What is Carbon Credit

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The United Nations Framework Convention on Climate Change The United Nations Framework Convention on Climate Change (UNFCCC or FCCC) is an international environmental treaty produced at the United Nations Conference on Environment and Development (UNCED), informally known as the Earth Summit, held in Rio de Janeiro in 1992. The treaty is aimed at reducing emissions of greenhouse gases in order to combat global warming. The treaty as originally framed set no mandatory limits on greenhouse gas emissions for individual nations and contained no enforcement provisions; it is therefore considered legally non-binding. Rather, the treaty included provisions for updates (called "protocols") that would set mandatory emission limits. The principal update is the Kyoto Protocol, which has become much better known than the UNFCCC itself. The FCCC was opened for signature on May 9, 1992. It entered into force on March 21, 1994. Its stated objective is "'to achieve stabilization of greenhouse gas concentrations in the atmosphere at a low enough level to prevent dangerous anthropogenic interference with the climate system'"

One of its first achievements was to establish a national greenhouse gas inventory, as a count of greenhouse gas (GHG) emissions and removals. Accounts must be regularly submitted by signatories of the United Nations Framework Convention on Climate Change.

The UNFCCC is also the name of the United Nations Secretariat charged with supporting the operation of the Convention, with offices in Haus Carstanjen, Bonn, Germany. Since 2006 the head of the secretariat has been Yvo de Boer.

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Annex I and Annex II Countries, and Developing Countries Signatories to the UNFCCC are split into three groups: 1. Annex I countries (industrialized countries) 2. Annex II countries (developed countries which pay for costs of developing countries) 3. Developing countries.

Annex I countries agree to reduce their emissions (particularly carbon dioxide) to target levels below their 1990 emissions levels. If they cannot do so, they must buy emission credits or invest in conservation. Annex II countries, have to provide financial resources for the developing countries, are a sub-group of the annex I countries consisting of the OECD members, without those that were with transition economy in 1992. Developing countries have no immediate restrictions under the UNFCCC. This serves three purposes: Avoids restrictions on growth because pollution is strongly linked to industrial growth, and developing economies can potentially grow very fast. It means that they cannot sell emissions credits to industrialized nations to permit those nations to over-pollute. They get money and technologies from the developed countries in Annex II. Developing countries may volunteer to become Annex I countries when they are sufficiently developed. Developing countries are not expected to implement their commitments under the Convention unless developed countries supply enough funding and technology, and this has lower priority than economic and social development and dealing with poverty. Some opponents of the Convention argue that the split between Annex I and developing countries is unfair, and that both developing countries and developed countries need to reduce their emissions. Some countries claim that their costs of following the Convention requirements will stress their economy. These were some of the reasons given by George W. Bush, President of the United States, for,
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as his predecessor did, not forwarding the signed Kyoto Protocol to the United States Senate. Annex I parties Annex I countries (industrialized countries): Australia, Austria, Belarus, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Liechtenstein, Lithuania, Luxembourg, Monaco, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, United States of America (40 countries and separately the European Union)

Annex II countries Annex II countries (developed countries which pay for costs of developing countries) Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, United States of America

(23 countries and separately the European Union; Turkey was removed from the annex II list in 2001 at its request to recognize its economy as a transition one [1

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A treaty
is an agreement under international law entered into by actors in international law, namely states and international organizations. A Treaty may also be known as: (international) agreement, protocol, covenant, convention, exchange of letters, exchange of notes, memorandum of understanding, etc. Regardless of the terminology, all of these international agreements under international law are equally treaties and the rules are the same.

However, in United States constitutional law, only a treaty that has achieved advice and consent of two-thirds of the United States Senate present is properly designated as a "treaty". If, instead, the President presents a negotiated instrument to the whole Congress for majority approval, the agreement is typically called a "congressional-executive agreement". For example, the North American Free Trade Agreement (NAFTA) and most other U.S. trade agreements are executive agreements. However, in the United States, treaties that are in fact congressional-executive agreements are equal to legislation. Because of this rule, such treaties and statutes can override each other³whichever is latest in time is controlling. Nevertheless, a treaty in the true constitutional sense overrides all other laws except the constitution. Treaties can be loosely compared to contracts: both are means of willing parties assuming obligations among themselves, and a party to either that fails to live up to their obligations can be held liable under international law for that breach. The central principle of treaty law is expressed in the maxim pacta sunt servanda ³ "pacts must be respected".

