Glossary

Additionality: The principle that only those projects that would not have happened anyway should be counted for carbon credits.

Afforestation: The process of establishing and growing forests on bare or cultivated land, which has not been forested in recent history.

Annex 1 Countries: The 36 industrialized countries and economies in transition listed in Annex 1 of the UNFCCC. Their responsibilities under the Convention are various, and include a non-binding commitment to reducing their GHG emissions to 1990 levels by the year 2000.

Annex B Countries: The 39 emissions-capped industrialised countries and economies in transition listed in Annex B of the Kyoto Protocol. Legally-binding emission reduction obligations for Annex B countries range from an 8% decrease to a 10% increase on 1990 levels by the first commitment period of the Protocol, 2008–2012.

Assigned Amount Unit (AAU): A tradable unit, equivalent to one metric tonne of CO₂ emissions, based on an Annex 1 country’s assigned carbon emissions goal under the Kyoto Protocol. AAUs are used to quantify emissions reductions for the purpose of buying and selling credits between Annex 1 countries.

Baseline scenario: A scenario that reasonably represents the anthropogenic emissions by sources of greenhouse gases (GHG) that would occur in the absence of the proposed project activity.

Baseline-and-credit system: More credits are generated with each new project implemented. Projects that are implemented outside of a cap-and-trade system.

Cancellation see Retirement

Cap-and-Trade: A Cap and Trade system involves trading of emission allowances, where the total allowance is strictly limited or ‘capped’. Trading occurs when an entity has excess allowances, either through actions taken or improvements made, and sells them to an entity requiring allowances because of growth in emissions or an inability to make cost-effective reductions

Carbon Dioxide (CO₂): This greenhouse gas is the largest contributor to man-made climate change. Emitted from fossil fuel burning and deforestation

Carbon Dioxide Equivalent (CO₂e): A measure of the global warming potential of a particular greenhouse gas compared to that of carbon dioxide. One unit of a gas with a CO₂e rating of 21, for example, would have the warming effect of 21 units of carbon dioxide emissions (over a time frame of 100 years).

Certification: Certification is the written assurance by a third party that, during a specified time period, a project activity achieved the reductions in anthropogenic emissions by sources of greenhouse gases (GHG) as verified.

Certified Emissions Reductions (CERs): Tradable units issued by the UN through the Clean Development Mechanism for emission reduction projects in developing countries. Each CER represents one metric tonne of carbon emissions reduction. CERs can be used by Annex 1 countries to meet their emissions goals under the Kyoto Protocol.

Clean Development Mechanism (CDM): A provision of the Kyoto Protocol that allows developed countries (Annex 1) to offset their emissions by funding emissions-reduction projects in developing countries (non-Annex 1).

Compliance Market: The market for carbon credits (specifically CERs, EUAs, AAUs, and ERUs) used to reach emissions targets under the Kyoto Protocol or the EU ETS. Also called the Regulated Market.

Conference of Parties (COP): The meeting of parties to the United Nations Framework Convention on Climate Change.

Crediting Period: The period a mitigation project can generate offsets.

Designated Operational Entity (DOE): An independent entity, accredited by the CDM Executive Board, which validates CDM project activities, and verifies and certifies emission reductions generated by such projects.

Double-Counting: Double counting occurs when a carbon emissions reduction is counted toward multiple offsetting goals or targets (voluntary or regulated). An example would be if an energy efficiency project sold voluntarily credits to business owners, and the same project was counted toward meeting a national emissions reduction target.

Emission Reductions (ERs): The measurable reduction of release of greenhouse gases into the atmosphere from a specified activity or over a specified area, and a specified period of time.

Emission Reduction Units (ERUs): A tradable unit, equivalent to one metric tonne of CO₂ emissions, generated by a Joint Implementation project and used to quantify emissions reductions for the purpose of buying and selling credits between Annex 1 countries under the Kyoto Protocol.

Emissions Trading: A provision of the Kyoto Protocol that allows Annex 1 countries to trade emissions reduction credits in order to comply with their Kyotoassigned targets. This system allows countries to pay and take credit for emissions reduction projects in developing countries where the cost of these projects may be lower, thus ensuring that overall emissions are lessened in the most cost-effective manner.

Environmental Integrity: Is used to express the fact that offsets need to be real, not double counted and additional in order to deliver the desired GHG benefits. The term should not be confused with “secondary environmental benefits” which is used for the added benefits an offset projects can have (e.g. air pollution reduction and protection of biodiversity.)

European Union Allowance (EUA): Tradable emission credits from the European Union Emissions Trading Scheme. Each allowance carries the right to emit one tonne of carbon dioxide.

European Union Emissions Trading Scheme (EU ETS): The EU ETS is a greenhouse gas emissions trading scheme which aims to limit emissions by imposing progressively lower limits on power plants and other sources of greenhouse gases. The scheme consists of two phases: Phase I (2005-07) and Phase II (2008-12).

Ex-ante: In terms of carbon offsets, ex-ante refers to reductions that are planned or forecasted but have not yet been achieved. The exact quantities of the reductions are therefore uncertain.

Ex-post: As opposed to ex-ante offsets, ex-post reductions have already occurred and their quantities are certain.

Forward Crediting: Sale of ex-ante credits. At contract closure the buyer pays for and receives a certain number of offsets for emissions reductions or sequestration that will occur in the future.

Forward Delivery: At contract closure the buyer pays the purchase price for a certain number of offsets that have yet to be produced. The offsets will be delivered to the buyer once they have been realized and verified.

Greenhouse Gases (GHGs): Gases that cause climate change. The GHGs covered under the Kyoto Protocol are: CO₂, CH₄, N₂O, HFCs, PFCs, and SF₆

Host Country: The country where an emission reduction project is physically located.

