Abatement: Reduction in the quantity of greenhouse gas emissions.

Adaptation: (to climate variability and change) Policies, actions and other initiatives designed to limit the potential adverse impacts arising from climate variability and change (including extreme events) and exploit any positive consequences.

Adaptive capacity: The potential for adjustments, processes (both natural and human), practices or structures to moderate or offset the potential for damage or take advantage of opportunities created by variations or changes in the climate.

Additionality: According to the Kyoto Protocol, greenhouse gas emission reductions generated by the Clean Development Mechanism (CDM) or Joint Implementation (JI) project activities must be additional to those that would occur without intervention. 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.

Annex I Parties: Countries that agreed to reduce their emissions (particularly C02) to target levels below their 1990 emissions levels. Include: Australia, Austria, Belarus, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Liechtenstein, Lithuania, Luxemberg, Monaco, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, UK, USA and the European Community.

 

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, during the first commitment period of that protocol (2008-12). AAUs equal one tonne of CO2e.

Avoided emissions: Emissions that would have been emitted under a business as usual scenario but were avoided due to the implementation of an emission reduction project.

Banking or carry over: Compliance units under the various schemes to manage greenhouse gas 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.

Baseline: The emission of greenhouse gases that would occur without the contemplated policy or project intervention.

Biomass fuel: Combustible fuel composed of a biological material, such as wood or wood by-products, rice husks or cow dung.

Cap and trade: The cap and trade system involves trading of emission allowances, where the total allowance is strictly limited or ‘capped’. A regulatory authority established the cap which is usually considerably lower than the historic level of emissions.

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 by product 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.

Carbon Pollution Reduction Scheme, or CRPS: The proposed Australian emissions trading mechanism scheduled to start in January 2010.

Carbon sequestration: Projects that capture and store carbon in a manner that prevents it from being released into the atmosphere for a specified period of time, the storage area is commonly referred to as a carbon sink. Carbon sequestration projects include: capture in forests, land conservation, soil conservation and land use, waste CO2 recovery and injection into deep well.

Carbon sink: A carbon sink is a reservoir that can absorb or “sequester” carbon dioxide from the atmosphere. Forests are the most common form of sink as well as soils, peat, permafrost, ocean water and carbonate deposits in the deep ocean.

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.

Climate extreme: A climatic event that is rare within its reference statistical distribution for a particular place. Typically “rare” is interpreted as an event that is below the 10th percentile or above the 90th percentile. An extreme climate event may be due to natural internal processes within the climate system, or to variations in natural or anthropogenic external forcing.

Chicago Climate Exchange (CCX): Members to the Chicago Climate Exchange make a voluntary but legally binding commitment to reduce greenhouse gas emissions. By the end of Phase I (December 2006), all members will have reduced direct emissions 4 percent below a baseline period of 1998-2001. Phase II, which extends the CCX reduction program through 2010, will require members to ultimately reduce emissions 6 percent below baseline. Among the members are companies from North America as well as municipalities or U.S. states and universities. 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 industrialised countries to finance projects for reducing greenhouse gas emission in developing countries and receive credit for doing so.

Climate change: A change of climate which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and which is in addition to natural climate variability over comparable time periods.

Commitment period: The first commitment period of the Kyoto Protocol runs from 2008 to 2012 inclusive. It is planned to be followed by subsequent commitment periods.

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

Climate proofing: A shorthand term for identifying risks to a development project, or any other specified natural or human asset, as a consequence of climate variability and change and ensuring that those risks are reduced to acceptable levels through long-lasting and environmentally sound, economically viable and socially acceptable changes implemented at one or more of the following stages in the project cycle.

Climate variability: Variations in climatic conditions (average, extreme events, etc) on time and space scales beyond that of individual weather events, but not persisting for extended periods of, typically, decades or longer (i.e., shorter term). Variability may be due to natural internal processes within the climate system (internal variability), or to variations in natural or anthropogenic external forcing (external variability).

Eligibility Requirements: There are six eligibility requirements for participating in emissions trading 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-compliance with the eligibility requirements.

El Niño Southern Oscillation, or El Niño: The El Niño Southern Oscillation (ENSO) is a result of ocean-atmosphere interactions internal to the tropical Pacific Ocean and the overlying atmosphere. Unusually warm temperatures in the eastern equatorial Pacific reduce the normally large sea surface temperature difference between the eastern and western portions of the tropical Pacific. As a consequence, the northeast and southeast trade winds weaken and sea level falls in the west and rises in the east, as warmer waters move eastward along the equator. At the same time, the weakened trade winds reduce the upwelling of cold water in the eastern equatorial Pacific, thereby strengthening the warm temperature anomaly. A corresponding “La Niña event” occurs when temperatures in the eastern equatorial Pacific are unusually cool.

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 tonne of carbon dioxide equivalent.

Emissions trading: A market mechanism that allows emitters (countries, companies or facilities) to buy emissions from or sell emissions to other emitters.

Emitters: Sources of greenhouse gases from human activity (countries, companies or facilities).

European Union Allowances (EUAs): The allowances in use under the EU ETS. An EUA unit is equal to one metric tonne 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 energy intensive installations representing some 40 percent 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 national allocation plans (NAPs) set on average the annual cap at 5.8 percent 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

Global Warming Potential (GWP): An index that compares the relative potential of the six greenhouse gases to contribute to global warming. The impact of all other greenhouse gases are compared with carbon dioxide (CO2) i.e, carbon dioxide has a GWP of 1, methane has a GWP of 23. The latest officially released GWP figures are available from the IPCC in their publication Climate Change 2001: The Scientific Basis. (www.ipcc.ch)

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), nitrous oxide (N20), 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 Prototype Carbon Fund 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.

Incremental cost (of adaptation): The additional costs arising from reducing climate risks through adaptation, when preparing for and implementing a policy, plan or action.

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 carrry 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 ERUs when it helps to finance projects that reduce net emissions in another industrialized country (including countries with economies in transition).

Kyoto mechanisms: The three flexibility mechanisms that may be used by Annex I parties to the Kyoto Protocol to fulfill their commitments through emissions trading. Those are: Joint Implementation, Clean Development Mechanism 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 industrialised country signatories to reduce their greenhouse gas (or “carbon”) emissions by an average of 5.2 percent compared with 1990 emissions, in the period 2008-2012.

Mitigation (of climate change): Policies, actions and other initiatives that reduce the net emissions of greenhouse gases (q.v.), such as CO2, CH4, N2O, that cause climate change through global warming.

Monitoring plan: A set of requirements for monitoring and verification of emission reductions achieved by a project.

Monte Carlo techniques: A method of generating a model of change in which the likelihood of an event is first determined and then a random number is used to determine whether the event actually occurs.

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 January 1, 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 January 1, 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. The future of the scheme is uncertain because of subsequent plans to introduce the national level CPRS. 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-avis 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: 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.

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.

Risk: The combination of a hazardous event occurring and the impact or consequence of that event.

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 utilisation of such mechanisms. While assessing the NAPs, the European Commission considered that the use of CDM and JI credits could not exceeded 50 percent 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 percent 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 January 1, 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 www.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 man-made 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.

Vulnerability (to climate variability and change): The extent to which a natural or human system is susceptible to sustaining damage resulting from climate variability and change, despite human actions to moderate or offset such damage. Vulnerability is a function of the character, magnitude and rate of climate variation to which a system is exposed, sensitivity and adaptive capacity.

SOURCES: World Bank Carbon Finance Unit, UNFCCC, GreenCollar proprietary material.