Carbon offset

A carbon offset is a financial instrument aimed at a reduction in greenhouse gas emissions. Carbon offsets are measured in metric tons of carbon dioxide-equivalent (CO2e) and may represent six primary categories of greenhouse gases. One carbon offset represents the reduction of one metric ton of carbon dioxide or its equivalent in other greenhouse gases.

There are two markets for carbon offsets. In the larger, compliance market, companies, governments, or other entities buy carbon offsets in order to comply with caps on the total amount of carbon dioxide they are allowed to emit. In 2006, about $5.5 billion of carbon offsets were purchased in the compliance market, representing about 1.6 billion metric tons of CO2e reductions.

In the much smaller, voluntary market, individuals, companies, or governments purchase carbon offsets to mitigate their own greenhouse gas emissions from transportation, electricity use, and other sources. For example, an individual might purchase carbon offsets to compensate for the greenhouse gas emissions caused by personal air travel. Many companies offer carbon offsets as an up-sell during the sales process so that customers can mitigate the emissions related with their product or service purchase (such as offsetting emissions related to a vacation flight, car rental, hotel stay, consumer good, etc). In 2008, about $705 million of carbon offsets were purchased in the voluntary market, representing about 123.4 million metric tons of CO2e reductions.

Offsets are typically achieved through financial support of projects that reduce the emission of greenhouse gases in the short- or long-term. The most common project type is renewable energy, such as wind farms, biomass energy, or hydroelectric dams. Others include energy efficiency projects, the destruction of industrial pollutants or agricultural byproducts, destruction of landfill methane, and forestry projects. Some of the most popular carbon offset projects from a corporate perspective are energy efficiency and wind turbine projects.

Carbon offsetting has gained some appeal and momentum mainly among consumers in western countries who have become aware and concerned about the potentially negative environmental effects of energy-intensive lifestyles and economies. The Kyoto Protocol has sanctioned offsets as a way for governments and private companies to earn carbon credits which can be traded on a marketplace. The protocol established the Clean Development Mechanism (CDM), which validates and measures projects to ensure they produce authentic benefits and are genuinely "additional" activities that would not otherwise have been undertaken. Organizations that are unable to meet their emissions quota can offset their emissions by buying CDM-approved Certified Emissions Reductions.

Offsets may be cheaper or more convenient alternatives to reducing one's own fossil-fuel consumption. However, some critics object to carbon offsets, and question the benefits of certain types of offsets.

Offsets are viewed as an important policy tool to maintain stable economies. One of the hidden dangers of climate change policy is unequal prices of carbon in the economy, which can cause economic collateral damage if production flows to regions or industries that have a lower price of carbon - unless carbon can be purchased from that area, which offsets effectively permit, equalizing the price.

From http://en.wikipedia.org/

Carbon credit

Carbon credits are a key component of national and international attempts to mitigate the growth in concentrations of greenhouse 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 idea is to allow market mechanisms to drive industrial and commercial processes in the direction of low emissions or less "carbon intensive" approaches than are 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 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.

There are two distinct types of Carbon Credits: Carbon Offset Credits (COC's) and Carbon Reduction Credits (CRC's). Carbon Offset Credits consist of clean forms of energy production, wind, solar, hydro and biofuels. Carbon Reduction Credits consists of the collection and storage of Carbon from our atmosphere through biosequestration (reforestation, forestation), ocean and soil collection and storage efforts. Both approaches are recognized as effective ways to reduce the Global Carbon Emissions "crises".

From http://en.wikipedia.org/

Carbon emission trading

Carbon emissions trading is emissions trading specifically for carbon dioxide (calculated in tonnes of carbon dioxide equivalent or tCO2e) and currently makes up the bulk of emissions trading.

It is one of the ways countries can meet their obligations under the Kyoto Protocol to reduce carbon emissions and thereby mitigate global warming.

Units HArba..

