Additionality: According to the Kyoto Protocol, gas emission reductions generated by Clean Development Mechanism and Joint Implementation project activities must be additional to those that otherwise would occur. Additionality is established when there is a positive difference between the emissions that occur in the baseline scenario, and the emissions that occur in the proposed project.
Afforestation: The process of establishing and growing forests on bare or cultivated land, which has not been forested in recent history.
Assigned Amount Unit (AAU): Annex I Parties are issued AAUs up to the level of their assigned amount, corresponding to the quantity of greenhouse gases they can release in accordance with the Kyoto Protocol (Art. 3), during the first commitment period of that protocol (2008-12). AAUs equal one tCO2e.
Banking or carry over: Compliance units under the various schemes to manage GHG emissions in existence may or may not be carried over from one commitment period to the next. Banking may encourage early action by mandated entities depending on their current situation and their anticipations of future carbon constraints. In addition banking brings market continuity. Banking between Phase I and Phase II of the EU ETS is not allowed but will be allowed between Phase II and further Phases. Some restrictions on the amount of units that can be carried over may apply: for instance, AAUs may be banked with no restriction by a Kyoto Party while the amount of CERs that can be carried over is limited to 2.5% of the assigned amount of each Party.
Baseline: The emission of greenhouse gases that would occur without the contemplated policy intervention or project activity.
Biomass Fuel: Combustible fuel composed of a biological material, for example, wood or wood byproducts, rice husks, or cow dung.
Carbon Asset: The potential of greenhouse gas emission reductions that a project is able to generate and sell.
Carbon Finance: Resources provided to projects generating (or expected to generate) greenhouse gas (or carbon) emission reductions in the form of the purchase of such emission reductions.
Carbon Dioxide Equivalent (CO2e): The universal unit of measurement used to indicate the global warming potential of each of the six greenhouse gases. Carbon dioxide — a naturally occurring gas that is a byproduct of burning fossil fuels and biomass, land-use changes, and other industrial processes — is the reference gas against which the other greenhouse gases are measured.
Certified Emission Reductions (CERs): A unit of greenhouse gas emission reductions issued pursuant to the Clean Development Mechanism of the Kyoto Protocol, and measured in metric tonnes of carbon dioxide equivalent. One CER represents a reduction of greenhouse gas emissions of one tCO2e.
Chicago Climate Exchange (CCX): Members to the Chicago Climate Exchange make a voluntary but legally binding commitment to reduce GHG emissions. By the end of Phase I (December, 2006), all Members will have reduced direct emissions 4% below a baseline period of 1998-2001. Phase II, which extends the CCX reduction program through 2011 will require all Members to ultimately reduce GHG emissions 6% below baseline. Among the members are companies from North America as well as municipalities or U.S. States or Universities. As new regional initiatives began to take shape in the U.S., membership of the CCX grew from 127 members in January 2006 to 237 members by the end of the year while new participants expressed their interest in familiarizing themselves with emissions trading. More information at www.chicagoclimateexchange.com
Clean Development Mechanism (CDM): The mechanism provided by Article 12 of the Kyoto Protocol, designed to assist developing countries in achieving sustainable development by permitting industrialized countries to finance projects for reducing greenhouse gas emission in developing countries and receive credit for doing so.
Conference of Parties (COP): The Meeting of Parties to the United Nations Framework Convention on Climate Change.
Eligibility Requirements: There are six Eligibility Requirements for Participating in Emissions Trading (Art. 17) for Annex I Parties. Those are: (i) being a Party to the Kyoto Protocol, (ii) having calculated and recorded one's Assigned Amount, (iii) having in place a national system for inventory, (iv) having in place a national registry, (v) having submitted an annual inventory and (vi) submit supplementary information on assigned amount. An Annex I party will automatically become eligible after 16 months have elapsed since the submission of its report on calculation of its assigned amount. Then, this Party and any entity having opened an account in the registry can participate in Emissions Trading. However, a Party could lose its eligibility if the Enforcement Branch of the Compliance Committee has determined the Party is non-compliant with the eligibility requirements.
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 Reductions Purchase Agreement (ERPA): Agreement which governs the purchase and sale of emission reductions.
Emission Reduction Units (ERUs): A unit of emission reductions issued pursuant to Joint Implementation. This unit is equal to one metric ton of carbon dioxide equivalent.
European Union Allowances (EUAs): the allowances in use under the EU ETS. An EUA unit is equal to one metric ton of carbon dioxide equivalent.
European Union Emission Trading Scheme (EU ETS): The EU ETS was launched on January 1, 2005 as a cornerstone of EU climate policy towards its Kyoto commitment and beyond. In its first phase from 2005 to 2007, the EU ETS regulates CO2 emissions from energyintensive installations representing some 40% of EU emissions. Those emissions are capped at 6,600 MtCO2 over the 2005-2007 period. Following this pilot phase, Phase II of the EU ETS (extending from 2008 to 2012) should see a tighter constraint on obligated installations, given that the decisions so far rendered on 19 NAPs set on average the annual cap at 5.8% below 2005 verified emissions (adjusted for Phase II perimeter). To meet their compliance requirements, installations may use EUAs, CERs and ERUs (the latter for Phase II only). Supplementarity rules restrict the use of CERs and ERUs in Phase II, at different levels in each Member State. Further information may be found at http://ec.europa.eu/ environment /climat/emission.htm Greenhouse gases (GHGs): These are the gases released by human activity that are responsible for climate change and global warming. The six gases listed in Annex A of the Kyoto Protocol are carbon dioxide (CO2), methane (CH4), and nitrous oxide (N20), as well as hydrofluorocarbons (HFC-23), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).
