Carbon Trading Jargon and Acronyms
Carbon trading and environmental markets in general are rich with acronyms. This page provides a listing of key terms.
- Australian Emissions Unit (AEU)
- A tradeable instrument which represents the right to emit one tonne of greenhouse gas emissions under the proposed Carbon Pollution Reduction Scheme (CPRS). Note: The CPRS is still under development and the ultimate legislation to establish the scheme may adopt a different term.
See http://www.climatechange.gov.au/emissionstrading/ - Baseline and Credit Scheme
- The Australian Government’s CPRS will place a cap on the total amount of greenhouse gas emissions that can be emitted by organisations operating within major polluting sectors, such as electricity generation and industry. Companies in these sectors will be required to hold an emission unit (representing one tonne of greenhouse gas emissions) for each tonne of greenhouse gas emissions they produce. Companies who do not hold sufficient emissions permits will be required to pay a penalty. Even though emissions trading will not commence until 2010, Australian companies will need to trade AEUs to manage forward exposure, ahead of this time. Envex is currently developing a suite of AEU trading products and expects to list these on FEX trading platforms during the 2009/10 financial year.
- Biodiversity credits
- A tradeable certificate representing an overall improvement in biodiversity.
- Cap-and-Trade Scheme
- A type of Emissions Trading Scheme whereby a regulator sets a limit on the total quantity of emissions that can be produced by an entire sector (known as the cap) and issues an equivalent number of emission permits representing a right to emit a specific amount of a pollutant. Companies within that sector must then obtain permits equivalent to their total emissions. The key feature of emissions trading is that permits can be freely traded. This allows companies with access to low cost emissions reductions to make proportionally larger emission reductions and sell their excess permits to companies who do not have access to cheap reductions. The European Emissions Trading Scheme (EUETS) is a cap and trade scheme.
- Carbon Credit
- A generic term used to describe a tradeable instrument which represents a reduction in greenhouse gas emissions. Carbon credits generally relate to project based activity to reduce emissions or slow the growth in emissions.
- Carbon Financial Instrument (CFI)
- A financial product where the underlying unit is a carbon instruments for example a Futures contract over a CER.
- Carbon Pollution Reduction Scheme (CPRS)
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The Australian Government’s CPRS will place a cap on the total amount of greenhouse gas emissions that can be emitted by organisations operating within major polluting sectors, such as electricity generation and industry. Companies in these sectors will be required to hold an emission unit (representing one tonne of greenhouse gas emissions) for each tonne of greenhouse gas emissions they produce. Companies who do not hold sufficient emissions permits will be required to pay a penalty.
Even though emissions trading will not commence until 2011, Australian companies will need to trade AEUs to manage forward exposure, ahead of this time. Envex is currently developing a suite of AEU trading products and expects to list these on FEX trading platforms during the 2009/10 financial year.
- Certified Emission Reduction Unit (CER)
- The Kyoto Protocol includes a so called flexibility mechanisms known as the Cleaner Development Mechanism (CDM) which allows countries to meet their emission reduction obligations by implementing projects which reduce greenhouse gas emissions in developing nations. Certified Emission Reduction Units (CERs) are a fully tradeable international carbon credit issued under the Cleaner Development Mechanism. European companies can also use CERs to meet part of their emission target under the EUETS.
See http://cdm.unfccc.int/ - Cleaner Development Mechanism (CDM)
- A mechanism of the Kyoto Protocol which allows countries to meet their emission reduction obligations by implementing projects which reduce greenhouse gas emissions in developing nations. www.envex.com.au/cer.htm
- Emissions Allowance (also Emissions Permit)
- A generic term used to describe a tradeable instrument which represents the right to emit a unit of pollution
- Emissions Permit (also Emissions Allowance)
- A generic term used to describe a tradeable instrument which represents the right to emit a unit of pollution
- Emission Reduction Unit (ERU)
- A tradeable certificate created under the Joint Implementation Mechanism of the Kyoto Protocol which represents a reduction of 1 Tonne of greenhouse gas emissions. An ERU is a type of Carbon Credit. (See: http://ji.unfccc.int/index.html) Note: The term ERUs is also used to refer to a carbon credit created under a range of voluntary protocols such as the Australian Greenhouse Office's Greenhouse Friendly scheme.
- Emissions Trading Scheme (ETS)
- A policy instrument which aims to reduce emissions using an economic incentive. There are two main types of ETSs: cap-and-trade schemes and baseline credit schemes.
- Energy Efficiency Credits
- A tradeable certificate representing a reduction in energy consumption. For example Victorian Energy Efficiency Credits (VEECs) created under the Victorian Energy Efficiency Target (VEET).
