The principle that only those projects that would not have happened anyway should be counted for carbon credits.


The process of establishing and growing forests on bare or cultivated land which has not been forested in recent history.

Annex 1 Countries

The 36 industrialized countries and economies in transition listed in Annex 1 of the UNFCCC. Their responsibilities under the Convention are various, and include a non-binding commitment to reducing their GHG emissions to 1990 levels by the year 2000. See also non-Annex 1 countries.

Annex B Countries

The 39 emissions-capped industrialized countries and economies in transition listed in Annex B of the Kyoto Protocol. Legally-binding emission reduction obligations for Annex B countries range from an 8% decrease to a 10% increase (Iceland) on 1990 levels by the first commitment period of the Protocol, 2008 to 2012.

Annex 1 or Annex B?

In practice, Annex 1 of the Convention and Annex B of the Protocol are used almost interchangeably. However, strictly speaking, it is the Annex 1 countries that can invest in JI / CDM projects as well as host JI projects, and non-Annex 1 countries that can host CDM projects, even though it is the Annex B countries that have the emission reduction obligations under the Protocol. Note that Belarus and Turkey are listed in Annex 1 but not Annex B; and that Croatia, Liechtenstein, Monaco and Slovenia are listed in Annex B but not Annex 1. (Source:

Anthropogenic Greenhouse Gas Emissions

Humans emit greenhouse gases (GHGs) and other warming agents into the atmosphere through burning of fossil fuels, industrial and agricultural processes, and deforestation. These anthropogenic emissions raise the concentrations of these gases in the atmosphere, contributing the climate change.

Assigned Amount Unit (AAU)

A tradable unit, equivalent to one metric tonne of CO2 emissions, based on an Annex 1 country's assigned carbon emissions goal under the Kyoto Protocol. AAUs are used to quantify emissions reductions for the purpose of buying and selling credits between Annex 1 countries.

Atmospheric Greenhouse Gas Concentrations

Atmospheric concentrations of greenhouse gases are usually expressed in parts per million (ppm) or parts per billion (ppb). For example, atmospheric CO2 emission have risen from approximately 280ppm to 385ppm in the last 250 years. To ascertain the atmospheric concentration of a particular GHG, we can either directly measure it by taking air samples, or use a model to calculate it.

Baseline-and-Credit System

A system in which, unlike in a cap-and-trade system, there is no limit to the number of credits that can be produced. New credits are generated every time a project is implemented. Projects that are implemented outside of a cap-and-trade system.

Baseline Emissions

An estimate of GHG emissions, removals, or storage associated with a baseline scenario or derived using a performance standard (WRI/WBCSD, 2005).

Baseline Scenario

A hypothetical description of what would have most likely occurred in the absence of a proposed offset project.

Baseline (and Monitoring) Methodology

A Baseline and Monitoring methodology, as defined in paragraph 48 of the Clean Development Mechanism modalities and procedures, is an approach to an individual project activity, reflecting aspects such as sector and region. No methodology is excluded a priori so that project participants have the opportunity to propose any methodology (UNFCCC, 2007).


Reduction of existing atmospheric CO2 through capture and storage in plants and soils.

Boundary (for GHG Assessment)

Encompasses all the primary emissions and sinks and significant secondary emissions and sinks associated with the GHG project.


A Cap-and-Trade system involves trading of emission allowances, where the total number of allowances is strictly limited or ‘capped’. Trading occurs when an entity has excess allowances, either through improvements made, and sells them to an entity requiring allowances because of growth in emissions or an inability to make cost-effective reductions.

Carbon Dioxide (CO2)

This greenhouse gas is the largest human-caused contributor to climate change. CO2 is emitted by deforestation and the burning of fossil fuels.

Carbon Dioxide Equivalent (CO2e)

A measure of the global warming potential of a particular greenhouse gas compared to that of carbon dioxide. One unit of a gas with a CO2e rating of 21, for example, would have the global warming effect of 21 units of carbon dioxide emissions (over a time frame of 100 years).

Carbon Credit

Used interchangeably with the term carbon offset.

