Kyoto & Post-Kyoto Trading

Emission’s trading gives companies the flexibility to meet emission targets according to their own strategy, thus offering the most cost effective way for energy-intensive industries to meet their obligation to reduce emissions.  To implement the Kyoto Protocol, the European Union (EU) and other countries have set up “cap and trade” systems.  Under these systems, companies are obliged to match their greenhouse gas emissions with equal volumes of emission allowances.

The Government initially allocates a number of allowances to each company called European Union Allowances (EUAs).  Each EUA permits the holder to emit one tonne of CO2. Any company that exceeds its emissions beyond its allocated EUAs will either have to buy EUAs (in the form of carbon credits) or pay penalties in accordance with the Kyoto Protocol.  A company that emits less than expected can sell its surplus EUAs to those with shortfalls.  Companies or countries will buy these EUAs as long as the price is lower than the cost of achieving emission reductions by themselves.

Voluntary Trading

The Voluntary Market refers to entities (com panies, government agencies, non governmental agencies (NGOs) and individuals) that purchase carbon credits for purposes other than meeting regulatory targets.  The retail market refers to companies and organizations that invest in offset projects and then sell off portions of the emission reductions in relatively small quantities with a mark-up. 

A buyer can voluntarily purchase credits from a CDM/JI or a non-CDM/JI project.  The action is defined as voluntary so long as the credits will not be used to meet a regulatory target.  Retailers can sell Verified Emission Reduction Units (VERs), CERs, or ERUs for voluntary or regulatory purposes.  However, the vast majority of retailers sell only VERs to the Voluntary Market. 

The buyers of voluntary carbon offsets can be categorized into five main segments, including businesses, non-governmental organizations (NGOs), government agencies, international conferences, and individuals.