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Carbon credits have recently been
available for purchase. Until now, I have only had a loose understanding of what
it meant to buy carbon credits. When booking a flight for myself and my
daughter, Expedia.ca offered the option of offsetting our carbon emmissions of
the plane ride by purchasing carbon credits. Because I am trying to have the
smallest carbon footprint that is conveniently possible (as are most people), I
opted in.
The Kyoto Protocol was initiated by the United Nations Framework Convention
on Climate Change and ratified (agreed to in principle) by 181 countries and the
European Union as a whole, individual entity in 1997, and was put into effect in
2005. This protocol was proposed by the international community to address and
reduce greenhouse gas emmissions that have led to global climate change.
Member countries are placed into different categories; Annex I countries make up
the industrialized nations. Annex II countries are developed countries that provide
financial support to the developing countries. The Annex II grouping consists of
countries that are members of the Organization for Economic Co-operation and
Development. The third and final category makes up the developing nations, who
have no limitations on greenhouse gas emissions as emissions are an essential
byproduct to building a stable economy and raising their citizens out of poverty.
Once these countries become developed they are then subject to the greenhouse
caps that Annex I and II countries currently have. Many countries are both Annex
I and II countries. The allowable emissions for member countries are between 6
and 8% less than their 1990 emission levels; meaning the limit is different for
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every member country; keeping in mind that developing nations are exempt from
emission caps and are inelligible to sell carbon credits. It is up to each individual
country to regulate their industrial outputs to meet the 1990 levels of emissions.
Although the Kyoto meeting was one of many meetings that took place in the
COPs (Conference of Parties), it is the most well known because it is the
conference that made countries legally liable for exceeding allowable greenhouse
emissions. The Kyoto Accord is the teeth in the United Nations Framework
Convention on Climate Change, and is therefore synonymous with raising global
awareness about climate change. Typically, companies who explore, produce and
promote alternate energy sources such as wind, solar and geothermal energy sell
carbon credits. Other organizations with available carbon credits include
companies that destroy carbon dioxide or other greenhouse gases directly. Carbon
dioxide sequestration is the process of converting CO2 gas into a solid form by
chemical or physical means. For example, carbon dioxide combined with quick
lime (calcium oxide) forms limestone that can be used in construction projects.
The Clean Development Mechanism is a governing set of rules set by the Kyoto
Protocol to determine which companies and projects can generate carbon credits.
This is necessary because anyone who sets up a company could promise that they
were developing/using/investing in alternative energy sources, start selling carbon
credits and make out like bandits while doing nothing to stop climate change. The
CDM is not the only regulatory body to certify carbon credits, but they are the
most well known. If you are purchasing a CDM certfied carbon credit, you know
that you are investing in a company that has been thoroughly investigated and
approved by the UN. The other carbon credit certification bodies include the
Chicago Climate Exchange, the Western Climate Initiative, and the Regional
Greenhouse Gas Initiative in the northeastern U.S. In addition, there are variousstandards bodies who set the carbon emission bar such as the Chicago Climate
Exchange, the Voluntary Carbon Standard and the CDM Gold Standard (based on
the Kyoto Protocol).
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Key to the establishment of carbon credit generation is the concept of
additionality. This principle is that a carbon credit isnt truly environmentally
beneficial unless the carbon credit producer would not have been able to reduce
emissions or invest in researching renewable energy sources without the money
given to them from carbon credits. This avoids giving money to organizations that
would be doing the exact same business regardless of income from carbon credits.
To summarize, the money your company earns from carbon credits must be put to
additional greenhouse gas reducing initiatives. Who makes the decision about
additionality? The CDM board has established a set of guidelnes by which they
certify a company for selling carbon credits.
Who Buys Carbon Credits?
Countries for one; in order to comply with allowable emissions should they
exceed their amount. For example, pretend that I am only allowed to produce 10
tonnes of carbon dioxide, but I produce 15 tonnes; I can buy 5 tonnes worth of
carbon credits to bring my effective emission level back down to 10 tonnes.
Individuals and companies can also buy carbon credits, such as in my flight
example. Certain eco friendly products also contribute part of the sale of theirgoods towards carbon credits, such as a $6 chocolate bar that I recently
purchased; every x amount of dollars = x tonnes of carbon dioxide or other
greenhouse gas. Typically, carbon credits sell between $1 and $30 per tonne.
Carbon Planet.com buys and sells carbon credits in three different incarnations.
First, you can buy a subscription that charges your credit card a monthly rate for a
certain amount of carbon credit. This rate can be established by them by looking
at the average emissions made by a single person in your country and calculatingan amount based on your age (how much carbon you have produced up until now
and in the future). You can buy a one time package to offset a specific carbon
expenditure such as a flight, or cross country drive, or you can pay for your entire
life; all the carbon you have and will produce based on the average emissions per
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person in your country of residence. I would like to point out, that this isnt an
endorsement of their products, nor am I affiliated with them in any way, but they
do provide a good description about the carbon credit currency.
the Clean Development Mechanism (CDM)
The CDM was established by Article 12 of the Protocol and refers to climate
change mitigation projects undertaken between Annex 1 countries and non-Annex
1 countries (see below). This new mechanism, whilst resembling JI, has important
points of difference. In particular, project investments must contribute to the
sustainable development of the non-Annex 1 host country, and must also be
independently certified. This latter requirement gives rise to the term "certified
emissions reductions" or CERs, which describe the output of CDM projects, andwhich under the terms of Article 12 can be banked from the year 2000, eight years
before the first commitment period (2008-2012).
