A Carbon Exchange Unit is:
1) A unit earned by someone who has implemented a project according to international standards that generates a reduction, removal, storage or avoidance in greenhouse gas emissions than would otherwise have occurred (for example a wind -farm);
2) Issued by an authority or a Board pursuant to those international standards (one credit is issued for every tonne of emissions of carbon dioxide (or carbon dioxide equivalent) that has been reduced, removed, stored or avoided); and
3) Bought by someone either for offsetting purposes, in which case the credit is retired (i.e. taken out of circulation permanently) to offset their own emissions (where one tonne of carbon dioxide can be offset by one unit / credit) or for investment or Speculative purposes.
4) One carbon credit is equal to one ton of carbon dioxide
The Backround of Greenhouse Gasses
The ultimate objective of the Climate Change Convention (UNFCCC) is to achieve "... stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate sytem.
"The burning of fossil fuels is a major source of industrial greenhouse gas emissions, especially producers of power, cement, steel, textile, fertilizer and many other industries which rely on fossil fuels (coal, electricity derived from coal, natural gas and oil).
The major greenhouse gases emitted by these industries are carbon dioxide, methane, nitrous oxide and hydrofluorocarbons all of which increase the atmosphere’s ability to trap infrared energy and thus affect the climate.The concept of carbon credits came into existence as a result of an increasing awareness of the need for controlling emissions. Scientists believe that reducing carbon and greenhouse gas emissions is essential if we are to minimise our impact on the environment.
What is the clean development mechanism?
The CDM allows emission-reduction projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2. TheseCERs can be traded and sold, and used by industrialized countries to a meet a part of their emission reduction targets under the Kyoto Protocol.The mechanism stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction limitation targets.
The CDM is the main source of income for the UNFCCC Adaptation Fund, which was established to finance adaptation projects and programmes in developing country Parties to the Kyoto Protocol that are particularly vulnerable to the adverse effects of climate change. The Adaptation Fund is financed by a 2% levy on CERs issued by the CDM.