Carbon Credits Generation

What is a flexibility mechanism?

The Kyoto Protocol further determined that Annex I countries may cover a portion of their emissions quota through three mechanisms, called flexibility mechanisms:

Clean development mechanism. CDM allow transferring emission reduction units (ERU) from Annex I countries projects to non Annex I countries.
Joint implementation. JI mechanism allow transferring emission reduction units from a project to another amongst Annex I countries.
International emissions trading allow the trading of amount assigned units (AAU) and other units of the Kyoto Protocol (ERU and CER).

What are the carbon credits?

The carbon credits are an economic instrument referred to in the Kyoto Protocol. Each credit is equivalent to one tonne of carbon dioxide, which hasn't been left out into the atmosphere. They can only be generated by the mechanisms established in the Kyoto Protocol. According to what mechanism, there are different types of credits:

ERU: emissions reduction unit (JI): equivalent amount of tCO2 not emitted to the atmosphere, generated, and certified by a clean development mechanism.
RMU: removal unit (aforestation & forestation): available quota to eliminated greenhouse gasses emissions using carbon drains.

What is a clean development mechanism (CDM)?

The CDM is one of the flexibility mechanism of the Kyoto Protocol which target is to help non-Annex I countries to achieve a sustainable development and fulfil their compromises to reduce greenhouse gasses emissions. This saving of emissions must be certified by a designated operational entity (DOE), credited by the Executive Board of Clean Development Mechanism. The obtained emission reduction units can be commercialized and can be acquired by public or private entities of developed or with economies in transition countries to carry out their reduction commitments under the Kyoto Protocol.

What is a joint implementation mechanism (JI)?

Joint implementation mechanisms are projects in developed or with economies in transition countries which provide a reduction in emissions by sources, or an enhancement of removals by sinks, that is additional to any that would otherwise occur. This saving of emissions must be verified by the project host country according to the host country procedure, or by an independent entity accredited by the Supervisory Committee of the joint implementation mechanism. The obtained emission reduction units can be commercialized and can be acquired by public or private entities of developed or with economies in transition countries to carry out their reduction commitments under the Kyoto Protocol. Any developed countries and economies in transition can be JI recipients. In practice, however, potential recipient countries will be mainly central and eastern european countries. This correspond to their emissions scenarios and their economic structure, making JI projects more attractive and efficient in those areas. Countries with economies in transition will benefit from investments in clean technology and the modernization of its economic sectors.

What are the business opportunities generated by flexibility mechanism based on the Kyoto Protocol projects?

Income derived from the trading of emission reduction units of the joint implementation mechanism and the certified emission reductions from the clean development mechanism improve the economic viability of the projects, resulting in an increase in global demand in a very large number of sectors: renewable energy, waste management, energy efficiency, water, power generation, industrial processes, and transportation.

Which companies can benefit from the business opportunities by flexibility mechanism of the Kyoto Protocol?

The clean development mechanism and joint implementation open many doors to a wide range of businesses in different sectors. The business opportunities in this market affect all companies involved in the different stages of the project cycle, from engineering and consultancy to the construction, equipment, management and financing, acquiring companies also accredited for validation of projects and the certification of emission reductions or removals.

Where are the agreements physically negotiated?

In Europe, the agreements are negotiated on bilateral basis: the company that has agreed the rights sells them to whoever needs them, setting a price for that purpose. The price level is marked by the trading market. At the moment, there isn't any actual place where to buy or sell, but there are brokers.

Once a full trading market based on credit carbons is set, entities will be able to buy and sell them through:

Financial institutions such as the World Bank who holds CER's due to the funding of CDM projects

Through brokers that get in touch with the different parties that need to buy or sell them.

Solutions