The Language of the Carbon Markets

A short introductory glossary of terms associated with the mechanism’s of the carbon market

Additionality: is the industry term for going beyond “business as usual”. This is the defining concept of carbon offset projects: to qualify as an offset, the reductions achieved by a project need to be additional to what would have happened if the CER investment project had not been carried out

Anthropogenic Emissions: Emissions of greenhouse gasses resulting from human activities.

Carbon Offset: A carbon offset is a service whereby the benefit of implementing a greenhouse gas emissions project in one location “offsets” or equalises, green house gas emitting activities in another location.

CDM: the Clean Development Mechanism (CDM) is a flexible mechanism under the Kyoto Protocol whereby industralised nations may invest in emissions reductions projects in developing nations for “carbon credits” that count against their emission reduction obligations

CER: A Certified Emission Reduction (CER) is a carbon credit generated by a CDM project and is equal to one tonne of CO2 equivalent (CO2e)

Carbon Dioxide (CO2): CO2 is a colorless, odorless, non-poisonous gas that is a normal part of the ambient air. Of the six greenhouse gases normally targeted, CO2 contributes the most to human-induced global warming. Human activities such as fossil fuel combustion and deforestation have increased atmospheric concentrations of CO2 by approximately 30 percent since the industrial revolution. CO2 is the standard used to determine the "global warming potentials" (GWPs) of other gases. CO2 has been assigned a 100-year GWP of 1 (i.e., the warming effects over a 100-year time frame relative to other gases).

EU ETS (EU Emissions Trading Scheme): Introduced in 2005, has two fundamental components, a cap on emissions; and a system for trading the “right to emit”. Emissions from large scale electricity, other large emitting industries across Europe and a small part of the heat sector are covered by the EU Emissions Trading Scheme (ETS), which sets a Europe wide cap on emissions in those sectors and provides incentives for firms to seek least cost emissions reductions by creating a carbon price

EU Climate and Energy Package: published in January 2008, sets out proposals to achieve a reduction in EU greenhouse gas emissions of 20% by 2020, increasing up to 30% by 2030 in the event of an international agreement on climate change, compared to 1990 levels.

European Allowances: The European Union has chosen to manage their Kyoto Protocol obligations through a European Emissions Trading Scheme where various major emitters are allocated emissions targets. These targets are tradable units called “European Allowances” (EUAs)

JI: Joint implementation is also a flexible mechanism under the Kyoto Protocol. The difference between JI and CDM is geographical as JI projects occur in countries that have a reduction commitment under the Kyoto Protocol

VER: Individuals and organisations may choose to buy carbon credits to offset their green house gas impact, even if they are not bound to do so under the Kyoto Protocol. Verified emission reductions (VERs) are not regulated by the UNFCCC

UNFCCC: The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change (UNFCCC). The UN convention encourages countries to stabilise GHG emissions. The Kyoto Protocol commits them to targets and is the first global legally binding contract to do so.