives began totake shape in the U.

S., membership of the CCX grewfrom 127 members in January 2006 to 237 membersby the end of the year while new participants expressedtheir interest in familiarizing themselves with emissionstrading.

Clean Development Mechanism (CDM)
The mechanismprovided by Article 12 of the Kyoto Protocol,designed to assist developing countries in achievingsustainable development by allowing entities from AnnexI Parties to participate in low-carbon projects andobtain CERs in return.
Climate Action Reserve (CAR)
The Climate ActionReserve is a U.S.-based offsets program that establishesregulatory-quality standards for the development,quantification, and verification of greenhouse gas(GHG) emissions reduction projects in North America;issues carbon offset credits known as Climate ReserveTonnes (CRT) generated from such projects; andtracks the transaction of credits over time in a transparent,publicly-accessible system.
Community Independent Transaction Log (CITL)
The Community Independent Transaction Log (CITL)conducts “supplementary checks” to those by the ITL for transactions involving registries of at least one EUMember State, such as the issuance, transfer, cancellation,retirement, and banking of EUAs.
Conference of Parties (COP)
The supreme body ofthe Convention.

It currently meets once a year to reviewthe Convention’s progress. The word “conference”is not used here in the sense of “meeting” but ratherof “association,” which explains the seemingly redundantexpression “fourth session of the Conference ofthe Parties.”

Conference of the Parties serving as the Meeting ofthe Parties (CMP)
The Convention’s supreme body isthe COP, which serves as the meeting of the Parties tothe Kyoto Protocol. The sessions of the COP and theCMP are held during the same period to reduce costsand improve coordination between the Conventionand the Protocol.
A term used in the futures market to describean upward sloping forward curve (i.e., futuresprices are above spot prices).

Antonym: backwardation.

Crediting period
The crediting period is the durationof time during which a registered, determined or approvedproject can generate emission reductions. ForCDM projects, the crediting period can be of eitherseven years (renewable twice) or of ten years (non-renewable).
Designated Focal Point (DFP)
Parties participatingin the Joint Implementation (JI) mechanism arerequired to nominate a Designated Focal Point (DFP)for approving projects.
Designated National Authority (DNA)
An office,ministry, or other official entity appointed by a Partyto the Kyoto Protocol to review and give national approvalto projects proposed under the Clean DevelopmentMechanism.
Designated Operational Entities (DOEs)
Designatedoperational entities are independent auditors thatassess whether a potential project meets all the eligibilityrequirements of the CDM (validation) and whetherthe project has achieved greenhouse gas emission reductions(verification and certification).
Determination is the process of evaluationby an independent entity accredited by the hostcountry (JI Track 1) or by the Joint ImplementationSupervisory Committee (JI Track 2) of whether a projectand the ensuing reductions of anthropogenic emissionsby sources or enhancements of anthropogenic removals by sinks meet all applicable requirements ofArticle 6 of the Kyoto Protocol and the JI guidelines.
Eligibility Requirements
There are six Eligibility Requirementsfor Participating in Emissions Trading (Art.

17) for Annex I Parties. Those are: (i) being a Partyto the Kyoto Protocol, (ii) having calculated and recordedone’s Assigned Amount, (iii) having in place anational system for inventory, (iv) having in place a nationalregistry, (v) having submitted an annual inventory,and (vi) submit supplementary information onassigned amount. An Annex I party will automaticallybecome eligible after 16 months have elapsed since thesubmission of its report on calculation of its assignedamount. Then, this Party and any entity having openedan account in the registry can participate in EmissionsTrading. However, a Party could lose its eligibility ifthe Enforcement Branch of the Compliance Committeehas determined the Party is non-compliant with theeligibility requirements.

Emission Reductions (ERs)
The measurable reductionof release of greenhouse gases into the atmospherefrom a specified activity, and a specified period of time.
Emission Reductions Purchase Agreement (ERPA)
Agreement which governs the transaction of emissionreductions.
Emission Reduction Units (ERUs)
A unit of emissionreductions issued pursuant to Joint Implementation.

One EUA represents the right to emit one metricton of carbon dioxide equivalent.

Emissions Trading Scheme (ETS)
see cap and trade
Bulgaria, Czech Republic, Estonia, Hungary,Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia.
Austria, Belgium, Denmark, Finland, France,Germany, Greece, Ireland, Italy, Luxembourg, theNetherlands, Portugal, Spain, Sweden, United Kingdom.
European Union Allowances (EUAs)
the allowancesin use under the EU ETS. An EUA unit is equal to onemetric ton of carbon dioxide equivalent.
European Union Emission Trading Scheme (EUETS)
The EU ETS was launched on January 1, 2005as a cornerstone of EU climate policy towards its Kyotocommitment and beyond.