THE CLEAN DEVELOPMENT MECHANISM
The CDM is one of the "flexibility mechanisms" that is defined in the
Kyoto Protocol. The flexibility mechanisms are designed to allow Annex Bcountries to meet their emission reduction commitments with reduced impact on
their economies (IPCC, 2007).The flexibility mechanisms were introduced to the
Kyoto Protocol by the US government. Developing countries were highly
skeptical and fiercely opposed to the flexibility mechanisms (Carbon Trust, 2009,
p. 6). However, in the international negotiations over the follow-up to the Kyoto
Protocol, it has been agreed that the mechanisms will continue.
The purpose of the CDM is to promote clean development in developing
countries, i.e., the "non-Annex I" countries (countries that aren't listed in Annex I
of the Framework Convention). The CDM is one of the Protocol's "project-based"
mechanisms, in that the CDM is designed to promote projects that reduce
emissions. The CDM is based on the idea of emission reduction "production"
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(Toth et al., 2001, p. 660).These reductions are "produced" and then subtracted
against a hypothetical "baseline" of emissions. The emissions baseline are the
emissions that are predicted to occur in the absence of a particular CDM project.
CDM projects are "credited" against this baseline, in the sense that developing
countries gain credit for producing these emission cuts.
The economic basis for including developing countries in efforts to reduce
emissions is that emission cuts are thought to be less expensive in developing
countries than developed countries (Goldemberg et al., 1996, p. 30; Grubb, 2003,
p. 159).For example, in developing countries, environmental regulation is
generally weaker than it is in developed countries (Sathaye et al., 2001, p. 387-
389).Thus, it is widely thought that there is greater potential for developingcountries to reduce their emissions than developed countries.
From the viewpoint of bringing about a global reduction in emissions, emissions
from developing countries are projected to increase substantially over this century
(Goldemberg et al., 1996, p. 29).[6] Infrastructure decisions made in developing
countries could therefore have a very large influence on future efforts to limit
total global emissions (Fisher et al., 2007).[8]The CDM is designed to start off
developing countries on a path towards less pollution, with industralized (AnnexB) countries paying for these reductions.
There were two main concerns about the CDM (Carbon Trust, 2009, pp. 1415).
One was over the additionality of emission reductions produced by the CDM (see
the section on additionality). The other was whether it would allow rich, northern
countries, and in particular, companies, to impose projects that were contrary to
the development interests of host countries. To alleviate this concern, the CDM
requires host countries to confirm that CDM projects contribute to their own
sustainable development. International rules also prohibit credits for some kind of
activities, notably from nuclear powerand avoided deforestation.
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To prevent industrialised countries from making unlimited use of CDM, the
framework has a provision that use of CDM be supplemental to domestic
actions to reduce emissions. This wording has led to a wide range of
interpretations - the Netherlands for example aims to achieve half of its required
emission reductions (from a BAU baseline) by CDM. [citation needed] It treats Dutch
companies' purchases of European Emissions Trading Scheme allowances from
companies in other countries as part of its domestic actions.
The CDM gained momentum in 2005 after the entry into force of the Kyoto
Protocol. Before the Protocol entered into force, investors considered this a key
risk factor. The initial years of operation yielded fewer CDM credits than
supporters had hoped for, as Parties did not provide sufficient funding to the EB.This left it understaffed.[citation needed]
The Adaptation Fund was established to finance concrete adaptation projects and
programmes in developing countries that are Parties to the Kyoto Protocol. [citation
needed] The Fund is to be financed with a share of proceeds from clean development
mechanism (CDM) project activities and receive funds from other sources.
DIFFICULTIES IN CDM
Carbon leakage
In theory, leakage may be reduced by crediting mechanisms (Burniaux et al.,
2009, p. 38). In practice, the amount of leakage partly depends on the definition of
the baseline against which credits are granted. The current CDM approach already
incorporates some leakage. Thus, reductions in leakage due to the CDM may, in
fact, be small or even non-existent.
Additionality, transaction costs and bottlenecks
In order to maintain the environmental effectiveness of the Kyoto Protocol,
emission savings from the CDM must be additional (World Bank, 2010, p. 265).[4]
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Without additionality, the CDM amounts to an income transfer to non-Annex I
countries (Burniaux et al., 2009, p. 40). Additionality is, however, difficult to
prove, and is the subject of vigorous debate.
Burniaux et al. (2009) commented on the large transaction costs of establishing
additionality. Assessing additionality has created delays (bottlenecks) in
approving CDM projects. According to World Bank (2010), there are significant
constraints to the continued growth of the CDM to support mitigation in
developing countries.
Incentives
The CDM rewards emissions reductions, but does not penalize emission increases
(Burniaux et al., 2009, p. 41). It therefore comes close to being an emissions
reduction subsidy. This can create a perverse incentive for firms to raise their
emissions in the short-term, with the aim of getting credits for reducing emissions
in the long-term.
Another difficulty is that the CDM might reduce the incentive for non-Annex I
countries to cap their emissions. This is because most developing countries
benefit more from a well-functioning crediting mechanism than from a world
emissions trading scheme (ETS), where their emissions are capped. This is true
except in cases where the allocation of emissions rights (i.e., the amount of
emissions that each country is allowed to emit) in the ETS is particularly
favourable to developing countries.
Combating global warming has broadly two components: decreasing the release
of greenhouse gases and sequestering greenhouse gases from the atmosphere.
Greenhouse gas emitters, such as coal-fired power plants, are known as
"sources", and places where carbon and other greenhouse gases, such as
methane, can be sequestered, i.e. kept out of the atmosphere, are known as
"sinks".
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The world's forests, particularly rain forests, are important carbon sinks, both
because of their uptake of CO2 through photosynthesis and because of the amount
of carbon stored in their woody biomass and the soil. When rain forests are
logged and burned, not only do we lose the forests' capacity to take up CO2 from
the atmosphere, but also the carbon stored in that biomass and soil is released into
the atmosphere through release of roots from the soil and the burning of the
woody plant matter.
An emerging proposal, Reduced Emissions from Avoided Deforestation and
Degradation (REDD), would allow rain forest preservation to qualify for CDM
project status. REDD has gained support through recent meetings of the COP, and
will be examined at Copenhagen.
