Carbon Sourcing - How it Works
In January 2008, the European Union began the second phase of its Emissions Trading Scheme (ETS). Under this scheme, large emitters of carbon dioxide, like power plant operators, are required to return emissions allowances to the government each year which match the amount of carbon dioxide eq. they have emitted over the period. In line with national allocation plans, E.ON was given a lower amount of emissions allowances than was actually produced by the power plants included in the emissions trading scheme.
Alongside the ETS, there is a growing market for so-called carbon offsets. Carbon offsets are another way to stimulate a reduction in carbon emissions and are created through two mechanisms: JI (Joint Implementation) and CDM (Clean Development Mechanism). Through these mechanisms, companies have the flexibility to meet a limited part of their CO2 emission reduction targets by investing in "offset projects" (CO2 emission reduction projects). Emission reductions realized in these projects receive certificates which can be traded with third parties and used for compliance in the EU ETS.
Joint Implementation projects generally take place in countries with economies in transition. Only certified projects that can show a verifiable reduction of emissions from CO2 or other Green House Gases are included in the scheme. In providing investment for these projects and achieving emission reductions, the investor receives Emission Reduction Certificates (ERUs), where one ERU is equal to one tonne of CO2 equivalent.
The Clean Development Mechanism allows investors in industrialized countries to invest in projects which reduce emissions in developing countries. Most importantly, to be approved by the UN, CDM projects have to demonstrate that the planned reductions would not have happened without the additional investment. Through proving that the project reduces emission, the investor receives carbon certificates called Certified Emissions Reductions (CERs).
CERs and ERUs have become the international currency in the global emissions market. Change in trading volumes have shown exponential growth since 2006 (growth 2009 versus 2008 is estimated 72%). JI/CDM has contributed to the reduction of over 400 Megatonnes of CO2 equivalent. Over 2,000 projects have been registered, of which over 1,000 from renewable energy.