Through the EU ETS,Member States allocate part of the efforts towards theirKyoto targets to private sector emission sources (mostlyutilities). Over 2008–12, emissions from mandatedinstallations (about 40% of EU emissions) are cappedon average at 6% below 2005 levels. Participants caninternally reduce emissions, purchase EUAs or acquireCERs and ERUs (within a 13.

4% average limit of theirallocation over 2008–12). The EU ETS will continuebeyond 2012, with further cuts in emissions (by 21%below 2005 levels in 2020 or more, depending onprogress in reaching an ambitious international agreementon climate change).

First Commitment Period
The five-year period, from2008 to 2012, during which industrialized countryhave committed to collectively reduce their greenhousegas (or “carbon”) emissions by an average of 5.2% comparedwith 1990 emissions under the Kyoto Protocol.

Green Investment Scheme (GIS)
A GIS is a voluntarymechanism through which proceeds from AAUtransactions will contribute to contractually agreedenvironment- and climate- friendly projects and programsboth by 2012 and beyond.
Greenhouse gases (GHGs)
Both natural and anthropogenic,greenhouse gases trap heat in the Earth’s atmosphere,causing the greenhouse effect. Water vapour(H2O), carbon dioxide (CO2), nitrous oxide (N2O),methane (CH4), and ozone (O3) are the primary greenhousegases. The emission of greenhouse gases throughhuman activities (such as fossil fuel combustion or deforestation)and their accumulation in the atmosphereis responsible for an additional forcing, contributingto climate change. The Kyoto Protocol regulates sixGHGs: carbon dioxide (CO2), methane (CH4), andnitrous oxide (N20), as well as hydrofluorocarbons(HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride(SF6).
Global Warming Potential (GWP)
An index representingthe combined effect of the differing timesgreenhouse gases remain in the atmosphere and theirrelative effectiveness in absorbing outgoing infraredradiation.

Internal rate of return
The annual return that wouldmake the present value of future cash flows from aninvestment (including its residual market value) equalthe current market price of the investment. In otherwords, the discount rate at which an investment haszero net present value.
International Transaction Log (ITL)
the ITL linkstogether the national registries and the CDM registryand is in charge of verifying the validity of transactions(issuance, transfer and acquisition between registries,cancellation, expiration and replacement, retirement,and carry-over). It is the central piece of the emissionstrading under the Kyoto Protocol.
Japan-Voluntary Emissions Trading Scheme (JVETS)
Under the J-VETS, companies receive subsidiesto implement mitigation activities in line withvoluntary commitments and can resort to emissionstrading (incl. offsets) to meet their commitments withmore flexibility. Though growing, impact remains limited:over the first three years of the scheme, participants(288 companies) have reduced their emissions byabout one million tCO2e.

The J-VETS has contributedto the development of MRV system, third-party verificationsystem, and the registry system. The J-VETS hasbeen incorporated to the Experimental Integrated ETSas one of participating options.

Joint Implementation (JI)
Mechanism provided byArticle 6 of the Kyoto Protocol, whereby entities fromAnnex I Parties may participate in low-carbon projectsin hosted in Annex I countries and obtain EmissionReduction Units in return.
Kyoto Mechanisms (KMs)
the three flexibility mechanismsthat may be used by Annex I Parties to the KyotoProtocol to fulfill their commitments. Those are theJoint Implementation (JI, Art.

6), Clean DevelopmentMechanism (CDM, Art. 12) and International EmissionsTrading (Art. 17).

Kyoto Protocol
Adopted at the Third Conference ofthe Parties to the United Nations Convention on ClimateChange held in Kyoto, Japan in December 1997,the Kyoto Protocol commits industrialized countrysignatories to collectively reduce their greenhouse gasemissions by at least 5.2% below 1990 levels on averageover 2008–12 while developing countries can take noregret actions and participate voluntarily in emissionreductions and removal activities through the CDM.

The Kyoto Protocol entered into force in February2005.

Monitoring Plan
A set of requirements for monitoringand verification of emission reductions achieved bya project.
National Allocation Plans (NAPs)
The documents,established by each Member State and reviewed by theEuropean Commission, that specify the list of installationsunder the EU ETS and their absolute emissionscaps, the amount of CERs and ERUs that may be usedby these installations as well as other features such asthe size of the new entrants reserve and the treatment of exiting installations or the process of allocation (freeallocation or auctioning).
New South Wales Greenhouse Gas ReductionScheme (NSW GGAS)
Operational since January1, 2003 (to last at least until 2012), the NSW GreenhouseGas Abatement Scheme aims at reducing GHGemissions from the power sector. NSW and ACT(since January 1, 2005) retailers and large electricitycustomers have thus to comply with mandatory (intensity)targets for reducing or offsetting the emissionsof GHG arise from the production of electricity theysupply or use. They can meet their targets meet theirtargets by purchasing certificates (NSW GreenhouseAbatement Certificates or NGACs) that are generatedthrough project activities.
New Zealand Emissions Trading Scheme (NZ ETS)
The NZ ETS will progressively regulate emissions ofthe six Kyoto gases in all sectors of the economy by2015.