One of the difficulties of the CDM is in judging whether or not projects truly
make additional savings in GHG emissions (Carbon Trust, 2009, p. 54-56).[2] The
baseline which is used in making this comparison is not observable. According to
the Carbon Trust (2009), some projects have been clearly additional: the fitting of
equipment to remove HFCs and N2O. Some low-carbon electricity supply projects
were also thought to have displaced coal-powered generation. Carbon Trust
(2009) reviewed some approved projects. In their view, some of these projects
had debatable points in their additionality assessments. They comparedestablishing additionality to the balance of evidence in a legal system. Certainty in
additionality is rare, and the higher the proof of additionality, the greater the risk
of rejecting good projects to reduce emissions.
[edit] Types
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Additionality is a much contested. There are many rival interpretations of
additionality:
1. What is often labelled environmental additionality has that a
project is additional if the emissions from the project are lower than the
baseline. It generally looks at what would have happened without the
project.
2. Another interpretation, sometimes termed project additionality,
the project must not have happened without the CDM.
A number of terms for different kinds of additionality have been discussed,
leading to some confusion, particularly over the terms 'financial additionality' and
'investment additionality' which are sometimes used as synonyms. 'Investment
additionality', however, was a concept discussed and ultimately rejected during
negotiation of the Marrakech Accords. Investment additionality carried the idea
that any project that surpasses a certain risk-adjusted profitability threshold would
automatically be deemed non-additional[16]. 'Financial additionality' is often
defined as an economically non-viable project becoming viable as a direct result
of CDM revenues.
Many investors argue that the environmental additionality interpretation would
make the CDM simpler. Environmental NGOs have argued that this interpretation
would open the CDM to free-riders, permitting developed countries to emit more
CO2e, while failing to produce emission reductions in the CDM host countries[17].
Schneider (2007) produced a report on the CDM for the WWF. [18]The findings of
the report were based on a systematic evaluation of 93 randomly chosen
registered CDM projects, as well as interviews and a literature survey (p. 5).According to Schneider (2007, p. 72), the additionality of a significant number of
projects over the 2004-2007 period seemed to be either unlikely or questionable.
It is never possible to establish with certainty what would have happened without
the CDM or in absence of a particular project, which is one common objection to
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the CDM. Nevertheless, official guidelines have been designed to facilitate
uniform assessment[19], set by the CDM Executive Board for assessing
additionality.
The risk of false credits
This section needs additional citations for verification.
Please help improve this article by adding reliable references. Unsourced material may be
challenged andremoved.(April 2010)
As the CDM is an alternative to domestic emission reductions, the perfectly
working CDM would produce no more and no less greenhouse gas emission
reductions than without use of the CDM. However, it was recognized from the
beginning that if projects that would have happened anyway are registered as
CDM projects, then the net effect is an increase of global emissions as those
"spurious" credits will be used to allow higher domestic emissions without
reducing emissions in the developing country hosting the CDM project. Spurious
credits may also occur because of overstated baselines. Such an inclusion is
termed a "false positive".[citation needed]
On the other hand, if a project is rejected because the criteria are set too high,there will be missed opportunities for emission reductions. Such a rejection is
termed a "false negative".[citation needed] For example, if it costs $75 to remove just
one tonne from a domestic power station in a developed country, while the same
money would reduce 37.5 tonnes of emissions through a genuinely additional and
sustainable CDM project in China, the project in China would be the more cost-
effective option. Some observers[who?] report that the CDM process is producing
far more of these false negatives than false positives.[citation needed]
By February 2009, there were 1202 projects with capacity of 41,881 MW (66%
from China) had applied for credits.[citation needed]
[edit] Industrial gas projects
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Some CERs are produced from CDM projects at refrigerant-producing factories in
non-Annex I countries that generate the powerful greenhouse gas HFC 23 as a by-
product. These projects dominated the CDM's early growth, and are expected to
generate 20% of all credited emission reductions by 2012 (Carbon Trust, 2009,
p. 60).[2] Paying for facilities to destroy HFC-23 can cost only 0.2-0.5 /tCO2.
Industrialized countries were, however, paying around 20 /tCO2 for reductions
that cost below 1 /tCO2. This provoked strong criticism.
The scale of profits generated by HFC-23 projects threatened distortions in
competitiveness with plants in industrialized countries that had already cleaned up
their emissions (p. 60). In an attempt to address concerns over HFC-23 projects,
the CDM Executive Board made changes in how these projects are credited.According to the Carbon Trust (2009, p. 60), these changes effectively ensure
that:
the potential to capture emissions from these plants is exploited;
distortions are reduced;
and the risk of perverse incentives is capped.
Critics of the CDM
[who?]
have stated that it would cost only 100 million to payproducers to capture and destroy HFC 23 compared with 4.6 billion in CDM
credits, yielding what they believe are excessive profits to the sellers and
middlemen [14][15][16].[citation needed] Carbon Trust (2009, p. 60) argued that
criticizing the CDM for finding low-cost reductions seemed perverse. They also
argued that addressing the problem with targeted funding was easy with hindsight,
and that before the CDM, these emission reduction opportunities were not taken.
Another argument in favour of the CDM[according to whom?] is that in a well-functioningmarket, rent[clarification needed] is shared between buyer and seller, not held exclusively
by one of the parties to a transaction.[citation needed]
[edit] Hydropower
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This section needs additional citations for verification.
Please help improve this article by adding reliable references. Unsourced material may be
challenged andremoved.(April 2010)
NGOs have criticized the inclusion of large hydropower projects, which they
consider unsustainable, as CDM projects.[citation needed] Lately, both the CDM EB and
investors have become concerned about such projects for potential lack of
additionality. One reason was that many of these projects had started well before
applying for CDM status. In June 2008, third party validator TV SD Group
rejected a hydropower project in China because the project proponents could not
document that they had seriously considered CDM at the time the project was
started. In July 2008, third party validators agreed that projects applying for CDM
status more than one year after having taken their investment decision should not
qualify for CDM status.