Internal rate of return (IRR): The annual return that would make the present value of future cash flows from an investment (including its residual market value) equal the current market price of the investment. In other words, the discount rate at which an investment has zero net present value.

Issuance: Issuing a specified quantity of CERs for a project activity into the pending account of the CDM EB into the CDM registry.

Joint Implementation (JI): A provision of the Kyoto Protocol that allows those in Annex 1 (developed) countries to undertake projects in other Annex 1 (developed or transitional) countries (as opposed to those undertaken in non-Annex 1 countries through the CDM).

Kyoto Mechanisms: The three flexibility mechanisms that may be used by Annex I Parties to the Kyoto Protocol to fulfil their commitments through emissions trading (Art. 17). Those are the Joint Implementation (JI, Art. 6), Clean Development Mechanism (CDM, Art. 12) and trading of Assigned Amount Units (AAUs).

Kyoto Protocol: An international treaty that requires participating countries to reduce their emissions by 5 percent below 1990 levels by 2012. The Protocol, developed in 1997, is administered by the Secretariat of the UN Framework Convention on Climate Change.

Leakage: Leakage is defined as the net change of anthropogenic emissions by sources of greenhouse gases (GHG) which occurs outside the project boundary, and which is measurable and attributable to the project activity.

LULUCF: Land use, land use change and forestry. The term given to tree-planting projects, reforestation and afforestation, designed to remove carbon from the atmosphere.

Millennium Development Goals (MDGs): The MDGs commit the international community to an expanded vision of development, one that vigorously promotes human development as the key to sustaining social and economic progress in all countries, and recognises the importance of creating a global partnership for development. The goals have been commonly accepted as a framework for measuring development progress.

Non-Annex 1 Countries: A group of mostly developing countries which have not been assigned emissions targets under the Kyoto Protocol and which are recognised by the UNFCCC as being especially vulnerable to the effects of climate change.

Offset Company: A company whose primary purpose is to create or sell offsets, either directly to consumers or through another organisation that wish to offer offsets to their clients.

Offset Provider: Offset providers include both offset companies and other businesses that utilize the services of offset companies to provide offsets to their clients.

Pre-registered Emission Reductions (pre-CERs): A unit of greenhouse gas emission reductions that has been verified by an independent auditor but that has not yet undergone the procedures and may not yet have met the requirements for registration, verification, certification and issuance of CERs (in the case of the CDM) or ERUs (in the case of JI) under the Kyoto Protocol. Buyers of VERs assume all carbon-specific policy and regulatory risks (i.e. the risk that the VERs are not ultimately registered as CERs or ERUs). Buyers therefore tend to pay a discounted price for VERs, which takes the inherent regulatory risks into account.

Primary market: The exchange of emission reductions, offsets, or allowances between buyer and seller where the seller is the originator of the supply and where the product has not been traded more than once.

Project-based system see Baseline-and-credit system

Project boundary: The project boundary shall encompass all anthropogenic emissions by sources of greenhouse gases (GHG) under the control of the project participants that are significant and reasonably attributable to the project activity.

Project Design Document (PDD): A project specific document required under the CDM rules which will enable the Operational Entity to determine whether the project (i) has been approved by the parties involved in a project, (ii) would result in reductions of greenhouse gas emissions that are additional, (iii) has an appropriate baseline and monitoring plan.

Prompt Delivery: At contract closure the buyer pays the purchase price for a certain number of offsets which have already been realized and are delivered to the buyer promptly.

Renewable Energy Certificates (RECs): A Renewable Energy Certificate represents a unit of electricity generated from renewable energy with low net greenhouse gas emissions. One REC represents 1 megawatt-hour.

Reforestation: This process increases the capacity of the land to sequester carbon by replanting forest biomass in areas where forests have been previously harvested.

Registration: The formal acceptance by the CDM Executive Board of a validated project as a CDM project activity.

Retirement: Retirement is a way of reducing overall emissions by purchasing carbon offsets and retiring them so that they may not be used to offset others’ emissions. Retired credits can no longer be traded.

Secondary Market: The exchange of emission reductions, offsets, or allowances between buyer and seller where the seller is not the originator of the supply and represents a secondary trade in the particular product.

Stakeholders: Stakeholders mean the public, including individuals, groups or communities affected, or likely to be affected, by the proposed project activity or actions leading to the implementation of such an activity.

Temporary certified emission reductions (tCERs): A temporary certified emission reduction or tCER is a unit issued pursuant to Article 12 of the Kyoto Protocol for an Aforestation/Reforestation CDM project activity under the CDM, which expires at the end of the commitment period following the one during which it was issued. It is equal to one metric tonne of carbon dioxide equivalent.

United Nations Framework Convention on Climate Change (UNFCCC): An international treaty, developed at the 1992 UN Conference on Environment and Development, which aims to combat climate change by reducing global greenhouse gas emissions. The original treaty was considered legally non-binding, but made provisions for future protocols, such as the Kyoto Protocol, to set mandatory emissions limits.

Validation: The assessment of a project’s Project Design Document, which describes its design, including its baseline and monitoring plan, by an independent third party, before the implementation of the project against the requirements of a specific standard.

Verification: Provides an independent third party assessment of the expected or actual emission reductions of a particular abatement project

Verified or Voluntary Emissions Reductions (VERs): Reductions that, unlike CERs, are sold on the voluntary market. VERs are linked neither to the Kyoto Protocol nor to the EU ETS. VERs are sometimes referred to as Voluntary Emissions Reductions.

Voluntary Market: The non-regulated market for carbon credits (especially VERs) that operates independently from Kyoto and the EU ETS. Also called the Non-Regulated Market.

Voluntary Offsetting: Offsetting purchases made by individuals, businesses, and institutions that are not legally mandated.