Forestry is covered since 2008 and by July 1,2010, stationary energy, industrial process, and liquidfossil fuel will be phased-in. The government recentlyannounced, however, that full implementation couldbe delayed if adequate progress is not made in establishingsimilar regulations in other developed countries.

Offsets designate the emission reductionsfrom project-based activities that can be used to meetcompliance—or corporate citizenship—objectives visa-vis greenhouse gas mitigation.
Primary transaction
A transaction between the originalowner (or issuer) of the carbon asset and a buyer.
Project Design Document (PDD)
A central documentof project-based mechanisms, the PDD notablydescribes the project activity (including environmentalimpacts and stakeholders consultations), the baselinemethodology and how the project is additional as wellas the monitoring plan.

Project Idea Note (PIN)
A note prepared by a projectproponent presenting briefly the project activity (e.g.,sector, location, financials, estimated amount of ERsetc.


REDD plus
All activities that reduce emissions fromdeforestation and forest degradation, and contribute toconservation, sustainable management of forests, andenhancement of forest carbon stocks.
Regional Greenhouse Gas Initiative (RGGI)
UnderRGGI, 10 Northeast and Mid-Atlantic states aimto reduce power sector CO2 emissions by 10% below 2009 levels in 2019. Within this 10-year phase,there are three shorter compliance periods. During thefirst and second compliance periods (2009–2011 and2012–2014) the cap on about 225 installations is setat 171 MtCO2e (or 188 M short ton CO2e). This isfollowed by a 2.5% per year decrease in cap during thethird compliance period (2015–2018).

This process increases the capacity ofthe land to sequester carbon by replanting forest biomassin areas where forests have been previously harvested.
The formal acceptance by the CDM ExecutiveBoard of a validated project as a CDM projectactivity.
Removal unit (RMU)
RMUs are issued by Parties tothe Kyoto Protocol in respect of net removals by sinksfrom activities covered by Article 3(3) and Article 3(4)of the Kyoto Protocol.
Secondary transaction
A transaction where the selleris not the original owner (or issuer) of the carbon asset.
Following the Marrakesh Accords,the use of the Kyoto mechanisms shall be supplementalto domestic action, which shall thus constitute a significantelement of the effort made by each Party to meetits commitment under the Kyoto Protocol. Howeverthere is no quantitative limit to the utilization of suchmechanisms.

While assessing the NAPs, the EuropeanCommission considered that the use of CDM and JIcredits could not exceeded 50% of the effort by eachMember State to achieve its commitment. Supplementaritylimits may thus affect demand for some categoriesof offsets.

United Nations Framework Convention on ClimateChange (UNFCCC)
The international legal frameworkadopted in June 1992 at the Rio Earth Summitto address climate change. It commits the Parties to theUNFCCC to stabilize human induced greenhouse gasemissions at levels that would prevent dangerous manmadeinterference with the climate system, following“common but differentiated responsibilities” based on“respective capabilities”.
Validation is the process of independentevaluation of a project activity by a Designated OperationalEntity (DOE) against the requirements ofthe CDM. The CDM requirements include the CDMmodalities and procedures and subsequent decisions bythe CMP and documents released by the CDM ExecutiveBoard.

Verified Emission Reductions (VERs)
A unit ofgreenhouse gas emission reductions that has been verifiedby an independent auditor. Most often, this designatesemission reductions units that are traded on thevoluntary market.
Verification is the review and ex post determinationby an independent third party of the monitoredreductions in emissions generated by a registeredCDM project, a determined JI project (or a project approvedunder another standard) during the verificationperiod.
Voluntary market
The voluntary market caters for theneeds of those entities that voluntarily decide to reducetheir carbon footprint using offsets. The regulatoryvacuum in some countries and the anticipation of imminentlegislation on GHG emissions also motivatessome pre-compliance activity.
Western Climate Initiative (WCI)
The WCI covers agroup of seven U.S. states (Arizona, California, Montana,New Mexico, Oregon, Utah, and Washington)and four Canadian provinces (British Columbia, Manitoba,Ontario, and Quebec), with an aggregate emissionstarget of 15% below 2005 levels by 2020.

OtherU.S. and Mexican states and Canadian provinces havejoined as observers.