Hydropower projects larger than 20 MW must document that they follow World
Commission on Dams guidelines or similar guidelines in order to qualify for the
European Union's Emissions Trading Scheme.[citation needed] As of 21 July 2008,
CERs from hydropower projects are not listed on European carbon exchanges,
because different member states interpret these limitations differently
Carbon capture and storage
Negotiators have not yet been able to agree on whether, or how, carbon capture
and storage projects should be allowed under the CDM, although the technical
barriers to successfully implementing this technology delay the need for a
decision on this.[citation needed]
[edit] SuggestionsIn response to concerns of unsustainable projects or spurious
credits, the World Wide Fund for Nature and other NGOs devised a Gold
Standard methodology to certify projects that uses much stricter criteria than
required, such as allowing only renewable energy projects [25].
http://en.wikipedia.org/wiki/Wikipedia:Citing_sources#Inline_citationshttp://en.wikipedia.org/wiki/Wikipedia:Verifiabilityhttp://en.wikipedia.org/wiki/Wikipedia:Verifiabilityhttp://en.wikipedia.org/wiki/Wikipedia:Verifiabilityhttp://en.wikipedia.org/w/index.php?title=Clean_Development_Mechanism&action=edithttp://en.wikipedia.org/w/index.php?title=Clean_Development_Mechanism&action=edithttp://en.wikipedia.org/wiki/Wikipedia:Identifying_reliable_sourceshttp://en.wikipedia.org/wiki/Wikipedia:Identifying_reliable_sourceshttp://en.wikipedia.org/wiki/Template:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Verifiability#Burden_of_evidencehttp://en.wikipedia.org/wiki/Wikipedia:Verifiability#Burden_of_evidencehttp://en.wikipedia.org/wiki/Wikipedia:Verifiability#Burden_of_evidencehttp://en.wikipedia.org/wiki/Hydropowerhttp://en.wikipedia.org/wiki/Hydropowerhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/World_Commission_on_Damshttp://en.wikipedia.org/wiki/World_Commission_on_Damshttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/w/index.php?title=Clean_Development_Mechanism&action=edit§ion=28http://en.wikipedia.org/wiki/World_Wide_Fund_for_Naturehttp://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_note-24http://en.wikipedia.org/wiki/File:Question_book-new.svghttp://en.wikipedia.org/wiki/Wikipedia:Citing_sources#Inline_citationshttp://en.wikipedia.org/wiki/Wikipedia:Verifiabilityhttp://en.wikipedia.org/w/index.php?title=Clean_Development_Mechanism&action=edithttp://en.wikipedia.org/wiki/Wikipedia:Identifying_reliable_sourceshttp://en.wikipedia.org/wiki/Template:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Verifiability#Burden_of_evidencehttp://en.wikipedia.org/wiki/Hydropowerhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/World_Commission_on_Damshttp://en.wikipedia.org/wiki/World_Commission_on_Damshttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/w/index.php?title=Clean_Development_Mechanism&action=edit§ion=28http://en.wikipedia.org/wiki/World_Wide_Fund_for_Naturehttp://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_note-24 -
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For example, a South African brick kiln was faced with a business decision;
replace its depleted energy supply with coal from a new mine, or build a difficult
but cleaner natural gas pipeline to another country. They chose to build the
pipeline with SASOL. SASOL claimed the difference in GHG emissions as a
CDM credit, comparing emissions from the pipeline to the contemplated coal
mine. During its approval process, the validators noted that changing the supply
from coal to gas met the CDM's 'additionality' criteria and was the least cost-
effective option[26]. However, there were unofficial reports that the fuel change
was going to take place anyway, although this was later denied by the company's
press office[27].
[edit] Successes
Schneider (2007, p. 73) commented on the success of the CDM in reducing
emissions from industrial plants and landfills.[18] Schneider (2007) concluded by
stating that if concerns over the CDM are properly addressed, it would continue to
be an "important instrument in the fight against climate change."
[edit] See also
Obtaining ownership of land by productive use
No-lose target
Climate, Community & Biodiversity Alliance
China Carbon Forum (CCF)
[edit] Notes
1. ^ a b IPCC (2007). "Glossary J-P. In (book section): Annex I. In:
Climate Change 2007: MReport of the Intergovernmental Panel on
Climate Change (B. Metz et al. Eds.)". Cambridge University Press,
Cambridge, U.K., and New York, N.Y., U.S.A..
