Carbon Market Glossary
The following is an explanation of the main abbreviations and acronyms used in the carbon trading systems around the world.
A
AAUs
Assigned Amount Units are emission reduction units under the Kyoto Protocol’s emission trading mechanism.
Abatement
Abatement is the reduction in the quantity of greenhouse gas emissions.
Additionality
According to the Kyoto Protocol Articles projects that achieve reductions that are "additional to those that otherwise would occur" are eligible to earn emission reduction units. Financial additionality means projects will only earn credit if funds additional to existing commitments are specifically committed to achieve the greenhouse gas reductions. Environmental additionality requires that emission reductions represent a physical reduction or avoidance of emissions over what would have occurred under a business as usual scenario.
Afforestation
The process of establishing and growing forests on bare or cultivated land which has not been forested since 1990.
Annex I, or Annex B
The signatory nations to the Kyoto Protocol that are subject to caps on their emissions of greenhouse gases and committed to reduction targets and are countries with developed economies.
Asia-Pacific Partnership on Clean Development and Climate (AP6)
The Asia-Pacific climate pact is a rival international climate change agreement to the Kyoto Protocol and includes USA, Australia, India, China, South Korea and Japan. Avoided Emissions
Avoided emissions would have been emitted under a business as usual scenario but were avoided due to the implementation of an emission reduction project.
Back to topB
Banking
Within the Kyoto Protocol, emission permits not used in one commitment period can be saved for future use in a subsequent compliance period.
Baseline Scenario
The baseline represents the forecast emissions of a company, business unit or project, using a business as usual scenario, often referred to as the 'baseline scenario' i.e. expected emissions if the firm did not implement emission reduction activities. Business As Usual Scenario (BAU)
Estimate of a company's future and current emissions under normal operating circumstances.
Back to topC
Cap and Trade
The Cap and Trade system involves trading of emission allowances, where the total allowance is strictly limited or 'capped'. Trading occurs when an entity has excess allowances, either through actions taken or improvements made, and sells them to an entity requiring allowances because of growth in emissions or an inability to make cost-effective reductions
Carbon Dioxide Equivalent (CO2eq)
The universal unit of measurement used to indicate the global warming potential (GWP) of each of the 6 greenhouse gases. It is used to evaluate the impacts of releasing (or avoiding the release of) different greenhouse gases. Carbon Dioxide or CO2
A naturally occurring gas that is a by-product of burning fossil fuels and biomass, land use changes and other industrial processes and which is the reference gas against which other greenhouse gases are measured. Carbon neutral
Reducing emissions from all GHG sources produces a carbon neutral result through energy efficiency, renewable energy purchases and carbon offset purchases. Carbon Sequestration
Carbon Sequestration refers to projects that capture and store carbon in a manner that prevents it from being released into the atmosphere. A carbon sink is a reservoir that can absorb or “sequester” carbon dioxide from the atmosphere. such as forests, soils and oceans. Carbon Taxes
A yax on the carbon content of oil, coal, and/or gas to discourage the use of fossil fuels, with the aim of reducing carbon dioxide emissions. Clean Development Mechanism (CDM)
A Kyoto Protocol initiative under which projects set up in developing countries to reduce atmospheric carbon generate tradable credits called CERs. The credits can be used by industrialised nations to offset carbon emissions at home and meet their Kyoto reduction targets. The projects include afforestation, reforestation and implementation of clean fuels technology. CDM Executive Board
The CDM Executive Board is authorized to approve methodologies for baselines, monitoring plans and project boundaries, accredit operational entities, and develop and maintain the CDM registry. CERs
Annex I investors in Clean Development Mechanism (CDM) projects can earn Certified emission reduction units (CERs) for the amount of greenhouse emission reductions achieved by their CDM projects, provided they meet certain eligibility criteria. Commitment Period
The five year Kyoto Protocol Commitment Period is scheduled to run from calendar year 2008 to calendar year 2012 inclusive.
Back to topD
Developed Countries
Industrialised countries (identified in Annex I and Annex B of the Kyoto Protocol). Back to topE
Early Action
The action of reducing emissions before the start of a specific trading scheme.
Emission Cap
A regulatory device that sets a ceiling on emissions that can be released into the atmosphere within a designated timeframe such as under the Kyoto Protocol or other regional trading scheme.
Emission Reduction Unit (ERU)
Under the Kyoto Protocol, a specified amount of greenhouse gas emissions reductions achieved through a Joint Implementation project within an Annexe 1 country.
Emissions Trading
Emissions Trading is a market-based system that allows firms the flexibility to select cost-effective solutions to achieve established environmental goals. EUA
European Union Allowances. Tradable emission credits from the European Union Emissions Trading Scheme. Each allowance carries the right to emit one tonne of carbon dioxide.
Back to topF
Flexibility Mechanisms
The Kyoto Protocol has provisions that allow for flexibility in how, where, and when emissions reductions are made via three mechanisms: the Clean Development Mechanism, International Emission Trading and Joint Implementation. Forward Contract (or Spot Forward)
The purchase and sale of a volume of emission reductions at a price determined today for settlement in the future.
Forward Market
A forward market deals in forward contracts which are agreements to buy or sell an asset at a certain time in the future for a certain price.
Back to topG
Global Warming
The continuous gradual rise of the earth's surface temperature thought to be caused by the greenhouse effect and responsible for changes in global climate pattern.
Global Warming Potential (GWP)
The GWP is an index that compares the relative potential of the 6 greenhouse gases to contribute to global warming ie. the additional heat/energy which is retained in the Earth’s ecosystem through the release of this gas into the atmosphere. i.e. Carbon dioxide has been designated a GWP of 1, Methane has a GWP of 23.