The units which may be transferred under Article 17 emissions trading, each equal to one metric tonne of emissions (in CO2-equivalent terms), may be in the form of:

* An assigned amount unit (AAU) issued by an Annex I Party on the basis of its assigned amount pursuant to Articles 3.7 and 3.8 of the Protocol.
* A removal unit (RMU) issued by an Annex I Party on the basis of land use, land-use change and forestry (LULUCF) activities under Articles 3.3 and 3.4 of the Kyoto Protocol.
* An emission reduction unit (ERU) generated by a joint implementation project under Article 6 of the Kyoto Protocol.
* A certified emission reduction (CER) generated from a clean development mechanism project activity under Article 12 of the Kyoto Protocol.

Transfers and acquisitions of these units are to be tracked and recorded through the registry systems under the Kyoto Protocol.

Market trend

Carbon emissions trading has been steadily increasing in recent years. According to the World Bank's Carbon Finance Unit, 374 million metric tonnes of carbon dioxide equivalent (tCO2e) were exchanged through projects in 2005, a 240% increase relative to 2004 (110 mtCO2e)[which was itself a 41% increase relative to 2003 (78 mtCO2e).

Business reaction

With the creation of a market for mandatory trading of carbon dioxide emissions within the Kyoto Protocol, the London financial marketplace has established itself as the center of the carbon finance market, and is expected to have grown into a market valued at $60 billion in 2007. not in citation given The voluntary offset market, by comparison, is projected to grow to about $4bn by 2010.

Twenty three multinational corporations came together in the G8 Climate Change Roundtable, a business group formed at the January 2005 World Economic Forum. The group included Ford, Toyota, British Airways, BP and Unilever. On 9 June 2005 the Group published a statement stating that there was a need to act on climate change and stressing the importance of market-based solutions. It called on governments to establish "clear, transparent, and consistent price signals" through "creation of a long-term policy framework" that would include all major producers of greenhouse gases. By December 2007 this had grown to encompass 150 global businesses.

Business in the UK have come out strongly in support of emissions trading as a key tool to mitigate climate change, supported by Green NGOs.

Moral tradeoff

With carbon emission trading, there is the rarely discussed concern of moral tradeoff. The idea is exemplified in the study, "A Fine is a Price", conducted by Uri Gneezy and Aldo Rustichini with a selected group of Haifa childcare centers in Israel. The study showed that monetary fines on late-coming parents did not deter the tardy habit and instead, created an unexpected economic and moral tradeoff for the late-coming parents as they could now compensate for their tardiness under the new fine system.

However, this analogy does not take into account an important distinction between late fees at childcare centres and cap-and-trade emissions reduction schemes: the price paid by a late-coming parent has no impact on the price to be paid by other late-coming parents. That is, there is no bidding system in place where parents compete for the right to arrive late. This contrasts with an emissions trading scheme, where one firm's willingness to pay for carbon emissions reduces the number of permits available to other emitters, thereby increasing scarcity and hence the price of carbon pollution.

From http://en.wikipedia.org/

CDM Gold Standard

The Gold Standard is the world's only independent standard for creating high-quality emission reductions projects in the Clean Development Mechanism (CDM) Joint Implementation (JI) and Voluntary Carbon Market. It was designed to ensure that carbon credits are not only real and verifiable but that they make measurable contributions to sustainable development worldwide. Its objective is to add branding, a label to existing and new Carbon Credits generated by projects which can then be bought and traded by countries that have a binding legal commitment according to the Kyoto Protocol.

History

The Gold Standard for CDM (GS CER) was developed in 2003 by World Wide Fund for Nature (WWF), SouthSouthNorth, and Helio International. The Voluntary Gold Standard (GS VER), a methodology for use within the voluntary carbon market, was launched in May 2006. Both were the result of an extensive 12-month workshop and web-based consultation process conducted by an independent Standards Advisory Board composed of NGOs, scientists, project developers and government representatives.

The Gold Standard is open to any non-government, community based organization especially those with an interest in the promotion of sustainable development or a focus on climate and energy issues. As of March 2009, 60 environmental and development non-profit organizations internationally officially endorse The Gold Standard. These organizations support The Gold Standard as an effective tool for creating high-quality emission reduction projects that promote sustainable development and benefit local communities.

The Gold Standard is headquartered in the BASE (Basel Agency for Sustainable Energy) offices in Basel, Switzerland, with offices in Geneva, Rome and San Francisco. It employs local experts in Brazil, China, India and South Africa.

The Gold Standard is registered as a non-profit foundation under.

