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The Emissions Market & Carbon Projects

The basic idea of the emissions market is that countries or companies finding it difficult to cut their emmissions directly can meet their targets by purchasing reductions achieved more cheaply elsewhere. A secondary aspect is to promote the export of clean technologies to emerging economies

Clean Energy and Reduced GHG Technology Projects are standard development projects, but with additional features:

 
  • They lead to a reduction in greenhouse gas emissions (compared to usual practice)
  • They can yield "carbon credits" commensurate with the level of emissions reductions.
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    Carbon revenue is derived from the sale of GHG emission reduction credits, or carbon credits.  Carbon credits refer to the amount of carbon dioxide (CO2) or GHG equivalent emissions reduced (measured in tonnes).  One tonne of CO2 (or CO2 equivalent) reduced by an approved project is equal to one GHG gas emission reduction and one credit.  These emission reductions can be verified as credits and then sold on the carbon market.  Sometimes credits may be certified emission reductions (CERs) or voluntary emission reductions (VERs), depending on whether they are used by the buyers to offset regulated or voluntary emission reduction targets. 

     

    The market for carbon credits is currently divided into two main areas:

     
  • The Kyoto compliance market.
  • The Voluntary (Non-Kyoto compliance) market
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    The Kyoto compliance market includes the Clean Development Mechanism (CDM) that is incorporated in the United Nations Kyoto Protocol. This serves the regulated GHG emission reduction market of industrialized countries, companies and governments. For instance the EU industries that by law have GHG emission limits or caps. Industrialized countries, companies and governments who go over their set emissions limit can buy CER credits by investing in projects that reduce GHG emissions in transition economies and developing countries.

    These projects are developed according to CDM GHG reduction and clean energy generation methodology standards and approved by the CDM Executive Board of the United Nations Framework Convention on Climate Change. This permits a project to qualify and sell CERs to industrial emitters, governments, funds and energy traders.

    The voluntary carbon market includes industries that voluntarily chose to purchase VER credits to offset their GHG emissions. The carbon buyers in this market are mainly private buyers (traders, utilities, etc). The voluntary market often follows the Clean Development Mechanism (CDM) standards and procedures to ensure project credibility.

    Both types of buyers will pay more for credits that demonstrate a high level of community benefit as well of course as being validated and certified carbon credits that have led to a reduction in GHG emissions

    In both the Kyoto compliant market and the voluntary market. The carbon credits can form:

     
  • A future income stream
  • A way of demonstrating improved financial security
  • A means of payment (for example, a verifier may accept part payment of fees in the form of credits)
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    A project developer can sell carbon credits to buyers in a number of ways:

     
  • Sell the credits when they have actually been realised when the project has been constructed, is up and running and delivering its outputs : this gives the best price and highest investment as the project risks are lower
  • Sellers should seek technical advice from credit buyers for the clean development mechanisms (CDM) and project development procedures to help speed up and strengthen the process of preparing a project

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      The Kyoto Protocol
      The first protocol to the UN Framework Convention on   Climate Change (UNFCCC) was adopted in Kyoto in 1997 and   entered into force in February 2005.  It is a unique   international law instrument which sets legally binding   targets   for the reduction of emissions of 6 GHG in virtually   all industrialized country parties to the protocol. The Kyoto   Protocol includes economic instruments to involve private   sector entities and assist parties to meet their targets.  These   economic instruments known as the Kyoto or flexible   mechanisms include the Joint Implementation (JI), the Clean   Development Mechanism (CDM), and International Emissions   Trading.

      A successor to the Kyoto Protocol is expected in 2012. The   new agreement may account for the fact that developing   country emissions will exceed western nations (OECD   countries) in around 2010.  The new agreement will aim for a  global framework for emission reductions, GHG stabilisation   targets on a fair and equitable basis, and will include GHG   reduction targets for developing countries. 

      It will also be the basis for a global carbon market that   promises good opportunity for African nations to trade   avoided growth in carbon emissions with more polluting   nations as, on the international scale, carbon emission per   head is much lower in Africa.  For instance, in Kenya carbon   emissions is just 0.2 of a tonne per head whilst EU emissions   are 8 tonnes per head. Scientists estimate emissions must be   stabilised at 1.8 tonnes per head.

     

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        The African Carbon Market

        Project Risks in Africa

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