Carbon Glossary
Additionality
The decrease in CO2 emissions over and beyond what would have occurred under a business-as-usual scenario. Additionality can be defined in many ways, including financial and regulatory.
Afforestation
The planting of trees on lands that historically have not contained forests.
Allowance
A permit to emit a specified amount of CO2 or an equivalent greenhouse gas (usually measured in 1 tonne of CO2e increments) under a cap-and-trade system.
Annex I Parties
Industrialized nation signatories to the Kyoto Protocol. Annex I nations that have ratified their Kyoto agreements are subject to individual emission reduction commitments through 2012.These nations include the 24 original OECD members, the European Union and 14 countries with economies in transition.
Annex II Parties
Nations that have a special obligation under Annex II of the Kyoto Protocol to provide financial resources and facilitate technology transfer to developing countries. Annex II Parties include the 24 original OECD members plus the European Union.
Assigned Allocation Unit (AAU)
A permit to emit 1 metric ton (tonne) of CO2e under the Kyoto Protocol. AAUs are distributed to Annex 1 countries based on their past emissions. Countries generating fewer total emissions than their allocation of AAUs may sell their excess credits to other Kyoto-compliant nations.
Auction
The sale of emission allowances to emitters under a cap-and-trade system.
Banking
Storing carbon credits for use in a future year or compliance period.
Baseline
The estimate of GHG emissions, population, GDP and other factors that would have occurred without undertaking any climate change mitigation.
Biodigester
A waste management tool that captures methane from organic waste as it decomposes and may harness it for later use as a renewable energy source or fertilizer.
Brokers
Individuals who facilitate orders to buy or sell carbon credits between suppliers and buyers but do not take ownership of the credits. They typically earn commission based on the size or price of the sale.
Cap-and-trade system
An approach used to control pollution by setting a ceiling on total pollutant emissions and providing an economic incentive for achieving emissions reductions. Participants are allowed to trade emissions reduction permits (allowances) in order to make profits from unused allowances or to meet requirements.
Carbon credit
A financial instrument equivalent to either (a) the right to emit 1 metric ton of CO2 or an equivalent GHG (i.e. an allowance) or (b) the reduction or sequestration of 1 metric ton of the same (i.e. an offset).
Carbon footprint
A measure of an entity’s impact on the environment in terms of the quantity of GHGs emitted.
Carbon neutrality
When an individual, firm or government’s net carbon dioxide emissions equal zero. This occurs when the amount of CO2 (or equivalent GHGs) released is effectively neutralized by offsetting the same amount.
Carbon offset
A type of carbon credit representing the reduction or sequestration of 1 metric ton (tonne) of CO2 or an equivalent amount of another GHG. Offsetting involves reducing one’s net emissions by buying the rights to emissions reductions generated by projects that reduce GHGs. Offsets are project-based emissions reductions and may be used in the voluntary or regulated markets.
Carbon sequestration
The long-term storage of carbon in the biosphere or subsurface terrestrial features in order to reduce its concentration in the atmosphere.
Certification
The process of verifying an emission offset to a particular third-party standard and marketing the offset with that particular standard’s brand name. For example, carbon offset projects certified by the Gold Standard Foundation can sell their credits through retailers as Gold Standard certified credits.
Certified Emission Reduction (CER)
An emission reduction credit from Kyoto Clean Development Mechanism (CDM) projects (see ‘Clean Development Mechanism’), equal to the reduction or sequestration of 1 metric ton of CO2.
Clean Development Mechanism (CDM)
One of three ‘flexibility mechanisms’ of the Kyoto Protocol that allows participating industrialized countries to meet a portion of their reduction obligations by investing in projects that reduce emissions in developing countries. In turn, the industrialized country can earn certified emission reduction (CER) credits that allow it to meet its Kyoto obligations at a lower cost than emissions reductions at home.
Double counting
When two entities claim ownership or rights to the benefits of the same emissions reduction.
Emission Reduction Unit (ERU)
An emissions reduction credit from a Kyoto Joint Implementation (JI) project (see ‘Joint Implementation’), equal to the reduction or sequestration of 1 metric ton of CO2 or an equivalent GHG.
Emissions trading
A market-based GHG emissions reduction tool that allows entities to buy and sell permits representing the right to emit (allowances) or credits for emissions reductions (offsets). It is one of the three ‘flexibility mechanisms’ of the Kyoto Protocol.
European Union Allowance Unit (EUA)
The carbon credit traded in the European Union Emissions Trading Scheme (EU ETS). It is designed to be fungible with the Kyoto AAU, allowing entities capped by the EU ETS to offset emissions with credits generated by Kyoto CDM and JI projects.
European Union Emissions Trading Scheme (EU ETS)
The Europe-wide GHG emissions trading system launched in 2005 in response to the Kyoto Protocol. The scheme is the world’s first, and largest, multinational emissions trading system.
Free allocation
The provision of emission allowances (rights to emit) to entities regulated under a cap-and-trade scheme free of charge.
Global warming potential (GWP)
A measure of the atmospheric heat-trapping ability of a given GHG expressed in terms of an equivalent amount of CO2.
Grandfather clause
A legal exception that permits an entity to be exempted from or incorporated into a new legal system.
Greenhouse effect
The warming of the Earth’s surface and lower atmosphere due to the trapping of infrared energy (solar radiation reflected back into space by the Earth) by atmospheric GHGs. Global warming is believed to be the result of an accelerated greenhouse effect brought on by the increased concentration of atmospheric GHGs.
Greenhouse gases (GHGs)
Atmospheric gases that trap heat in the lower atmosphere and contribute to global warming (see ‘greenhouse effect’). Some GHGs occur naturally, others are produced only by human activity, and others are produced both naturally and by human activity. The Kyoto Protocol regulates the emissions of six GHGs: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6).