Eligibility

To be eligible for Gold Standard Certification, a project must:

1. Be an approved Renewable Energy Supply or End-use Energy Efficiency Improvement project type
2. Be reducing one of the three eligible Green House Gases: Carbon Dioxide (CO2), Methane (CH4) and Nitrous Oxide (N2O)
3. Not employ Official Development Assistance (ODA) under the condition that the credits coming out of the project are transferred to the donor country.
4. Not be applying for other certifications, to ensure there is no double counting of Credits
5. Demonstrate it's 'additionality' by using the United Nations Framework Convention on Climate Change's (UNFCCC) Large Scale Additionality Tool; and show that the project is not a 'business-as-usual' scenario
6. Make a net-positive contribution to the economic, environmental and social welfare of the local population that hosts it

The Gold Standard Versions

In July 2008 the Gold Standard Version 2.0 was released with sets of guidelines and manuals on the GS requirements, toolkits and other supporting documents to be used by project developers and DOEs. This relegated the previously applicable manuals to Version 1.0.

The Gold Standard Registry

Status of projects that apply for Gold Standard can be tracked on its registry. The Project Developers, Designated Operational Entities (DOEs) (also known as Validators), and Traders can open accounts with the registry. There are varous publicly available reports .

From http://en.wikipedia.org/

Biosequestration

Biosequestration is the capture and storage of the atmospheric greenhouse gas carbon dioxide by an increased volume or quality of photosynthesis (through practices such as growing more trees and genetic engineering respectively), as well as enhanced soil carbon in agriculture. It has been crucial to the initiation, evolution and preservation of life and is a key policy concept in the climate change mitigation debate. It does not generally refer to the sequestering of carbon dioxide in oceans (see carbon sequestration) or rock formations, depleted oil or gas reservoirs (see oil depletion and peak oil), deep saline aquifers, or deep coal seams (see coal mining) (for all see geosequestration) or through the use of industrial chemical carbon dioxide scrubbing.

From http://en.wikipedia.org/

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Carbon finance

Carbon finance is a new branch of Environmental finance. Carbon finance explores the financial implications of living in a carbon-constrained world, a world in which emissions of carbon dioxide and other greenhouse gases (GHGs) carry a price. Financial risks and opportunities impact corporate balance sheets, and market-based instruments are capable of transferring environmental risk and achieving environmental objectives. Issues regarding climate change and GHG emissions must be addressed as part of strategic management decision-making.

The general term is applied to investments in GHG emission reduction projects and the creation (origination) of financial instruments that are tradeable on the carbon market.

Joint Implementation and Clean Development Mechanism

Clean Development Mechanism (CDM), is recognised through the Kyoto Protocol, allowing the offset of emissions in developed countries by the investment in emission reduction projects in developing countries like China, India or Latin America.

Joint Implementation (JI), is another mechanism, allowing investments in developed countries to generate emission credit for the same or another developed country..

Market value

The market for the purchase of carbon has grown exponentially since its conception in 1996.

The following is the estimated size of the worldwide carbon market according to the World Bank:

Volume (millions metric tonnes, MtCO2)

* 2005: 718 (330 in Main Allowances Markets & 388 in Project based transactions)
* 2006: 1,745 (1,134 in Main Allowances Markets & 611 in Project based transactions)
* 2007: 2,983 (2,109 in Main Allowances Markets & 874 in Project based transactions)

Dollars (millions of USD)

* 2005: 10,908 (7,971 in Main Allowances Markets & 2,937 in Project based transactions)
* 2006: 31,235 (24,699 in Main Allowances Markets & 6,536 in Project based transactions)
* 2007: 64,035 (50,394 in Main Allowances Markets & 13,641 in Project based transactions)

World Bank

The World Bank has created the World Bank Carbon Finance Unit (CFU). The World Bank CFU uses money contributed by governments and companies in OECD countries to purchase project-based greenhouse gas emission reductions in developing countries and countries with economies in transition. The emission reductions are purchased through one of the CFU's carbon funds on behalf of the contributor, and within the framework of the Kyoto Protocol's Clean Development Mechanism (CDM) or Joint Implementation (JI).

From http://en.wikipedia.org/