Carbon Offset

A credit for negating or diminishing the impact of emitting a ton of carbon dioxide by paying someone else to absorb or avoid the release of a ton of CO2 elsewhere.

Certified Emissions Reductions (CERs)

Tradable units issued by the UN through the Clean Development Mechanism for emission reduction projects in developing countries. Each CER represents one metric ton of carbon emissions reduction. CERs are categorized by the year, or vintage, in which they are generated. They can be purchased before the actual reduction occurs (see forward crediting). CERs can be used by Annex 1 countries to meet their emissions goals under the Kyoto Protocol.

Chicago Climate Exchange (CCX)

A US-based, voluntary but legally binding greenhouse gas emissions registry, reduction, and trading system.

Clean Development Mechanism (CDM)

A provision of the Kyoto Protocol that allows developed countries (Annex 1) to offset their emissions by funding emissions-reduction projects in developing countries (non-Annex 1).

Climate Damages or Costs

Climate impacts expressed in economic terms. Climate damages are usually expressed in monetary units, such as property lost to sea-level rise or flooding, medical costs of heat waves and disease, etc. Many assumptions are required to calculate such costs, and to discount them to their present values; many important climate damages, such as loss of human life, do not have meaningful prices.

Climate Efficacy

Two greenhouse gases with the same radiative forcing do not necessarily lead to the same temperature increase. Climate efficacy expressed the difference in effectiveness of different GHGs in causing warming (or cooling). For example, human-caused methane has an efficacy of about 145% compared to CO2, if indirect effects on stratospheric H2O and tropospheric ozone are included (Hansen, 2005).

Climate Feedback

An initial climate response that triggers a second process that in turn intensifies or reduces the initial response. A positive feedback intensifies the original process, and a negative feedback reduces it. For example, if Arctic ice melts due to warmer temperatures, the white snow surface is replaced by a much darker ocean surface. The dark ocean absorbs much more heat than white ice and snow surfaces. The newly-exposed dark surfaces will therefore lead to additional warming (positive climate feedback).

Climate Impacts

Ecosystem changes due to climate responses. Examples include: change in species composition and extinction, increase in vector-borne diseases and impacts on agricultural crops. These effects can be quantified in many ways; for example, number of species threatened with extinction or number of people displaced by sea level rise.

Climate Response

The physical and chemical reactions of the earth to changes in the atmospheric energy balance. Examples include: rise in temperature, changes in precipitation patterns, and rise in sea levels.

Climate Sensitivity

How responsive the climate is to the added forcing from GHG emissions, or, more technically, the change in surface air temperature following a change in radiative forcing. The higher the climate sensitivity is, the more the climate changes in response to GHG emissions. Climate sensitivity is expressed in degrees Celsius, per watts per square meter (°C/Wm-2).

Compliance Market

The regulated market for carbon credits (specifically CERs, EUAs, AAUs, and ERUs) used to reach emissions targets under the Kyoto Protocol or the EUETS. Also called the Regulated or Mandatory Market.

Conference of Parties (COP)

The meeting of parties to the United Nations Framework Convention on Climate Change.

Crediting Period

The period during which a mitigation project can generate offsets.

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Designated Operational Entity (DOE)

An independent auditor, accredited by the CDM Executive Board, which validates CDM project activities, and verifies and certifies emission reductions generated by such projects.


Conversion of land from a forested to a non-forested use (California Air Resources Board, 2007).

Direct GHG Emissions

Emissions from GHG sources or removals from GHG sinks that are owned or controlled by the project developer (WRI/WBCSD, 2005).

Discount Rate

The degree to which society prefers to receive benefits in the present rather than the future. In terms of the economics of climate change, there are those who argue that the future benefits provided by greenhouse gas emissions abatement should be discounted at a rate equal to the average return on a typical private-sector investment of 6% per year (Nordhaus, 1994). Yet critics argue that the use of high positive (c. 6%) discount rates can support policy outcomes that are unfair to future generations because unmitigated climate change would impose major, uncompensated costs on posterity. Similarly, some argue that equal weight should be attached to the welfare of both present and future generations. Economists have long recognized that the use of low (c. 1%) discount rates supports aggressive steps to stabilize global climate (Cline, 1992).