The Kyoto Protocol
The Kyoto Protocol is a protocol to the international Framework Convention on Climate Change with the objective of reducing Greenhouse gases that cause climate change. It was agreed on 11 December 1997 at the 3rd Conference of the Parties to the treaty when they met in Kyoto, and entered into force on 16 February 2005. As of November 2007, 175 parties have ratified the protocol. Of these, 36 developed countries (plus the EU as a party in its own right) are required to reduce greenhouse gas emissions to the levels specified for each of them in the treaty (representing over 61.6% of emissions from Annex I countries), with three more countries intending to participate. One hundred and thirty-seven
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(137) developing countries have ratified the protocol, including Brazil, China and India, but have no obligation beyond monitoring and reporting emissions. Among various experts, scientists and critics there is some debate about the usefulness of the protocol, and there have been cost-benefit studies

Kyoto's 'Flexible mechanisms'
A credit can be an emissions allowance which was originally allocated or auctioned by the national administrators of a cap-and-trade program, or it can be an offset of emissions. Such offsetting and mitigating activities can occur in any developing country which has ratified the Kyoto Protocol, and has a national agreement in place to validate its carbon project through one of the UNFCCC's approved mechanisms. Once approved, these units are termed Certified Emission Reductions, or CERs. The Protocol allows these projects to be constructed and credited in advance of the Kyoto trading period. The Kyoto Protocol provides for three mechanisms that enable countries or operators in developed countries to acquire greenhouse gas reduction credits[7] Under Joint Implementation (JI) a developed country with relatively high costs of domestic greenhouse reduction would set up a project in another developed country. Under the Clean Development Mechanism (CDM) a developed country can 'sponsor' a greenhouse gas reduction project in a developing country where the cost of greenhouse gas reduction project activities is usually much lower, but the atmospheric effect is globally equivalent. The developed country would be given credits for meeting its emission reduction targets, while the developing country would receive the capital investment and clean technology or beneficial change in land use. Under International Emissions Trading (IET) countries can trade in the international carbon credit market to cover their shortfall in allowances. Countries with surplus credits can sell them to countries with capped emission commitments under the Kyoto Protocol. These carbon projects can be created by a national government or by an operator within the country. In reality, most of the transactions are not performed by

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national governments directly, but by operators who have been set quotas by their country.

Joint implementation (JI) is one of three flexibility mechanisms set forth in
the Kyoto Protocol to help countries with binding greenhouse gas emissions targets (so-called Annex I countries) meet their obligations. JI is set forth in Article 6 of the Kyoto Protocol. Under Article 6, any Annex I country can invest in emission reduction projects (referred to as "Joint Implementation Projects") in any other Annex I country as an alternative to reducing emissions domestically. In this way countries can lower the costs of complying with their Kyoto targets by investing in greenhouse gas reductions in an Annex I country where reductions are cheaper, and then applying the credit for those reductions towards their commitment goal. A JI project might involve, for example, replacing a coal-fired power plant with a more efficient combined heat and power plant. Most JI projects are expected to take place in so-called "economies in transition," noted in Annex B of the Kyoto Protocol.[2] Currently Russia and the Ukraine are slated to host the greatest number of JI projects. [3] Unlike the case of the Clean Development Mechanism, the JI has caused less concern of spurious emission reductions, as the JI, unlike the CDM, takes place in countries which have an emission reduction requirement. The process of receiving credit for JI projects is somewhat complex. Emission reductions are awarded credits called Emission Reduction Units (ERUs), where one ERU represents an emission reduction equaling one tonne of CO2 equivalent. The ERUs come from the host country's pool of assigned emissions credits, known as AAUs. Each Annex I party has a predetermined amount of AAUs, calculated on the basis of its 1990 greenhouse gas emission levels. [4] By requiring JI credits to come from a host country's pool of AAUs, the Kyoto Protocol ensures that the total amount of emissions credits among Annex I parties does not change for the duration of the Kyoto Protocol's first commitment period.[5]

The Clean Development Mechanism (CDM) is an arrangement under the
Kyoto Protocol allowing industrialized countries with a greenhouse gas reduction
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commitment (called Annex 1 countries) to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries. The most important factor of a carbon project is that it establishes that it would not have occurred without the additional incentive provided by emission reductions credits. Distribution of CDM emission reductions, by country. The CDM allows net global greenhouse gas emissions to be reduced at a much lower global cost by financing emissions reduction projects in developing countries where costs are lower than in industrialized countries. However, critics argue that by allowing "business as usual" projects some emission reductions under the CDM are false or exaggerated, and in early 2007 the CDM was accused of paying ½4.6 billion for projects that would have cost only ½100 million if funded by development agencies (see discussion below). The CDM is supervised by the CDM Executive Board (CDM EB) and is under the guidance of the Conference of the Parties (COP/MOP) of the United Nations Framework Convention on Climate Change (UNFCCC).

What is Carbon Credit?
Carbon credits are a key component of national and international emissions trading schemes that have been implemented to mitigate global warming.

Emissions trading:

Emissions trading (or emission trading) is an

administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. It is sometimes called cap and trade.

A central authority (usually a government or international body) sets a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emissions must buy
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credits from those who pollute less. The transfer of allowances is referred to as a trade. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed. Thus, in theory, those that can easily reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest possible cost to society

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