http://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/Coal_minehttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Sasolhttp://en.wikipedia.org/wiki/Sasolhttp://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_note-25http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_note-25http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_note-26http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_note-26http://en.wikipedia.org/w/index.php?title=Clean_Development_Mechanism&action=edit§ion=29http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_note-schneider-17http://en.wikipedia.org/w/index.php?title=Clean_Development_Mechanism&action=edit§ion=30http://en.wikipedia.org/wiki/Land_tenure#Modes_of_ownership_and_tenurehttp://en.wikipedia.org/w/index.php?title=No-lose_target&action=edit&redlink=1http://en.wikipedia.org/wiki/Climate,_Community_%26_Biodiversity_Alliancehttp://en.wikipedia.org/wiki/China_Carbon_Forumhttp://en.wikipedia.org/w/index.php?title=Clean_Development_Mechanism&action=edit§ion=31http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-glossary_0-0http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-glossary_0-1http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-glossary_0-1http://www.ipcc.ch/publications_and_data/ar4/wg3/en/annex1sglossary-j-p.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/annex1sglossary-j-p.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/annex1sglossary-j-p.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/annex1sglossary-j-p.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/annex1sglossary-j-p.htmlhttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/Coal_minehttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Sasolhttp://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_note-25http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_note-26http://en.wikipedia.org/w/index.php?title=Clean_Development_Mechanism&action=edit§ion=29http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_note-schneider-17http://en.wikipedia.org/w/index.php?title=Clean_Development_Mechanism&action=edit§ion=30http://en.wikipedia.org/wiki/Land_tenure#Modes_of_ownership_and_tenurehttp://en.wikipedia.org/w/index.php?title=No-lose_target&action=edit&redlink=1http://en.wikipedia.org/wiki/Climate,_Community_%26_Biodiversity_Alliancehttp://en.wikipedia.org/wiki/China_Carbon_Forumhttp://en.wikipedia.org/w/index.php?title=Clean_Development_Mechanism&action=edit§ion=31http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-glossary_0-0http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-glossary_0-1http://www.ipcc.ch/publications_and_data/ar4/wg3/en/annex1sglossary-j-p.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/annex1sglossary-j-p.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/annex1sglossary-j-p.html -
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http://www.ipcc.ch/publications_and_data/ar4/wg3/en/annex1sglossary-j-
p.html. Retrieved 2010-04-23.
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Emerging lessons and implications (CTC748)". Carbon Trust website.
http://www.carbontrust.co.uk/Publications/pages/publicationdetail.aspx?
id=CTC748&respos=2&q=global+carbon+market&o=Rank&od=asc&pn
=0&ps=10. Retrieved 2010-03-31.
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4. ^ a b c d e World Bank (2010). "World Development Report 2010:
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Retrieved 2010-03-18.
9. ^ [1] UNFCCC Tools
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Change Mitigation: How to Build the Necessary Global Action in a Cost-
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OECD website. http://appli1.oecd.org/olis/2009doc.nsf/linkto/eco-wkp
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11. ^ Barker, T. et al. (2007). "11.7.2 Carbon leakage. In (book
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Change (B. Metz et al. Eds.)". Print version: Cambridge University Press,
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website. http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-
3-3-4.html. Retrieved 2010-04-02.
14. ^ "Delhi Metro is first rail project to earn carbon credits". The
Economic Times. 2008-01-05.
http://economictimes.indiatimes.com/news/news-by-
industry/transportation/railways/Delhi-Metro-is-first-rail-project-to-earn-
carbon-credits/articleshow/2676012.cms. Retrieved 2010-02-02.
15. ^ ab World Bank (n.d.). "The World Banks 10 years of experience
in carbon finance: Insights from working with carbon markets for
development & global greenhouse gas mitigation (brochure)". Carbon
finance on the World Bank website. http://go.worldbank.org/I18PR3E700.
Retrieved 2010-04-20.
16. ^ VROM (Netherlands Ministry of Housing, Spacial Planning and
the Environment
17. ^ Failed Mechanism: Hundreds of Hydros Expose Serious Flaws
in the CDM; International Rivers; December 2, 2007
18. ^ a b Schneider, L. (5 November 2007). "Is the CDM fulfilling its
environmental and sustainable development objectives? An evaluation of
the CDM and options for improvement". WWF website.
http://www.panda.org/what_we_do/footprint/climate_carbon_energy/ener
gy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-
for-improvement. Retrieved 2010-04-20.
http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-11http://siteresources.worldbank.org/INTCARBONFINANCE/Resources/State_and_Trends_of_the_Carbon_Market_2010_low_res.pdfhttp://siteresources.worldbank.org/INTCARBONFINANCE/Resources/State_and_Trends_of_the_Carbon_Market_2010_low_res.pdfhttp://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-12http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-13http://economictimes.indiatimes.com/news/news-by-industry/transportation/railways/Delhi-Metro-is-first-rail-project-to-earn-carbon-credits/articleshow/2676012.cmshttp://economictimes.indiatimes.com/news/news-by-industry/transportation/railways/Delhi-Metro-is-first-rail-project-to-earn-carbon-credits/articleshow/2676012.cmshttp://economictimes.indiatimes.com/news/news-by-industry/transportation/railways/Delhi-Metro-is-first-rail-project-to-earn-carbon-credits/articleshow/2676012.cmshttp://economictimes.indiatimes.com/news/news-by-industry/transportation/railways/Delhi-Metro-is-first-rail-project-to-earn-carbon-credits/articleshow/2676012.cmshttp://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-wbnd_14-0http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-wbnd_14-1http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-wbnd_14-1http://go.worldbank.org/I18PR3E700http://go.worldbank.org/I18PR3E700http://go.worldbank.org/I18PR3E700http://go.worldbank.org/I18PR3E700http://go.worldbank.org/I18PR3E700http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-15http://www.vrom.nl/pagina.html?id=37532http://www.vrom.nl/pagina.html?id=37532http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-16http://www.internationalrivers.org/node/2326http://www.internationalrivers.org/node/2326http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-schneider_17-0http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-schneider_17-0http