Terminology
Carbon Offset Markets
Carbon Offset
A unit of GHG emissions reduction equal to one ton of CO2e in one part of the world that offsets an equivalent amount of GHG emissions in another part of the world.
Offsets by themselves do not lead to a net reduction in global emissions although they can prevent the rate of emissions from increasing.
Carbon Credit
Generic term for allowance to emit one ton of carbon dioxide equivalent. One carbon credit has a value of one ton of CO2e.
Annex I/B countries buy carbon credits in the compliance market to offset emissions in excess of their obligatory national caps under the Kyoto Protocol. Private entities buy carbon credits in the voluntary market to offset their own emissions as a matter of choice.
Carbon Assets
A stock of carbon credits held by a project developer or market intermediary.
Carbon Offset Market
A type of commodity market in which certified or verified carbon credits are sold to emitters of greenhouse gases by projects that are generating additional emissions reductions.
Compliance Offset Market
A commodity market for trading certified carbon credits (CER) generated by CDM projects.
In the compliance market, a carbon credit is an allowance granted to an Annex I/B country to emit more than the assigned amount of CO2e under the Kyoto Protocol, by acquiring an equivalent amount of Certified Emission Reduction Units (CER) from CDM projects elsewhere in the world.
Voluntary Offset Market
A commodity market for trading credits certified carbon credits (CER), verified carbon credits (VER) or any other credit type generated by carbon offset projects.
In the voluntary market a carbon credit is an allowance obtained voluntarily by a private entity or individual wishing to offset carbon emissions not covered by Kyoto Protocol obligations.
Carbon Credit Note (CCN)
A fully underwritten obligation (in the form of a note or bond) to deliver a carbon credit to the purchaser at a specified future date.
Emissions Reduction Purchase Agreements (ERPA)
Contractual agreements for the purchase of Certified Emissions Reductions (CERs).
Fungibility
Equivalence in the value of carbon credits generated from any of the Kyoto mechanisms, allowing them to be exchanged on the compliance offset market for the duration of their crediting periods.
International Transaction Log
Global electronic transfer system to enable trading of carbon credits under the Kyoto Protocol.
Market Intermediary
Any private entity that holds and trades carbon assets.
The most important market intermediaries are carbon credit development and trading companies, commodity brokers and traders, and financial institutions.
Transaction Costs
Costs involved in generating carbon credits for market sale.
These costs include preparation of the project design document and supporting documentation, monitoring of project performance, DOE fees, registration and certification fees, and adaptation fund levy for CDM projects. Transaction costs for Gold Standard projects are somewhat higher than for normal CDM projects, but these costs are more than compensated by the higher prices that Gold Standard carbon credits typically fetch in carbon offset markets.