Tullett Prebon Environmental Europe

European Emissions Products

TP Global Green continues to build on its established presence in the emissions market through brokerage of European Union Allownances (EUAs), Certified Emissions Reductions (CERs), Emission Reduction Units (ERUs), Options on EUAs, CERs and ERUs and Voluntary Emission Reductions (VERs).

European Union Allowances

European Union Allowances are the core allowance unit of the EU Emissions Trading Scheme at emitter level. They allow the bearer to emit one tonne of carbon dioxide into the atmosphere. In addition, only the following industries are covered under the EU ETS: energy activities (combustion installations with a rated thermal input exceeding 20MW: mineral, oil refineries, coke ovens); production and processing of ferrous metals; mineral industry (cement clinker, glass and ceramic bricks); and pulp, paper and board activities. Around 1,500 companies are currently included covering around 45% of all of Europe’s emissions.

As the EU ETS is a "Cap and Trade" Scheme, there is a ceiling to the amount of CO2 that a participating company can emit. Above this amount they must purchase more permits through the market and below this, they are able to sell their emission allowances back into the market. A complete set of spot and derivative instruments is available from TP Global Green to expedite this process.

At the end of each year, participating firms must surrender emission permits equal to their actual CO2 emissions to their respective government for cancellation. Failure to do so will result in a fine of €100 per tonne in addition to having to purchase the equivalent shortfall for retirement the following year.

Certified Emission Reductions

Certified Emission Reductions (CERs) are carbon credits generated by Clean Development Mechanism projects. They have passed the UNFCCC’s registration process and have been monitored, verified and have been subsequently issued. The Clean Development Mechanism is the mechanism through which developing countries choose to employ technologies or processes which reduce their carbon emissions to a greater extent than they would have done employing their conventional technologies. Consequently, the projects generate emission credits through reductions in CO2 output relative to a calculated baseline.

Examples of such projects are as follows:
Wind, solar, incineration of industrial chemical waste streams such as HFC23 and N2O, fuel switching, industrial methane reduction activities such as landfill and agricultural methane capture including animal waste management, energy efficiency, hydroelectric, afforestation, reforestation and electricity generation from agriculture and waste.

One key concept of CERs is as follows:
The CER must be generated from a CDM project that "reduces emissions that are additional to any that would occur in the absence of the certified project activity".

There are currently, however, limits to the percentage of CERs that can be utilised by Annex 1 companies in their efforts to neutralise their carbon emissions. Only between 10% and 20% of a company’s overall emissions can be offset through the use of CDM credits.

The CDM is not only popular with developed countries keen to purchase emission credits under the price of existing EUAs, but has also been very popular with developing nations keen to accelerate their development and adopt clean technology used by the developed world. In fact, this was the objective of the CDM, whose dual mandate is to reduce emissions for industrialised countries and accelerate the sustainable development of developing nations.

Emission Reduction Units

Emission Reduction Units (ERUs) are very similar to CERs. However, as opposed to being generated through the CDM in the case of CERs, ERUs are generated though the Joint Implementation mechanism (JI). While the CDM is concerned with achieving ‘carbon-reducing’ trade between Annex 1 (Developed Countries) and Developing Countries, the Joint Implementation is concerned with achieving ‘carbon-reducing’ trade between Annex 1 countries. Similar principles to that of the CDM apply to Joint Implementation projects and again any JI project must reduce emissions against a 'business-as-usual baseline', i.e. the reductions must be additional.

As with the CDM, import of ERUs cross border is capped at between 10% and 20% of the importing installation's allocation of allowances. ERUs can only be used for compliance from 2008.

Voluntary Emissions Reduction (VER)

A VER is a Verified Emissions Reduction. VERs are emission credits which are generated outside of the Kyoto protocol and cannot be used within the Kyoto Protocol, yet still contribute to a reduction in global greenhouse gas emissions. As such, they provide a method for project developers to generate income and a method for companies to reduce their carbon footprint.

As would be expected from a market outside of the strictly regulated Kyoto Protocol, the main concern for VER buyers has been validity. However, the development of credible intermediaries, with the creation of registries for VERs and the widespread acceptance of a minimum quality standard, namely, the Voluntary Carbon Standard (VCS) designed by the International Emissions Trading Association, Climate Group and WWF have given VERs considerable credibility.

VERs are generated through a number of sources but typically occur due to:

  • Pre-registration CDM projects that are working but are as yet to be registered due to delays in CDM processes, backlog, new methodology approvals and such like (clearly, in this case, post registration, the carbon credits would be CERs, and not VERs)
  • Small-scale projects without the economic scale to complete the relatively expensive process of registration
  • Projects that for whatever reason may have been unsuccessful in gaining registration as CDM projects

VERs have less rigorous standards than CERs in most cases with the project cycle and principles remaining similar. VCS criteria and principles are detailed below:

  • Real – All the GHG emission reductions and removals and the project that generate them must be proven to have genuinely taken place
  • Measurable – All GHG emission reduction and removals must be quantifiable using recognised measurement tools (including adjustments for uncertainty and leakage) against a credible emissions baseline
  • Permanent – Where GHG emissions reductions or removals are generated by projects that carry a risk of reversibility, adequate safeguards must be in place to ensure that the risk of reversal is minimised and that, should any reversal occur, a mechanism is in place that guarantees the reductions or removals will be replaced and compensated for
  • Additional – Project based GHG emission reductions and removals must be additional to what would have happened under a business as usual scenario if the project had not been carried out
  • Independently Verified – All GHG emission reductions and removals must be verified to a reasonable level of assurance by an accredited validator or verifier with the expertise necessary in both the country and sector in which the project is taking place
  • Unique – Each VCU must be unique and should only be associated with a single GHG emission reduction or removal activity. GHG programmes must contain checks to ensure that double counting or reductions and removals - in mandatory or other voluntary markets - does not take place
  • Transparent – Must publicly disclose sufficient and appropriate GHG-related information to allow intended users to make decisions with reasonable confidence
  • Conservative – Must use conservative assumptions, values and procedures to ensure that the GHG emission reductions or removals are not over estimated

Contact

London
Dan Thompson
+44 (0) 20 7200 7555
danthompson@tullettprebon.com