Carbon Credit Terms

Accrdited Independent Entity (AIE)
independent entities (AIEs) are independent auditors
that assess whether a potential project meets all the
eligibility requirements of the JI (determination) and
whether the project has achieved greenhouse gas emission
reductions (verification).
A project activity is additional if anthropogenic
GHG emissions are lower than those that
would have occurred in the absence of the project activity.
A project activity is additional if anthropogenic
GHG emissions are lower than those that
would have occurred in the absence of the project activity.
The process of establishing and growing
forests on bare or cultivated land, which has not been
forested in recent history.
Annex I (Parties)
Annex I Parties include the industrialized
countries that were members of the OECD
(Organisation for Economic Co-operation and Development)
in 1992, plus countries with economies
in transition (the EIT Parties), including the Russian
Federation, the Baltic States, and several Central and
Eastern European States.
Annex B (Parties)
The 39 industrialized countries (including
the European Economic Community) listed
in Annex B to the Kyoto Protocol have committed to
country-specific targets that collectively reduce their
GHG emissions by at least 5.2% below 1990 levels on
average over 2008–12.
Assigned Amount Unit (AAU)
Annex I Parties are issued
AAUs up to the level of their assigned amount,
corresponding to the quantity of greenhouse gases they
can 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 emit
one metric ton of carbon dioxide equivalent.
A downward sloping forward curve
(i.e., the price of the future is less than the spot price of
underlying commodity). Antonym: contango.
Banking or carry over
Compliance units under the
various schemes to manage GHG emissions in existence
may or may not be carried over from one commitment
period to the next. Banking may encourage
early action by mandated entities depending on their
current situation and their anticipations of future carbon constraints. In addition banking brings market
continuity. Banking between Phase I and Phase II of
the EU ETS is not allowed but is allowed between
Phase II and further Phases. Some restrictions on the
amount of units that can be carried over may apply:
for instance, EUAs may be banked with no restriction
while the amount of CERs that can be carried over by a
Kyoto Party is limited to 2.5% of the assigned amount
of each Party.
The emission of greenhouse gases that would
occur without the policy intervention or project activity
under consideration.
Biomass Fuel
Combustible fuel composed of a biological
material, for example, wood or wood by-products,
rice husks, or cow dung.
California Global Warming Solution Act AB32
The passage of Assembly Bill 32 (California
Global Warming Solution Act AB32) in August 2006
sets economy-wide GHG emissions targets as follows:
Bring down emissions to 1990 levels by 2020 (considered
to be at least a 25% reduction below business-asusual)
and to 80% of 1990 levels by 2050. Covering
about 85% of GHG emissions, a cap and trade scheme
(still under design) would be a major instrument, along
with renewable energy standards, energy efficiency
standards for buildings and appliances as well as vehicle
emissions standards.
Cap and trade
Cap and trade schemes set a desired
maximum ceiling for emissions (or cap) and let the
market determine the price for keeping emissions within
that cap. To comply with their emission targets at
least cost, regulated entities can either opt for internal
abatement measures or acquire of allowances or emission
reductions in the carbon market, depending on
the relative costs of these options.
Carbon Asset
The potential of greenhouse gas emission
reductions that a project is able to generate and
Carbon Finance
Resources provided to activities generating
(or expected to generate) greenhouse gas (or
carbon) emission reductions through the transaction of
such emission reductions.
Carbon Dioxide Equivalent (CO2e)
The universal
unit of measurement used to indicate the global warming
potential of each of the six greenhouse gases regulated
under the Kyoto Protocol. Carbon dioxide—a
naturally occurring gas that is a byproduct of burning
fossil fuels and biomass, land-use changes, and other
industrial processes—is the reference gas against which
the other greenhouse gases are measured, using their
global warming potential.
Certified Emission Reductions (CERs)
A unit of
greenhouse gas emission reductions issued pursuant
to the Clean Development Mechanism of the Kyoto
Protocol, and measured in metric tons of carbon dioxide
equivalent. One CER represents a reduction in
greenhouse gas emissions of one metric ton of carbon
dioxide equivalent.
Chicago Climate Exchange (CCX)
Members to the
Chicago Climate Exchange make a voluntary but legally
binding commitment to reduce GHG emissions.