Double counting occurs when a carbon emissions reduction is counted toward multiple offsetting goals or targets (voluntary or regulated). An example would be if an energy efficiency project sells voluntarily credits to business owners, and the same project is counted toward meeting a national emissions reduction target.

Emission Reductions (ERs)

The measurable reduction of release of greenhouse gases into the atmosphere from a specified activity or over a specified area, during a specified period of time.

Emission Reduction Units (ERUs)

A tradable unit, equivalent to one metric ton of CO2 emissions, generated by a Joint Implementation (JI) project and used to quantify emissions reductions for the purpose of buying and selling credits between Annex 1 countries under the Kyoto Protocol.

Emissions Trading

A provision of the Kyoto Protocol that allows Annex 1 countries to trade emission reduction credits in order to comply with their Kyoto-assigned reduction targets. This system allows countries to pay and take credit for emissions reduction projects in developing countries, where the cost of these projects may be lower, thus ensuring that overall emissions are lessened in the most cost-effective manner.

Environmental Integrity

Environmental integrity is used to express the fact that offsets need to be real, not double-counted, and additional in order to deliver the desired GHG benefits. The term should not be confused with “secondary environmental benefits,” which is used to describe the added benefits an offset projects can have (e.g. air pollution reduction and protection of biodiversity) in addition to emissions reductions.

European Union Allowance (EUA)

Tradable emission credits from the European Union Emissions Trading Scheme. Each allowance carries the right for the holder to emit one ton of carbon dioxide.

European Union Emissions Trading Scheme (EU ETS)

The EU ETS is a greenhouse gas emissions trading scheme which aims to limit emissions by imposing progressively lower limits on power plants and other sources of greenhouse gases. The scheme consists of two phases: Phase I (2005-07) and Phase II (2008-12).


Ex-ante refers to offsets that are sold before the emissions reductions have occurred. The exact quantities of the reductions are therefore uncertain.


As opposed to ex-ante offsets, ex-post reductions have already occurred when the offsets are sold and their quantities are certain.

Forward Crediting

The sale of ex-ante credits. At contract closure, the buyer pays for and receives a certain number of offsets for emissions reductions or sequestration that will occur in the future.

Forward Delivery

At contract closure, the buyer pays the purchase price for a certain number of offsets that have yet to be produced. Unlike ‘forward crediting, the offsets are not delivered to the buyer until the emissions reductions have occurred and have been verified.


The underground injection of CO2 emitted by fossil fuel power generation. At this point, geological sequestration is still very costly.

Gold Standard (GS)

An international carbon offset standard that focuses on co-benefits such as environmental benefits and local stakeholder involvement. The Standard only approves renewable energy and energy efficiency projects and excludes bio-sequestration projects. The GS can be applied to CDM projects and voluntary offset projects.

Greenhouse Gases (GHGs)

Gases that contribute to climate change. Those named in the Kyoto Protocol include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6). Not all global warming causing molecules are gases (e.g. soot and other particulates). Usually these are referred to as warming agents. For the sake of simplicity, we use the term greenhouse gases (GHGs) to refer to all warming agents.

Host Country

The country where an emission reduction project is physically located.

Indirect GHG Emissions

Emissions or removals that occur as a consequence of project activity, but take place at GHG sources or sinks not owned or controlled by the project developer (WRI/WBCSD, 2005). Examples for indirect emissions reductions include demand-side energy efficiency upgrades: the emissions reductions occur at the power plant (because of lower demand) and not at the place where the efficiency measures have been taken.

Internal rate of return (IRR)

The annual return that would make the present value of future cash flows from an investment (including its residual market value) equal the current market price of the investment. In other words, the discount rate at which an investment has zero net present value. The IRR is often used to establish a projects financial additionality.

International Transaction Log (ITL)

A registry system that aims to ensure the validity of carbon credits issued under the Kyoto Protocol. Learn more at

ISO 14064

Standards for greenhouse gas accounting and verification introduced by the International Organization for Standardization in March 2006. ISO 14064 aims to help governments and businesses engage in effective emissions reduction projects as well as participate in carbon trading.