Intergovernmental Panel on Climate Change (IPCC)
An institution whose charter is to evaluate the risk of climate change caused by human activity. It was established in 1988 by the World Meteorological Organization (WMO) and the United Nations Environment Programme (UNEP).
Joint Implementation (JI)
One of the three ‘flexibility mechanisms’ under the Kyoto Protocol. It allows Annex I Parties to earn carbon offset credits by investing in emissions reduction projects in Annex I countries with developing economies.
Kyoto Protocol
An international agreement on climate change that sets a target for signatory countries’ collective emissions reductions and a mechanism for doing so (cap-and-trade).The agreement was reached in 1997 in Kyoto, Japan and came into effect in February 2005. Limits were placed on countries’ GHG emissions relative to levels emitted in 1990.
Land Use, Land-Use change, and Forestry (LULUCF)
Under the Kyoto Protocol, a sector of a GHG inventory that encompasses CO2 sequestration from changes in patterns of land use.
Leakage
The ‘spillover’ of emissions from an entity under some form of a reduction commitment to an entity operating under less stringent regulation. For example, avoiding deforestation in one area could drive deforestation in another area, resulting in no net global carbon benefit.
Methodologies
Formal methods, often housed on standards, for addressing various aspects of identifying the baseline, establishing, verifying and monitoring of carbon offset projects. CDM and JI projects must be certified according to the methodologies established by the Kyoto Protocol, whereas offset projects in the voluntary markets may be verified to a number of standardized certification methodologies.
Midwestern Regional Greenhouse Gas Accord
A planned regional regulatory cap-and-trade carbon market encompassing states in the US and Canadian Midwest. The accord was signed by nine US states and one Canadian province in 2007.
New SouthWales Greenhouse Gas Abatement Scheme (NSW GGAS)
A mandatory cap-and-trade scheme implemented by the regional government of New SouthWales, Australia, covering the state’s energy industry. Carbon reductions generated by energy producers or third party entities in the form of demand reductions, efficiency gains or sequestration projects are packaged and traded as NGACs (NSWGreenhouse Gas Abatement Credits), each equivalent to a 1 tonne CO2e reduction.
Oregon Standard
Regulation in the US state of Oregon requiring new large stationary power generation facilities to meet certain standards of efficiency and to purchase offsets for emissions exceeding these standards. Enacted in 1997, the Standard was the first regulation of CO2 in the US.
Over-the-counter (OTC) market
A set of transactions that are conducted directly between buyers and sellers rather than through a formal trading platform. The voluntary carbon market largely comprises OTC transactions, with companies buying offsets directly from projects or credit brokers.
Permanence
The long-term storage of CO2 in a carbon sink, either through a natural process or through a carbon offset project.
Reduced Emissions for Deforestation and Degradation (REDD)
Emission reductions or foregone emissions achieved through avoided deforestation or avoided land degradation.
Reforestation
The planting of deforested areas with new trees.
Regional Greenhouse Gas Initiative (RGGI)
The United States’ first regional, mandatory cap-and-trade scheme covering emissions from energy generation in ten north-eastern states. The initial auction of emission allowances was conducted in 2008.
Registry
An infrastructure for tracking GHG emissions. Registries generally fall into two categories: emission tracking registries (which monitor organisations’ emissions and reductions) and carbon accounting registries (which track the verification and sale of carbon credits).
Renewable energy
Electricity generated from replenishable sources. This includes traditional wind, solar and hydropower technologies as well as advanced fuels derived from renewable resources, such as algal biofuel.
Renewable Energy Credit (REC)
A tradable environmental commodity representing proof of 1 megawatt-hour of electricity generation from an eligible renewable energy resource.
Retailer
A firm that purchases carbon credits from different sources and then sells smaller quantities to voluntary or regulated buyers, often via the internet.
Standard
A set of project design, monitoring and reporting criteria to which a given carbon offset project can be certified or verified. Under the Kyoto Protocol, standards for CERs and ERUs are set by the CDM and the JI boards respectively. In the voluntary markets, a number of competing standards have emerged with the intent to increase credibility in the marketplace.
United Nations Framework Convention on Climate Change (UNFCCC)
A framework for intergovernmental efforts in tackling climate change. The framework was signed at the Earth Summit in Rio de Janeiro in 1992 and it encourages member governments to share information.
Validation
The approval of carbon offset projects (either CDM/JI projects under the Kyoto Protocol or projects generating credits for the voluntary markets) at the planning stage. Projects must submit for approval information on baseline scenarios, project design, monitoring scheme, methodology for calculating emission reductions, etc.
Verification
The process of verifying emission credits generated by an offset project to a particular standard. In the Kyoto markets, credits from offset projects must be verified through the methodologies outlined under the CDM or JI executive boards. In the voluntary markets, more than one dozen verification standards or project design guidelines exist.
Vintage
The year in which an emissions reduction credit is generated.
Voluntary carbon market
A market in which firms, individuals and organizations voluntarily buy emission reduction credits to reduce their net carbon emissions, and which may or may not operate on a formal exchange.
Voluntary Carbon Standard – Agriculture, Forestry, and Other Land Use (VCS AFOLU)
A programme of the Voluntary Carbon Standard to certify carbon credits generated through four categories of land use: afforestation, reforestation and revegetation (ARR); agricultural land management (ALM); improved forest management (IFM); and reducing emissions from deforestation (RED).
Voluntary (or Verified) Emission Reductions (VERs)
General term for offset credits traded in the voluntary markets.
Western Climate Initiative
A planned regional, mandatory cap-and-trade scheme covering (as of late 2008) 11 western US states and Canadian provinces.
Wholesaler
An entity that buys emission reductions from smaller offset projects, bundles the credits together and sells them in bulk to institutional buyers.
