Carbon Offset Projects
What is the carbon market?
What is a carbon credit?
Why is there a carbon market?
What is the carbon market?
A carbon market is a place where carbon credits are exchanged, much like the stock exchange. These exchanges can occur in a formal exchange (e.g., Chicago Climate Exchange or Green Exchange) or can happen directly between a buyer and a seller (known as an over-the-counter (OTC) market or private placement contract).
back to top >>
What is a carbon credit
A carbon credit is the unit of measurement that is traded in the carbon market (much like a barrel of oil or a gallon of milk). One carbon credit is equal to one metric ton (tonnes) of carbon dioxide equivalent (CO2e) and represents the amount of greenhouse gas that is either prevented from being emitted or removed from the atmosphere. Since there is more than one greenhouse gas and because each greenhouse gas has different global warming potential (e.g., methane is over 20 times more potent than carbon dioxide), the carbon dioxide equivalent is the term used to standardize the unit of measurement.
There are a number of names for carbon credits depending on the purpose for the credit and on which carbon market they are being traded. Some common carbon credit names are listed below:
Carbon Credit Brand |
Description |
Allowance Credit |
A carbon credit generated from an organization that is covered under a cap and trade company (e.g., an electricity company). These credits represent the amount of greenhouse gas emissions that are “allowed” for each entity. If a company has excess allowance credits, they can be sold in the carbon market. |
Certified Emission Reduction (CER) |
A carbon offset credit generated for a Clean Development Mechanism (CDM) project under the Kyoto Protocol. (CDM projects are located in developing countries, but are financed by a developed country) |
Certified Financial Instrument (CFI) |
The trading unit that is used by the Chicago Climate Exchange. One CFI is equal to 100 carbon credits. |
Carbon Reduction Tons (CRT) |
The carbon credit (unit) used in the California Climate Action Registry (emissions inventories) and California Action Reserve Registry (carbon offsets) |
Emission Reduction Tons (ERT) |
Carbon credit term used for projects listed on the American Carbon Registry (formerly the GHG Registry) |
Emission Reduction Unit (ERU) |
A carbon offset credit generated for a Joint Implement (JI) project under the Kyoto Protocol. JI projects originate in Annex I countries (or industrialized countries) |
Voluntary Carbon Units (VCU) |
Carbon credits generated using the Voluntary Carbon Standard |
Voluntary Emission Reduction (VER) |
Carbon credit generated using the Gold Standard |
back to top >>
Why is there a carbon market
click image to enlarge >>
Internationally, the carbon market has emerged in response to international, national, and regional climate change policy. The value of carbon markets nearly doubled from approximately $31 billion to $64 billion from 2006 to 2007. This rapid growth of the carbon market has stimulated carbon abatement around the world and has offered economic opportunity for entities that have the ability to reduce greenhouse gas emissions
Internationally, carbon markets have emerged in response to the Kyoto Protocol, which became officially active in 2008 and will likely become more robust in the future due to continued post-Kyoto negotiations (i.e., post-2012). The European Union Emissions Trading Scheme (EU ETS) is the major world market that has been effective at determining the price of carbon (varies between $20 and $30/tonne). New South Wales and the United Kingdom are also developing exchanges.
In the United States, a carbon market has emerged due to voluntary actions from entities wishing to mitigate climate change. Carbon trading currently takes place on the Chicago Climate Exchange (CCX) and through individual “over-the-counter” (OTC) contracts. OTC contracts are valued higher than CCX and can be more flexible in terms of the length of the projects. Some have recommended short-term OTC contracting (ending in or around 2012) while cap and trade regulations are being developed and put into place.
click image to enlarge >>
Many states have enacted legislation to address cap and trade that rely on carbon markets to achieve the goals of the program. Regional and state carbon markets have been emerging, with the Regional Greenhouse Gas Initiative (RGGI) being the farthest along. RGGI has developed a cap and trade system among northeast states and has already begun trading credits. Other regional systems are under development (i.e., the Western Climate Initiative) and many states are devising state–wide cap and trade systems (e.g., California and Florida).
What all this means is that a carbon market has emerged and it is anticipated to become even more robust in the coming years and well into the future as nations and the United States transition to a carbon–constrained world.
back to top >>
|