Issuance of CERs refers to the instruction by the Executive Board to the CDM registry administrator to issue a specified quantity of CERs for a project activity into a pending account in the CDM registry.

Joint Implementation (JI)

A provision of the Kyoto Protocol that allows those in Annex 1 (developed) countries to undertake projects in other Annex 1 (developed or transitional) countries (as opposed to those undertaken in non-Annex 1 countries through the CDM).

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Kyoto Mechanisms

The three flexibility mechanisms that may be used by Annex I Parties to the Kyoto Protocol to fulfill their commitments through emissions trading (Art. 17). They include the Joint Implementation (JI, Art. 6), Clean Development Mechanism (CDM, Art. 12) and trading of Assigned Amount Units (AAUs).

Kyoto Protocol

An international treaty that requires participating countries to reduce their emissions by 5 percent below 1990 levels by 2012. The protocol, developed in 1997, is administered by the Secretariat of the UN Framework Convention on Climate Change. Learn more at

Kyoto Units

A variety of units, including AAUs, ERUs, and CERs, which allows for the trading of carbon credits among Annex 1 countries to meet their Kyoto Protocol-assigned emissions targets.


Leakage occurs when activities that reduce GHG emissions (or increase carbon in plants and soils) in one place and time result in increases in emissions (or loss of soil or plant carbon) elsewhere or at a later date. For example, a steel firm in a country covered by the Kyoto Protocol makes reductions by closing one facility and replacing its output with production from a steel plant operating in another country that does not have a GHG constraint. Similarly, a forest can be protected in one location and cause harvesting of forests elsewhere. (California Air Resources Board, 2007).

Legal Requirements

Any mandatory laws or regulations that directly or indirectly affect GHG emissions associated with a project activity, and that require technical, performance or management actions. Legal requirements may involve: the use of a specific technology (e.g. gas turbines instead of diesel generators); meeting a certain standard of performance (e.g. fuel efficiency standards for vehicles); or managing operations according to a certain set of criteria or practices (e.g. forest management practices) (WRI/WBCSD, 2005).

Land Use, Land Use Change, and Forestry (LULUCF )

The term given to bio-sequestration projects such as reforestation and afforestation, and agricultural carbon sequestration

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Millennium Development Goals (MDGs)

The MDGs commit the international community to an expanded vision of development, one that vigorously promotes human development as the key to sustaining social and economic progress in all countries, and recognizes the importance of creating a global partnership for development. The goals have been commonly accepted as a framework for measuring development progress.


Project developers are required to maintain records measuring the emission reduction achieved during the operation phase. Emission reductions are issued based on the monitoring report.

Non-Annex 1 Countries

A group of mostly developing countries which have not been assigned emissions targets under the Kyoto Protocol and which are recognized by the UNFCCC as being especially vulnerable to the effects of climate change. See also Annex 1 countries. Learn more at

Non-Regulated Market

See Voluntary Market.


Offsets designate the emission reductions from project-based activities that can be used to meet compliance – or corporate citizenship – objectives vis-à-vis GHG mitigation (Capoor and Ambrosi, 2007)

Operational Entity

An independent auditor, accredited by the CDM Executive Board, which validates CDM project activities, and verifies and certifies emission reductions generated by such projects.


The longevity of a carbon pool and the stability of its carbon stocks within its management and disturbance environment. (WRI/WBCSD, 2005).

Pre-registered Emission Reductions (pre-CERs)

A unit of greenhouse gas emission reductions that has been verified by an independent auditor but that has not yet undergone the procedures and may not yet have met the requirements for registration, verification, certification and issuance of CERs (in the case of the CDM) or ERUs (in the case of JI) under the Kyoto Protocol.

Point of Regulation

The point of program enforcement at which specific emitting entities covered under a cap-and-trade program are required to surrender enough allowances to match their actual emissions within a compliance period (California Air Resources Board, 2007).

Primary Market

The exchange of emission reductions, offsets, or allowances between buyer and seller, where the seller is the originator of the supply and where the product has not been traded more than once.