By the end of Phase I (December, 2006), all Members
will have reduced direct emissions 4% below a baseline
period of 1998–2001. Phase II, which extends the
CCX reduction program through 2010, will require all
Members to ultimately reduce GHG emissions 6% below
baseline. Among the members are companies from
North America as well as municipalities or U.S. States
or Universities. As new regional initiatives began to
take shape in the U.S., membership of the CCX grew
from 127 members in January 2006 to 237 members
by the end of the year while new participants expressed
their interest in familiarizing themselves with emissions
Clean Development Mechanism (CDM)
The mechanism
provided by Article 12 of the Kyoto Protocol,
designed to assist developing countries in achieving
sustainable development by allowing entities from Annex
I Parties to participate in low-carbon projects and
obtain CERs in return.
Climate Action Reserve (CAR)
The Climate Action
Reserve is a U.S.-based offsets program that establishes
regulatory-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 Reserve
Tonnes (CRT) generated from such projects; and
tracks 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 EU
Member State, such as the issuance, transfer, cancellation,
retirement, and banking of EUAs.
Conference of Parties (COP)
The supreme body of
the Convention. It currently meets once a year to review
the Convention’s progress. The word “conference”
is not used here in the sense of “meeting” but rather
of “association,” which explains the seemingly redundant
expression “fourth session of the Conference of
the Parties.”
Conference of the Parties serving as the Meeting of
the Parties (CMP)
The Convention’s supreme body is
the COP, which serves as the meeting of the Parties to
the Kyoto Protocol. The sessions of the COP and the
CMP are held during the same period to reduce costs
and improve coordination between the Convention
and the Protocol.
A term used in the futures market to describe
an upward sloping forward curve (i.e., futures
prices are above spot prices). Antonym: backwardation.
Crediting period
The crediting period is the duration
of time during which a registered, determined or approved
project can generate emission reductions. For
CDM projects, the crediting period can be of either
seven years (renewable twice) or of ten years (non-renewable).
Designated Focal Point (DFP)
Parties participating
in the Joint Implementation (JI) mechanism are
required to nominate a Designated Focal Point (DFP)
for approving projects.
Designated National Authority (DNA)
An office,
ministry, or other official entity appointed by a Party
to the Kyoto Protocol to review and give national approval
to projects proposed under the Clean Development
Designated Operational Entities (DOEs)
operational entities are independent auditors that
assess whether a potential project meets all the eligibility
requirements of the CDM (validation) and whether
the project has achieved greenhouse gas emission reductions
(verification and certification).
Determination is the process of evaluation
by an independent entity accredited by the host
country (JI Track 1) or by the Joint Implementation
Supervisory Committee (JI Track 2) of whether a project
and the ensuing reductions of anthropogenic emissions
by sources or enhancements of anthropogenic removals by sinks meet all applicable requirements of
Article 6 of the Kyoto Protocol and the JI guidelines.
Eligibility Requirements
There are six Eligibility Requirements
for Participating in Emissions Trading (Art.
17) for Annex I Parties. Those are: (i) being a Party
to the Kyoto Protocol, (ii) having calculated and recorded
one’s Assigned Amount, (iii) having in place a
national system for inventory, (iv) having in place a national
registry, (v) having submitted an annual inventory,
and (vi) submit supplementary information on
assigned amount. An Annex I party will automatically
become eligible after 16 months have elapsed since the
submission of its report on calculation of its assigned
amount. Then, this Party and any entity having opened
an account in the registry can participate in Emissions
Trading. However, a Party could lose its eligibility if
the Enforcement Branch of the Compliance Committee
has determined the Party is non-compliant with the
eligibility requirements.
Emission Reductions (ERs)
The measurable reduction
of release of greenhouse gases into the atmosphere
from a specified activity, and a specified period of time.
Emission Reductions Purchase Agreement (ERPA)
Agreement which governs the transaction of emission
Emission Reduction Units (ERUs)
A unit of emission
reductions issued pursuant to Joint Implementation.
One EUA represents the right to emit one metric
ton 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, the
Netherlands, Portugal, Spain, Sweden, United Kingdom.
European Union Allowances (EUAs)
the allowances
in use under the EU ETS. An EUA unit is equal to one
metric ton of carbon dioxide equivalent.
