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is part one of a series exploring the carbon market. Watch
for part two in our next newsletter.
What are carbon credits?
In 1997, the Kyoto Protocol, a voluntary
treaty, was signed by 141 countries to reduce the emissions
of greenhouse gasses by 5.2% below 1990 levels by 2012. Certified
Emissions Reductions (CER) or carbon credits are certificates
issues certifying a reduction in emissions.
Projects such as renewable energy generation
or energy efficiency technologies may result in reduction
in carbon dioxide (CO2) emissions, which in turn
may allow for the project developer to obtain carbon credits
when certain requirements are met. Some examples of projects
that reduce CO2 emissions are:
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Renewable energy technologies in buildings
such as solar photovolatics (PV) and solar water heaters
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Energy efficiency projects such as
insulation
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Energy efficient appliances and lighting
This opportunity has opened up a new source
of cash flow in project financing. Ideally carbon credits
can be viewed as a means of empowering the market to care
for the environment.
How does emission trading and the
carbon market work?
There are two different carbon trading markets,
one that is a mandatory market and one that is a voluntary
market. Only in Europe are large companies in specific sectors
mandated by law to buy carbon offset credits if they exceed
legal pollution limits. Voluntary carbon offset trading comes
from a variety of sources – people trying to offset
their carbon footprints, businesses seeking to reduce their
greenhouse gas emissions, or major events trying to be carbon
neutral, such as the Olympics, the Super Bowl, and so on.
The global carbon market was valued at $40.4
billion in 2007 and is expected to reach $3.1 trillion by
2020. The voluntary carbon market was valued at $705 million
in 2008, up from $331 million in 2007 and is growing at a
tremendous rate.
This article is courtesy of Kevin
Tse.
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