Project-Based System

See Baseline-and-credit system

Project Boundary

The project boundary encompasses all anthropogenic emissions from sources of greenhouse gases (GHG) under the control of the project participants that are significant and reasonably attributable to the project activity.

Project Design Document (PDD)

A project specific document required under the CDM rules which will enable the auditor to determine whether the project (i) has been approved by the parties involved in a project, (ii) would result in reductions of greenhouse gas emissions that are additional, (iii) has an appropriate baseline and monitoring plan.

Prompt Delivery

At contract closure, the buyer pays the purchase price for a certain number of offsets which have already been realized and are delivered promptly to the buyer.

Radiative Forcing (RF)

The capacity of greenhouse gases to alter the temperature (energy balance) of the atmosphere, or, more exactly, the difference between incoming and outgoing radiation, allowing the stratospheric temperatures to adjust to the forcing agent, but keeping tropospheric and surface temperatures fixed at the unperturbed values. Radiative forcing is expressed in Watts per square meter.


Replanting of forests on land that previously contained forests but that had been converted to another land use (California Air Resources Board, 2007).


The formal acceptance by an offset program authority of a validated project activity as an offset project activity.

Regulated Market

See Compliance Market.

Renewable Energy Certificates (RECs)

A Renewable Energy Certificate represents a unit of electricity generated from renewable energy with low net greenhouse gas emissions. One REC represents 1 megawatt-hour.


Retirement of offset refers to offsets that are taken out of the market. Retired offsets can no longer be traded.

Secondary Market

The exchange of emission reductions, offsets, or allowances between buyer and seller where the seller is not the originator of the supply and the transaction represents a secondary trade in the particular product.


Stakeholders are the public, including individuals, groups or communities affected, or likely to be affected, by the proposed project activity or actions leading to the implementation of such an activity.

(Regulatory) Surplus

An emission reduction is in regulatory surplus if it is over and above what is required by law, and not otherwise required of a source by current regulations or other obligations (the Climate Trust, n.d.a).

Start Date

For a CDM project, the start date of a CDM project activity is the earliest date at which either the implementation or construction or real action of a project activity begins (UNFCCC, 2007).

Temporary Certified Emission Reductions (tCERs)

A temporary certified emission reduction or tCER is a unit issued pursuant to Article 12 of the Kyoto Protocol for an Afforestation/Reforestation CDM project activity under the CDM, which expires at the end of the commitment period following the one during which it was issued. It is equal to one metric ton of carbon dioxide equivalent.

Thermal Inertia

The delay in the change of Earth’s energy balance in response to climate forcing, or the imbalance caused by a lag between the effects of forcing and the return to energy equilibrium (Hansen et al. 2005).

United Nations Framework Convention on Climate Change (UNFCCC)

An international treaty, developed at the 1992 UN Conference on Environment and Development, which aims to combat climate change by reducing global greenhouse gas emissions. The original treaty was considered legally non-binding, but made provisions for future protocols, such as the Kyoto Protocol, to set mandatory emissions limits. Learn more at


The assessment of a project’s Project Design Document, which describes its design, including its baseline and monitoring plan, by an independent third party against the requirements of a specific standard, before the implementation of the project.


The act of checking or testing by an independent and certified party to ensure that an emission reduction project actually achieves emission reductions commensurate with the credits it receives (California Air Resources Board, 2007).

Verified or Voluntary Emission Reductions (VERs)

Reductions that, unlike CERs, are sold on the voluntary market. VERs are linked neither to the Kyoto Protocol nor to the EU ETS. VERs are sometimes referred to as Voluntary Emissions Reductions.

Voluntary Market

The non-regulated market for carbon credits (especially VERs) that operates independently from Kyoto and the EU ETS. Also called the Non-Regulated Market.

Verified Carbon Standard (VCS)

A standard that accredits projects producing credits for the Voluntary Market.

Voluntary Offsetting

Offsetting purchases made by individuals, businesses, and institutions that are not legally mandated.

Warming Agents

See Greenhouse Gases.

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