European Union Emission Trading Scheme (EU
The EU ETS was launched on January 1, 2005
as a cornerstone of EU climate policy towards its Kyoto
commitment and beyond. Through the EU ETS,
Member States allocate part of the efforts towards their
Kyoto targets to private sector emission sources (mostlyutilities). Over 2008–12, emissions from mandated
installations (about 40% of EU emissions) are capped
on average at 6% below 2005 levels. Participants can
internally reduce emissions, purchase EUAs or acquire
CERs and ERUs (within a 13.4% average limit of their
allocation over 2008–12). The EU ETS will continue
beyond 2012, with further cuts in emissions (by 21%
below 2005 levels in 2020 or more, depending on
progress in reaching an ambitious international agreement
on climate change).
First Commitment Period
The five-year period, from
2008 to 2012, during which industrialized country
have committed to collectively reduce their greenhouse
gas (or “carbon”) emissions by an average of 5.2% compared
with 1990 emissions under the Kyoto Protocol.
Green Investment Scheme (GIS)
A GIS is a voluntary
mechanism through which proceeds from AAU
transactions will contribute to contractually agreed
environment- and climate- friendly projects and programs
both 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 greenhouse
gases. The emission of greenhouse gases through
human activities (such as fossil fuel combustion or deforestation)
and their accumulation in the atmosphere
is responsible for an additional forcing, contributing
to climate change. The Kyoto Protocol regulates six
GHGs: carbon dioxide (CO2), methane (CH4), and
nitrous oxide (N20), as well as hydrofluorocarbons
(HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride
Global Warming Potential (GWP)
An index representing
the combined effect of the differing times
greenhouse gases remain in the atmosphere and their
relative effectiveness in absorbing outgoing infrared
Internal rate of return
The annual return that would
make the present value of future cash flows from an
investment (including its residual market value) equal
the current market price of the investment. In other
words, the discount rate at which an investment has
zero net present value.
International Transaction Log (ITL)
the ITL links
together the national registries and the CDM registry
and 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 emissions
trading under the Kyoto Protocol.
Japan-Voluntary Emissions Trading Scheme (JVETS)
Under the J-VETS, companies receive subsidies
to implement mitigation activities in line with
voluntary commitments and can resort to emissions
trading (incl. offsets) to meet their commitments with
more flexibility. Though growing, impact remains limited:
over the first three years of the scheme, participants
(288 companies) have reduced their emissions by
about one million tCO2e. The J-VETS has contributed
to the development of MRV system, third-party verification
system, and the registry system. The J-VETS has
been incorporated to the Experimental Integrated ETS
as one of participating options.
Joint Implementation (JI)
Mechanism provided by
Article 6 of the Kyoto Protocol, whereby entities from
Annex I Parties may participate in low-carbon projects
in hosted in Annex I countries and obtain Emission
Reduction Units in return.
Kyoto Mechanisms (KMs)
the three flexibility mechanisms
that may be used by Annex I Parties to the Kyoto
Protocol to fulfill their commitments. Those are the
Joint Implementation (JI, Art. 6), Clean Development
Mechanism (CDM, Art. 12) and International Emissions
Trading (Art. 17).
Kyoto Protocol
Adopted at the Third Conference of
the Parties to the United Nations Convention on Climate
Change held in Kyoto, Japan in December 1997,
the Kyoto Protocol commits industrialized country
signatories to collectively reduce their greenhouse gas
emissions by at least 5.2% below 1990 levels on average
over 2008–12 while developing countries can take no
regret actions and participate voluntarily in emission
reductions and removal activities through the CDM.
The Kyoto Protocol entered into force in February
Monitoring Plan
A set of requirements for monitoring
and verification of emission reductions achieved by
a project.
National Allocation Plans (NAPs)
The documents,
established by each Member State and reviewed by the
European Commission, that specify the list of installations
under the EU ETS and their absolute emissions
caps, the amount of CERs and ERUs that may be used
by these installations as well as other features such as
the size of the new entrants reserve and the treatment of exiting installations or the process of allocation (free
allocation or auctioning).
New South Wales Greenhouse Gas Reduction
Scheme (NSW GGAS)
Operational since January
1, 2003 (to last at least until 2012), the NSW Greenhouse
Gas Abatement Scheme aims at reducing GHG
emissions from the power sector. NSW and ACT
(since January 1, 2005) retailers and large electricity
customers have thus to comply with mandatory (intensity)
targets for reducing or offsetting the emissions
of GHG arise from the production of electricity they
supply or use. They can meet their targets meet their
targets by purchasing certificates (NSW Greenhouse
Abatement Certificates or NGACs) that are generated
through project activities.