Grandfathering
Method for issuing emission permits to emitters and firms in a domestic emission trading scheme according to their historical emissions and which may be combined with auctioning to present a hybrid approach to allocation of allowances. Greenhouse Effect
The impact of human activities that cause certain gases to be released and trapped in to the Earth's atmosphere. They then absorb the sun's energy and cause the earth to warm at a faster rate than usual.
Greenhouse Gases (GHGs)
The greenhouse gases in most contexts are the six gases regulated under the Kyoto Protocol, determined to be the main contributors to the Greenhouse Effect. The principle gases are
- carbon dioxide (CO2),
- methane (CH4),
- nitrous oxide(N2O),
- Hydrofluorocarbons (HFC's)
- Perfluorocarbons (PFC's)
- Sulphur Hexofluoride (SF6)
Back to topI
Intergovernmental Panel on Climate Change (IPCC)
The IPCC represents the collective work of over 2,000 scientists, principally in the atmospheric sciences, but also comprising social, economic and other environmental components potentially impacted by climate change.
Back to topJ
Joint Implementation (JI)
Joint Implementation (JI) is a project-based mechanism developed under the Kyoto Protocol (KP), designed to assist Annex 1 countries in meeting their emission reduction targets through joint projects with other Annex 1 countries. JI projects produce emission reduction units or ERUs.
There are two proceedures by which to implement JI projects:
Track 1
When an Annex 1 country meets all the eligibility and reporting requirements under the KP, it can issue ERUs to a project, which can then transfer them to the investing entity.
Track 2
When an Annex 1 country is not in compliance with all the requirements, ERUs generated by a project must be verified by an external body under a proceedure similar to that of the CDM. The host party must meet several requirements relating to the establishement of its Assigned Amount and national registry before it can issue and transfer ERUs.
Back to topK
Kyoto Commitment Period
The Kyoto commitment period is the period in which Annex B countries have committed to reduce their collective emissions of greenhouse gases by an average of 5.2%. There are currently no emissions targets after the commitment period specified in the Kyoto Protocol from 2008 to 2012 although debate is underway to determine a mechanism for post-2012 emission reductions.
Kyoto Protocol
The Kyoto Protocol was signed in Kyoto, Japan in December 1997. It specifies the level of emission reductions, the deadlines and methodologies that signatory countries are to achieve.
Back to topL
LULUCF
Land use, land use change and forestry. The term given to tree-planting projects, reforestation and afforestation, designed to remove carbon from the atmosphere.
Back to topM
Marginal Abatement Cost (MAC)
The cost of reducing emissions by one tonne of CO2e. An aggregation of these costs against total tonnes abated creates a firm's marginal abatement cost curve. The lower the MAC curve, the more effective the firm's emission reduction strategies.
Methane (CH4)
Greenhouse gas with a Global Warming Potential of 23. The primary sources of methane are landfills, coal mines, paddy fields, natural gas systems and livestock (e.g. cows and sheep).
Back to topN
NAPs
National Allocation Plans. These set out the overall emissions cap for countries in the EU Emissions Trading Scheme, and the allowances that each sector and individual installation within each country receives.
Nitrous Oxide (N2O)
Greenhouse gas with a Global Warming Potential of 296. Results from burning fossil fuels and the manufacture of fertiliser.
Non-Annex B Countries
Countries not included in Annex B of the Kyoto Protocol. and which do not have binding emission reduction targets.
Non-Annex I Countries
Countries not included in Annex I of the United Nations Framework Convention on Climate Change UNFCCC. Non-Annex I countries do not currently have binding emission reduction targets.
Back to topO
Offsets
Offsets are a form of credit-based emissions trading product used by voluntary trading organisations or individuals to offset the source of their emissions. Offsets are project based credits produced through projects such as energy efficiency, reneable energy and forestry.
Back to topP
Primary Market
The exchange of emission reductions, offsets, or allowances between buyer and seller where the seller is the originator of the supply and where the product has not been traded more than once.
PDD
Project Design Document. Produced as part of the CDM registration process to define a CDM project.
Back to topR
Reforestation
This process increases the capacity of the land to sequester carbon by replanting forest biomass in areas where forests were recently harvested.
Removal Units (RMUs)
RMUs are a new unit created at COP7, representing sinks credits generated in Annex 1 countries, including through Joint Implementation.
Renewable Energy Certificates (RECs)
A Renewable Energy Certificate represents a unit of electricity generated from renewable energy with low nett greenhouse gas emissions. One REC represents 1 megawatt-hour and are produced from renewable technology such as solar and wind power.
Back to topS
Secondary Market
The exchange of emission reductions, offsets, or allowances between buyer and seller where the seller is not the originator of the supply and represents a secondary trade in teh particular product.
Source
Any process or activity which releases a greenhouse gas.
Back to topT
tCO2e, MtCO2e
Tonnes of carbon dioxide equivalent, and millions of tonnes of carbon dioxide equivalent.
Back to topU
Unilateral CDM Projects
Unilateral CDM projects are projects which do not have a project investor from abroad.
United Nations Framework Convention on Climate Change (UNFCCC)
The UNFCCC was established in June 1992 at the Rio Earth Summit. with the primary aim of stabilising greenhouse gas emissions.
Back to topV
Verification
Provides an independent 3rd party assessment of the expected or actual emission reductions of a particular abatement project.
Verified Emission Reductions
Tradeable units of emission reductions under a voluntary emission trading scheme. VERs are a carbon offset bought and sold outside a formal trading scheme and which offset a source of emissions.
Voluntary Trading
Actions taken by an entity that reduce emissions outside of regulatory requirements. Transactions occur in verified emission reductions.
Back to top
|
