Environmental guidance for your business in Northern Ireland & Scotland
The Kyoto Protocol is an international agreement which required developed countries to limit their greenhouse gas (GHG) emissions. These targets are expressed as levels of allowed emissions. At the end of each year, allowances have to be surrendered according to a country's given target. To help meet these commitments cost effectively, the protocol includes several flexible mechanisms.
This allows countries that have unused emissions to sell this excess capacity to countries over their target. Emissions trading can be delegated by countries to mechanisms such as the European Union Emissions Trading System (EU ETS), which facilitates emissions trading between organisations. Emissions trading allows companies that can reduce their emissions to do so and those that can't to buy additional emissions allowances - referred to as carbon credits - from those companies.
The EU ETS provides the main demand for Certified Emissions Reductions (CER) and Joint Implementation (JI) credits as companies covered by the EU ETS can buy certain types of these credits to meet some of their emissions reductions targets.
This encourages businesses to undertake projects in developing countries (which have no obligation to reduce emissions under the Kyoto Protocol) to reduce GHG emissions and work towards sustainable development. For each tonne of CO2 equivalent reduced, projects earn Certified Emissions Reductions (CERs) carbon credits. The Environment Agency is the UK's Designated National Authority (DNA) for the CDM, and issues the Letters of Approval (LOA) for voluntary participation in the scheme.
Encourages businesses to undertake projects in developed countries under Kyoto Protocol targets to reduce GHG emissions. For each tonne of CO2 equivalent reduced, projects earn an Emissions Reduction Unit (ERU) which can be sold on the carbon market and used to offset emissions elsewhere.
The Environment Agency is the UK's Designated Focal Point (DFP) for JI and issues the Letters of Aproval (LOA).
These mechanisms are designed to incentivise the development and implementation of projects that reduce GHG emissions, generating tradeable carbon credits while providing sustainable development, technology transfer and inward investment to the host country. The carbon credits can create a revenue stream and a means to obtain capital finance for the project as carbon finance can improve a project's internal rate of return.
There are several types of project that are eligible for CDM or JI. The projects broadly fall under the following categories:
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