New Zealand Emissions Trading Scheme (NZ ETS)
The NZ ETS will progressively regulate emissions of
the six Kyoto gases in all sectors of the economy by
2015. Forestry is covered since 2008 and by July 1,
2010, stationary energy, industrial process, and liquid
fossil fuel will be phased-in. The government recently
announced, however, that full implementation could
be delayed if adequate progress is not made in establishing
similar regulations in other developed countries.
Offsets designate the emission reductions
from project-based activities that can be used to meet
compliance—or corporate citizenship—objectives visa-
vis greenhouse gas mitigation.
Primary transaction
A transaction between the original
owner (or issuer) of the carbon asset and a buyer.
Project Design Document (PDD)
A central document
of project-based mechanisms, the PDD notably
describes the project activity (including environmental
impacts and stakeholders consultations), the baseline
methodology and how the project is additional as well
as the monitoring plan.
Project Idea Note (PIN)
A note prepared by a project
proponent presenting briefly the project activity (e.g.,
sector, location, financials, estimated amount of ERs
REDD plus
All activities that reduce emissions from
deforestation and forest degradation, and contribute to
conservation, sustainable management of forests, and
enhancement of forest carbon stocks.
Regional Greenhouse Gas Initiative (RGGI)
RGGI, 10 Northeast and Mid-Atlantic states aim
to reduce power sector CO2 emissions by 10% below 2009 levels in 2019. Within this 10-year phase,
there are three shorter compliance periods. During the
first and second compliance periods (2009–2011 and
2012–2014) the cap on about 225 installations is set
at 171 MtCO2e (or 188 M short ton CO2e). This is
followed by a 2.5% per year decrease in cap during the
third compliance period (2015–2018).
This process increases the capacity of
the land to sequester carbon by replanting forest biomass
in areas where forests have been previously harvested.
The formal acceptance by the CDM Executive
Board of a validated project as a CDM project
Removal unit (RMU)
RMUs are issued by Parties to
the Kyoto Protocol in respect of net removals by sinks
from activities covered by Article 3(3) and Article 3(4)
of the Kyoto Protocol.
Secondary transaction
A transaction where the seller
is not the original owner (or issuer) of the carbon asset.
Following the Marrakesh Accords,
the use of the Kyoto mechanisms shall be supplemental
to domestic action, which shall thus constitute a significant
element of the effort made by each Party to meet
its commitment under the Kyoto Protocol. However
there is no quantitative limit to the utilization of such
mechanisms. While assessing the NAPs, the European
Commission considered that the use of CDM and JI
credits could not exceeded 50% of the effort by each
Member State to achieve its commitment. Supplementarity
limits may thus affect demand for some categories
of offsets.
United Nations Framework Convention on Climate
Change (UNFCCC)
The international legal framework
adopted in June 1992 at the Rio Earth Summit
to address climate change. It commits the Parties to the
UNFCCC to stabilize human induced greenhouse gas
emissions at levels that would prevent dangerous manmade
interference with the climate system, following
“common but differentiated responsibilities” based on
“respective capabilities”.
Validation is the process of independent
evaluation of a project activity by a Designated Operational
Entity (DOE) against the requirements of
the CDM. The CDM requirements include the CDM
modalities and procedures and subsequent decisions by
the CMP and documents released by the CDM Executive
Verified Emission Reductions (VERs)
A unit of
greenhouse gas emission reductions that has been verified
by an independent auditor. Most often, this designates
emission reductions units that are traded on the
voluntary market.
Verification is the review and ex post determination
by an independent third party of the monitored
reductions in emissions generated by a registered
CDM project, a determined JI project (or a project approved
under another standard) during the verification
Voluntary market
The voluntary market caters for the
needs of those entities that voluntarily decide to reduce
their carbon footprint using offsets. The regulatory
vacuum in some countries and the anticipation of imminent
legislation on GHG emissions also motivates
some pre-compliance activity.
Western Climate Initiative (WCI)
The WCI covers a
group 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 emissions
target of 15% below 2005 levels by 2020. Other
U.S. and Mexican states and Canadian provinces have
joined as observers.