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-schneider_17-1http://www.panda.org/what_we_do/footprint/climate_carbon_energy/energy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-for-improvementhttp://www.panda.org/what_we_do/footprint/climate_carbon_energy/energy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-for-improvementhttp://www.panda.org/what_we_do/footprint/climate_carbon_energy/energy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-for-improvementhttp://www.panda.org/what_we_do/footprint/climate_carbon_energy/energy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-for-improvementhttp://www.panda.org/what_we_do/footprint/climate_carbon_energy/energy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-for-improvementhttp://www.panda.org/what_we_do/footprint/climate_carbon_energy/energy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-for-improvementhttp://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-11http://siteresources.worldbank.org/INTCARBONFINANCE/Resources/State_and_Trends_of_the_Carbon_Market_2010_low_res.pdfhttp://siteresources.worldbank.org/INTCARBONFINANCE/Resources/State_and_Trends_of_the_Carbon_Market_2010_low_res.pdfhttp://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-12http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-3-3-4.htmlhttp://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-13http://economictimes.indiatimes.com/news/news-by-industry/transportation/railways/Delhi-Metro-is-first-rail-project-to-earn-carbon-credits/articleshow/2676012.cmshttp://economictimes.indiatimes.com/news/news-by-industry/transportation/railways/Delhi-Metro-is-first-rail-project-to-earn-carbon-credits/articleshow/2676012.cmshttp://economictimes.indiatimes.com/news/news-by-industry/transportation/railways/Delhi-Metro-is-first-rail-project-to-earn-carbon-credits/articleshow/2676012.cmshttp://economictimes.indiatimes.com/news/news-by-industry/transportation/railways/Delhi-Metro-is-first-rail-project-to-earn-carbon-credits/articleshow/2676012.cmshttp://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-wbnd_14-0http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-wbnd_14-1http://go.worldbank.org/I18PR3E700http://go.worldbank.org/I18PR3E700http://go.worldbank.org/I18PR3E700http://go.worldbank.org/I18PR3E700http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-15http://www.vrom.nl/pagina.html?id=37532http://www.vrom.nl/pagina.html?id=37532http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-16http://www.internationalrivers.org/node/2326http://www.internationalrivers.org/node/2326http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-schneider_17-0http://en.wikipedia.org/wiki/Clean_Development_Mechanism#cite_ref-schneider_17-1http://www.panda.org/what_we_do/footprint/climate_carbon_energy/energy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-for-improvementhttp://www.panda.org/what_we_do/footprint/climate_carbon_energy/energy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-for-improvementhttp://www.panda.org/what_we_do/footprint/climate_carbon_energy/energy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-for-improvementhttp://www.panda.org/what_we_do/footprint/climate_carbon_energy/energy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-for-improvementhttp://www.panda.org/what_we_do/footprint/climate_carbon_energy/energy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-for-improvementhttp://www.panda.org/what_we_do/footprint/climate_carbon_energy/energy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-for-improvement 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19. ^ Tool for the demonstration and assessment of additionality
(Version 03), UNFCCC CDM EB, EB 29
20. ^ Mller, B. (March 2009). "Additionality in the Clean
Development Mechanism: Why and What?". Dr. Benito Mller's web
page on the Oxford Institute for Energy Studies website.
http://www.oxfordenergy.org/muller.php. Retrieved 2010-04-20.
21. ^ A New Initiative to Use Carbon Trading for Tropical Forest
Conservation] William F. Laurance(2007), Biotropica 39 (1), 2024
22. ^ Stern, N. 2006. Stern Review of the Economics of Climate
Change
23. ^ Forests First in the Fight Against Climate Change, Global
Canopy Programme, 2007
24. ^ World Bank, State and Trends of the Carbon Market, 2010
25. ^ CDM Gold Standard
26. ^ CDM Project 0177 Lawley Fuel Switch Project UNFCCC
27. ^ Carbon trade watch
[edit] Further reading
Boyd, E. et al (October 2007). "The Clean Development
Mechanism: An assessment of current practice and future approaches for
policy". Tyndall Centre for Climate Change Research.
http://www.tyndall.ac.uk/publications/working_papers/twp114_summary.s
html. Retrieved 2009-08-08.[dead link]
Hepburn, C. (November 2007). "Carbon Trading: A Review of the
Kyoto Mechanisms". Annual Review of Environment and Resources 32:
375393. doi:10.1146/annurev.energy.32.053006.141203.
http://arjournals.annualreviews.org/eprint/V5uDHeDwvfmeMnr3IuPZ/full
/10.1146/annurev.energy.32.053006.141203. Retrieved 2009-05-20.
[edit] External links
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Home page of United Nations website on Clean Development
Mechanisms
Spreadsheet of Hydro Projects in the CDM Project Pipeline,
International Rivers
Carbon-Scout Research Group focusing on CDM/JI project
assessment
Clean Development Mechanism projects in & around India
Institute for Global Environment Strategies
Designated National Authority of India for CDM Projects
http://cdm.unfccc.int/index.htmlhttp://cdm.unfccc.int/index.htmlhttp://cdm.unfccc.int/index.htmlhttp://www.internationalrivers.org/node/1785http://www.internationalrivers.org/node/1785http://www.internationalrivers.org/node/1785http://www.carbon-scout.com/http://www.indscanblog.com/http://www.iges.or.jp/en/http://cdmindia.nic.in/http://cdm.unfccc.int/index.htmlhttp://cdm.unfccc.int/index.htmlhttp://www.internationalrivers.org/node/1785http://www.internationalrivers.org/node/1785http://www.carbon-scout.com/http://www.indscanblog.com/http://www.iges.or.jp/en/http://cdmindia.nic.in/ -
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A carbon credit is a generic term for any tradable certificate or permitrepresenting the right to emit one tonne of carbon or carbon dioxide equivalent
(CO2-e).[1][2][3]
Carbon credits and carbon markets are a component of national and international
attempts to mitigate the growth in concentrations ofgreenhouse gases (GHGs).
One carbon credit is equal to one ton of carbon dioxide, or in some markets,
carbon dioxide equivalent gases. Carbon trading is an application of an emissions
trading approach. Greenhouse gas emissions are capped and then markets are used
to allocate the emissions among the group of regulated sources. The goal is to
allow market mechanisms to drive industrial and commercial processes in the
direction of low emissions or less carbon intensive approaches than those used
when there is no cost to emitting carbon dioxide and other GHGs into the
atmosphere. Since GHG mitigation projects generate credits, this approach can be
used to finance carbon reduction schemes between trading partners and around
the world.