High quality emission reductions: Emission reductions of a sufficient quality so that, in the opinion of the Trustee, at the time a project is selected and designed, there will be a strong likelihood, to the extent it can be assessed, that PCF Participants may be able to apply their share of emission reductions for the purpose of satisfying the requirements of the UNFCCC, relevant international agreements, or applicable national legislation.
Host Country: The country where an emission reduction project is physically located.
Internal rate of return: 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.
International Transaction Log (ITL): the ITL links together the national registries and the CDM registry and is in charge of verifying the validity of transactions (issuance, transfer and acquisition between registries, cancellation, expiration and replacement, retirement and carr-over). It is the central piece of the emissions trading under the Kyoto Protocol. It is currently undertaking tests with a number of registries.
Joint Implementation (JI): Mechanism provided by Article 6 of the Kyoto Protocol, whereby a country included in Annex I of the UNFCCC and the Kyoto Protocol may acquire Emission Reduction Units when it helps to finance projects that reduce net emissions in another industrialized country (including countries with economies in transition).
Kyoto Mechanisms (KM): the three flexibility mechanisms that may be used by Annex I Parties to the Kyoto Protocol to fulfill 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: Adopted at the Third Conference of the Parties to the United Nations Convention on Climate Change held in Kyoto, Japan in December 1997, the Kyoto Protocol commits industrialized country signatories to reduce their greenhouse gas (or “carbon”) emissions by an average of 5.2% compared with 1990 emissions, in the period 2008-2012.
Monitoring Plan (MP): A set of requirements for monitoring and verification of emission reductions achieved by a project.
National Allocation Plans (NAPs): The documents, established by each Member State and reviewed by the European Commission, that specify the list of installations under the EU ETS and their absolute emissions caps, the amount of CERs and ERUs that may be used by these installations as well as other features such as the size of the new entrants reserve and the treatment of exiting installations or the process of allocation (free allocation or auctioning).
New South Wales Greenhouse Gas Abatement Scheme (NSW GGAS): Operational since 1st January 2003 (to last at least until 2012), the NSW Greenhouse Gas Abatement Scheme aims at reducing GHG emissions from the power sector. NSW and ACT (since 1st January 2005) retailers and large electricity customers have thus to comply with mandatory (intensity) targets for reducing or offsetting the emissions of GHG arise from the production of electricity they supply or use. They can meet their targets meet their targets by purchasing certificates (NSW Greenhouse Abatement Certificates or NGACs) that are generated through project activities. More information at http://www. greenhousegas.nsw.gov.au
Offsets: Offsets designate the emission reductions from project-based activities that can be used to meet compliance – or corporate citizenship – objectives vis-àvis greenhouse gas mitigation.
Operational Entity (OE): An independent entity, accredited by the CDM Executive Board, which validates CDM project activities, and verifies and certifies emission reductions generated by such projects.
Pre-Certified 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 transaction: A transaction between the original owner (or issuer) of the carbon asset and a buyer.
Project-Based Emission Reductions: Emission reductions that occur from projects pursuant to JI or CDM (as opposed to “emissions trading” or transfer of assigned amount units under Article 17 of the Kyoto Protocol).
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.
Project Idea Note (PIN): A note prepared by a project proponent regarding a project proposed for PCF. The Project Idea Note is set forth in a format provided by the PCF and available on its website www. prototypecarbonfund.org.
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.
Secondary transaction: A transaction where the seller is not the original owner (or issuer) of the Carbon asset.
Sequestration: Sequestration refers to capture of carbon dioxide in a manner that prevents it from being released into the atmosphere for a specified period of time.
Supplementarity: Following the Marrakesh Accords, the use of the Kyoto mechanisms shall be supplemental to domestic action, which shall thus constitute a significant element of the effort made by each Party to meet its commitment under the Kyoto Protocol. However there is no quantitative limit to the utilization of such mechanisms. While assessing the NAPs, the European Commission considered that the use of CDM and JI credits could not exceeded 50% of the effort by each Member State to achieve its commitment. Supplementarity limits may thus affect demand for some categories of offsets.
UK Emission Trading Scheme (UK ETS): Launched in March 2002, the UK ETS was at the time the first domestic economy-wide GHG trading scheme. Participation was on a voluntary basis and combined incentives (reduction by 80% of the Climate Change Levy for some participants, under the Climate Change Agreement, or CCA), penalties (withholding of fiscal abatement, contraction of allowances) and flexibility (through an exchange). Only credits under the UK ETS can be traded. On the whole, the Scheme is scheduled over its duration (2002-2006) to reduce emissions by 11.9 million tCO2e for “Direct Participants”. Installations eligible for the EU ETS have joined the EU ETS from 1st January 2007 onwards. The UK ETS registry will remain open for CCA Participants to trade through the voluntary market to meet their targets. More information at ww.defra.gov.uk/environment/climatechange/trading/ UK/index.htm
United Nations Framework Convention on Climate Change (UNFCCC): The international legal framework adopted in June 1992 at the Rio Earth Summit to address climate change. It commits the Parties to the UNFCCC to stabilize human induced greenhouse gas emissions at levels that would prevent dangerous manmade interference with the climate system.
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 the CDM.
Verified Emission Reductions (VERs): A unit of greenhouse gas emission reductions that has been verified by an independent auditor. This designates emission reductions units that are traded on the voluntary market.
Verification Report: A report prepared by an Operational Entity, or by another independent third party, pursuant to a Verification, which reports the findings of the Verification process, including the amount of reductions in emission of greenhouse gases that have been found to have been generated.