- EUA (European Union Allowance)
- A tradeable instrument which represents the right to emit one tone of greenhouse gas emissions under the European Union Emissions Trading Scheme
- Exchange Traded Contract (ETC)
- A standardized contract which is traded on a recognized exchanged.
- Gas Electricity Certificate (GEC)
- A tradeable certificate created under the Queensland Gas Scheme which represents 1 MWh of electricity generated by an electricity generating unit fuelled by gas and delivered by an electricity network to an end-user located in the Australian State of Queensland.
See http://www.dme.qld.gov.au/Energy/gasscheme.cfm/ - Green Power
- A voluntary scheme operating in Australia which allows consumers choose to purchase all or part of their electricity requirements from a renewable energy source such as wind or a hydro-electric scheme. Green Power customers generally pay a premium for their electricity. www.greenpower.gov.au
- Green Power Right (GPR)
- A tradeable certificate which represents a MWh of renewable energy under the Australian Green Power Scheme.
www.greenpower.gov.au - Greenhouse Gas Abatement Scheme (GGAS)
- A carbon trading scheme introduced by the New South Wales Government in 2003 to reduce greenhouse gas emissions associated with the production and use of electricity. www.envex.com.au/ngac.htm
- Joint Implementation (JI)
- A mechanism of the Kyoto Protocol which allows countries to meet their emission reduction obligations by implementing projects in other countries that are also bound by the Kyoto Protocol.
See: http://ji.unfccc.int/index.html - Mandatory Renewable Energy Target (MRET)
- A scheme introduced by the Australian Government in 2001 to increase the generation of electricity from renewable energy sources to 20% by 2020.
- NOx Permit
- A tradeable permit representing the right to emit oxides of Nitrogen (such as NO and NO2) into the atmosphere. NOx emissions are a key cause of smog and are generally considered to pose health risks to humans.
- NSW Greenhouse Gas Abatement Certificate (NGAC)
- A tradeable certificate created under the NSW Greenhouse Gas Abatement Scheme which represents 1 Tonne of greenhouse gas emissions.
See http://www.greenhousegas.nsw.gov.au/ - NSW Greenhouse Gas Abatement Scheme (NSW GGAS)
- A carbon trading scheme introduced by the New South Wales Government in 2003 to reduce greenhouse gas emissions associated with the production and use of electricity. www.envex.com.au/ngac.htm
- Over the Counter (OTC)
- A trade that takes place by bilateral agreement between two parties rather than on a licensed exchange.
- Queensland Gas Scheme
- A scheme introduced by the Australian State of Queensland to increase the proportion of electricity generated using gas. The Queensland Gas Scheme is commonly referred to as the GEC Scheme.
- Renewable Energy Certificate (REC)
- A tradeable certificate created under the Australian Mandatory Renewable Energy Target which represents 1 MWh of renewable electricity generation produced in Australia and its territories.
See http://www.climatechange.gov.au/renewabletarget/ - SOx Permit
- A tradeable permit representing the right to emit oxides of Sulphur (such as SO and SO2) into the atmosphere. SOx emissions are a key cause of acid rain and are generally considered to pose health risks to humans.
- Verified Emission Reduction Unit (VER)
- A tradeable certificate which represents a tone of greenhouse gas emissions which has been audited against a voluntary protocol such as the Voluntary Carbon Scheme, Gold Standard or the Australian Greenhouse Office's Greenhouse Friendly scheme. Companies or individuals may voluntarily elect to buy a VER to offset the emissions associated with a product, service or activity.
- Victorian Energy Efficiency Credits (VEECs)
- A tradeable certificate representing a reduction in energy consumption under the Victorian Energy Efficiency Target (VEET).
- Victorian Energy Efficiency Target (VEET)
- A scheme introduced by the Australian State of Victoria to improve residential energy efficiency. Victorian Energy Efficiency Target (VEET)
- Victorian Renewable Energy Certificate (VRECs)
- A tradeable certificate created under the Victorian Renewable Energy Target scheme (VRET) which represents 1 MWh of renewable electricity generation produced in Victoria.
- Victorian Renewable Energy Target scheme (VRET)
- A scheme introduced by the Victorian State Government in 2007 to source 10% of the state’s electricity consumption from renewable sources by 2016.
See http://www.esc.vic.gov.au/public/VRET/ - Water Allocations
- A tradeable certificate representing the right to consume a unit of water.
- Weather Derivatives
- A financial instrument where the value of the instrument changes in response to changes in an index that represent certain weather conditions. For example a precipitation hedge is a type of Weather Derivative that becomes more valuable in times of drought. A company whose revenue is dependent on rainfall may buy a precipitation hedge to limit its exposure to a drought.