There are also many companies that sell carbon credits to commercial and
individual customers who are interested in lowering their carbon footprint on a
voluntary basis. These carbon offsetters purchase the credits from an investment
fund or a carbon development company that has aggregated the credits from
http://en.wikipedia.org/wiki/Carbon_credit#cite_note-ced-0http://en.wikipedia.org/wiki/Carbon_credit#cite_note-epav-1http://en.wikipedia.org/wiki/Carbon_credit#cite_note-id-2http://en.wikipedia.org/wiki/Greenhouse_gashttp://en.wikipedia.org/wiki/Greenhouse_gashttp://en.wikipedia.org/wiki/Emissions_tradinghttp://en.wikipedia.org/wiki/Emissions_tradinghttp://en.wikipedia.org/wiki/Marketshttp://en.wikipedia.org/wiki/Carbon_dioxidehttp://en.wikipedia.org/wiki/Carbon_dioxidehttp://en.wikipedia.org/wiki/Carbon_projecthttp://en.wikipedia.org/wiki/Carbon_footprinthttp://en.wikipedia.org/wiki/Carbon_offsethttp://en.wikipedia.org/wiki/Carbon_credit#cite_note-ced-0http://en.wikipedia.org/wiki/Carbon_credit#cite_note-epav-1http://en.wikipedia.org/wiki/Carbon_credit#cite_note-id-2http://en.wikipedia.org/wiki/Greenhouse_gashttp://en.wikipedia.org/wiki/Emissions_tradinghttp://en.wikipedia.org/wiki/Emissions_tradinghttp://en.wikipedia.org/wiki/Marketshttp://en.wikipedia.org/wiki/Carbon_dioxidehttp://en.wikipedia.org/wiki/Carbon_projecthttp://en.wikipedia.org/wiki/Carbon_footprinthttp://en.wikipedia.org/wiki/Carbon_offset -
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individual projects. The quality of the credits is based in part on the validation
process and sophistication of the fund or development company that acted as the
sponsor to the carbon project. This is reflected in their price; voluntary units
typically have less value than the units sold through the rigorously validated
Clean Development Mechanism.[4]
Contents
[hide]
1 Definitions
2 Background
o 2.1 Emission allowances
o 2.2 Kyoto's 'Flexible mechanisms'
o 2.3 Emission markets
o 2.4 Setting a market price for carbon
3 How buying carbon credits can reduce emissions
o 3.1 Credits versus taxes
4 Creating real carbon credits
o 4.1 Additionality and its importance
o 4.2 Criticisms
5 See also
6 References
7 External links
[edit] Definitions
The Collins English Dictionary defines a carbon credit as a certificate showing
that a government or company has paid to have a certain amount of carbon
dioxide removed from the environment.[1]
http://en.wikipedia.org/wiki/Carbon_projecthttp://en.wikipedia.org/wiki/Clean_Development_Mechanismhttp://en.wikipedia.org/wiki/Carbon_credit#cite_note-3http://en.wikipedia.org/wiki/Carbon_credit#cite_note-3http://en.wikipedia.org/wiki/Carbon_credithttp://en.wikipedia.org/wiki/Carbon_credit#Definitionshttp://en.wikipedia.org/wiki/Carbon_credit#Backgroundhttp://en.wikipedia.org/wiki/Carbon_credit#Emission_allowanceshttp://en.wikipedia.org/wiki/Carbon_credit#Kyoto.27s_.27Flexible_mechanisms.27http://en.wikipedia.org/wiki/Carbon_credit#Kyoto.27s_.27Flexible_mechanisms.27http://en.wikipedia.org/wiki/Carbon_credit#Emission_marketshttp://en.wikipedia.org/wiki/Carbon_credit#Setting_a_market_price_for_carbonhttp://en.wikipedia.org/wiki/Carbon_credit#How_buying_carbon_credits_can_reduce_emissionshttp://en.wikipedia.org/wiki/Carbon_credit#Credits_versus_taxeshttp://en.wikipedia.org/wiki/Carbon_credit#Creating_real_carbon_creditshttp://en.wikipedia.org/wiki/Carbon_credit#Additionality_and_its_importancehttp://en.wikipedia.org/wiki/Carbon_credit#Criticismshttp://en.wikipedia.org/wiki/Carbon_credit#See_alsohttp://en.wikipedia.org/wiki/Carbon_credit#Referenceshttp://en.wikipedia.org/wiki/Carbon_credit#External_linkshttp://en.wikipedia.org/w/index.php?title=Carbon_credit&action=edit§ion=1http://en.wikipedia.org/wiki/Carbon_credit#cite_note-ced-0http://en.wikipedia.org/wiki/Carbon_projecthttp://en.wikipedia.org/wiki/Clean_Development_Mechanismhttp://en.wikipedia.org/wiki/Carbon_credit#cite_note-3http://en.wikipedia.org/wiki/Carbon_credithttp://en.wikipedia.org/wiki/Carbon_credit#Definitionshttp://en.wikipedia.org/wiki/Carbon_credit#Backgroundhttp://en.wikipedia.org/wiki/Carbon_credit#Emission_allowanceshttp://en.wikipedia.org/wiki/Carbon_credit#Kyoto.27s_.27Flexible_mechanisms.27http://en.wikipedia.org/wiki/Carbon_credit#Emission_marketshttp://en.wikipedia.org/wiki/Carbon_credit#Setting_a_market_price_for_carbonhttp://en.wikipedia.org/wiki/Carbon_credit#How_buying_carbon_credits_can_reduce_emissionshttp://en.wikipedia.org/wiki/Carbon_credit#Credits_versus_taxeshttp://en.wikipedia.org/wiki/Carbon_credit#Creating_real_carbon_creditshttp://en.wikipedia.org/wiki/Carbon_credit#Additionality_and_its_importancehttp://en.wikipedia.org/wiki/Carbon_credit#Criticismshttp://en.wikipedia.org/wiki/Carbon_credit#See_alsohttp://en.wikipedia.org/wiki/Carbon_credit#Referenceshttp://en.wikipedia.org/wiki/Carbon_credit#External_linkshttp://en.wikipedia.org/w/index.php?title=Carbon_credit&action=edit§ion=1http://en.wikipedia.org/wiki/Carbon_credit#cite_note-ced-0 -
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The Environment Protection Authority of Victoria defines a carbon credit as a
generic term to assign a value to a reduction or offset of greenhouse gas
emissions.. usually equivalent to one tonne of carbon dioxide equivalent (CO2-
e).[2]
The Investopedia Inc investment dictionary defines a carbon credit as a permit
that allows the holder to emit one ton of carbon dioxide..which can be traded in
the international market at their current market price.[3]
[edit] Background
Burning of fossil fuels is a major source of industrial greenhouse gas emissions,
especially for power, cement, steel, textile, fertilizer and many other industries
which rely on fossil fuels (coal, electricity derived from coal, natural gas and oil).
The major greenhouse gases emitted by these industries are carbon dioxide,
methane, nitrous oxide, hydrofluorocarbons (HFCs), etc., all of which increase the
atmosphere's ability to trap infrared energy and thus affect the climate.
The concept of carbon credits came into existence as a result of increasing
awareness of the need for controlling emissions. The IPCC (IntergovernmentalPanel on Climate Change) has observed[5] that:
Policies that provide a real or implicit price of carbon could
create incentives for producers and consumers to significantly
invest in low-GHG products, technologies and processes. Such
policies could include economic instruments, government funding
and regulation,
while noting that a tradable permit system is one of the policy instruments that has
been shown to be environmentally effective in the industrial sector, as long as
there are reasonable levels of predictability over the initial allocation mechanism
and long-term price.
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The mechanism was formalized in theKyoto Protocol, an international agreement
between more than 170 countries, and the market mechanisms were agreed
through the subsequent Marrakesh Accords. The mechanism adopted was similar
to the successful US Acid Rain Program to reduce some industrial pollutants.
[edit] Emission allowances
Under the Kyoto Protocol, the 'caps' or quotas for Greenhouse gases for the
developed Annex 1countries are known as Assigned Amounts and are listed in
Annex B.[6] The quantity of the initial assigned amount is denominated in
individual units, called Assigned amount units (AAUs), each of which represents
an allowance to emit one metric tonne of carbon dioxide equivalent, and these are
entered into the country's national registry.[7]
In turn, these countries set quotas on the emissions of installations run by local
business and other organizations, generically termed 'operators'. Countries
manage this through their national registries, which are required to be validated
and monitored for compliance by the UNFCCC.[8] Each operator has an allowance
of credits, where each unit gives the owner the right to emit one metric tonne of
carbon dioxide or other equivalent greenhouse gas. Operators that have not usedup their quotas can sell their unused allowances as carbon credits, while
businesses that are about to exceed their quotas can buy the extra allowances as
credits, privately or on the open market. As demand for energy grows over time,
the total emissions must still stay within the cap, but it allows industry some
flexibility and predictability in its planning to accommodate this.
By permitting allowances to be bought and sold, an
operator can seek out the most cost-effective way of reducing its emissions, either
by investing in 'cleaner' machinery and practices or by purchasing emissions from
another operator who already has excess 'capacity'.
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Since 2005, the Kyoto mechanism has been adopted for CO2 trading by all the
countries within the European Union under its European Trading Scheme (EU
ETS) with the European Commission as its validating authority.[9] From 2008, EU
participants must link withthe other developed countries whoratifiedAnnex I of
the protocol, and trade the six most significant anthropogenic greenhouse gases.
In the United States, which has not ratified Kyoto, and Australia, whose
ratification came into force in March 2008, similar schemes are being considered.
[edit] Kyoto's 'Flexible mechanisms'
A tradable credit can be an emissions allowance or an assigned amount unit which
was originally allocated or auctioned by the national administrators of a Kyoto-
compliant cap-and-trade scheme, or it can be an offset of emissions. Such
offsetting and mitigating activities can occur in any developing country which has
ratified the Kyoto Protocol, and has a national agreement in place to validate its
carbon project through one of the UNFCCC's approved mechanisms. Once
approved, these units are termed Certified Emission Reductions, or CERs. The
Protocol allows these projects to be constructed and credited in advance of the
Kyoto trading period.
The Kyoto Protocol provides for three mechanisms that enable countries or
operators in developed countries to acquire greenhouse gas reduction credits[10]
Under Joint Implementation (JI) a developed country with
relatively high costs of domestic greenhouse reduction would set up a
project in another developed country.
Under the Clean Development Mechanism (CDM) a developed
country can 'sponsor' a greenhouse gas reduction project in a developing
country where the cost of greenhouse gas reduction project activities is
usually much lower, but the atmospheric effect is globally equivalent. The
developed country would be given credits for meeting its emission
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reduction targets, while the developing country would receive the capital
investment and clean technology or beneficial change in land use.
Under InternationalEmissions Trading (IET) countries can trade in
the international carbon credit market to cover their shortfall in Assigned
amount units. Countries with surplus units can sell them to countries that
are exceeding their emission targets under Annex B of the Kyoto Protocol.
These carbon projects can be created by a national government or by an operator
within the country. In reality, most of the transactions are not performed by
national governments directly, but by operators who have been set quotas by their
country.
[edit] Emission markets
For trading purposes, one allowance or CER is considered equivalent to one
metric ton of CO2 emissions. These allowances can be sold privately or in the
international market at the prevailing market price. These trade and settle
internationally and hence allow allowances to be transferred between countries.
Each international transfer is validated by the UNFCCC. Each transfer of
ownership within the European Union is additionally validated by the EuropeanCommission.
Climate exchanges have been established to provide a spot marketin allowances,
as well as futuresand optionsmarket to help discover a market price and maintain
liquidity. Carbon prices are