The FAQ explains some of the frequently asked questions about climate change. If you are looking for more detailed information we suggest that you go to the partners section of our website where you can click on one of the links which will provide you with more of the information that you are looking for.

What is Climate Change?

Climate Change is commonly used interchangeably with 'global warming' and 'the greenhouse effect', but is a more descriptive term. Climate change refers to the buildup of man-made gases in the atmosphere that trap the suns heat, causing changes in weather patterns on a global scale. The effects include changes in rainfall patterns, sea level rise, potential droughts, habitat loss, and heat stress. The six greenhouse gases covered by the Kyoto Protocol are carbon dioxide, methane, and nitrous oxides but also Hydrofluorocarbons, Perfluorocarbons and Sulphur Hexafluoride.

What is the Kyoto Protocol?

Based on rising worldwide scientific concern that increasing levels of greenhouse gases in the atmosphere, the Kyoto Protocol was signed in Japan in late 1997. The protocol introduces legally binding commitments on industrialized countries to reduce emissions by 5% overall below 1990 levels by 2008-2012 which is called the first commitment period. The targets ranged from an 8-percent reduction for the European Union (or its individual member states) to a 10-percent increase allowed for Iceland. What did it take now for the Kyoto Protocol to enter into force? - The Kyoto Protocol required developed countries totaling 55% of total emissions to ratify the Protocol for it to enter into force. The Kyoto Protocol entered into force on 16th February 2005 following its ratification by the Russian Federation which meant that the required threshold had been met. All major developed country major greenhouse gas emitters are party to the Kyoto Protocol with the exception of the United States. Australia ratified the Kyoto Protocol in December 2007.

What is the framework under which New Zealand is meeting its commitments under the Kyoto Protocol?

New Zealand ratified the Kyoto Protocol in December 2002. The framework for New Zealand to meet its Kyoto commitments is the Climate Change Response Act 2002. The Act puts in place a legal framework for New Zealand to meet its Kyoto obligation and provides authority to the Minister of Finance to hold and trade Assigned Amount Units (AAUs) in order to meet New Zealands Kyoto obligation.

What is New Zealand's target under the Kyoto Protocol?

New Zealand’s target is 0 percent below 1990 levels over the period 2008 – 2012. In 1990, New Zealand’s annual emissions of greenhouse gases were approximately 62 million tons of co2 equivalent. Part of this liability may be borne by the Government. Another part may be born be the private sector through a domestic emissions trading scheme and other policies and measures designed to reduce greenhouse gas emissions in a cost effective manner.

What happens in 2012?

After 2012 there may be a Second Commitment period of the Kyoto Protocol or there may be a new international agreement which includes caps for major emitters which are not party to the Kyoto Protocol such as the United States and for developing countries such as China, India, and Brazil which are Party to the Protocol but currently have no caps. In Bali in December 2012, a two year road-map was agreed to develop a successor agreement to the Kyoto Protocol by 2009 in Copenhagen. The new agreement is expected to contain tougher cuts than those envisaged under the Kyoto Protocol. In addition, the new agreement will seek to involve the United States which has not ratified the Kyoto Protocol.

How big is the international carbon market?

The World Bank estimated the size of the carbon market in 2007 as us$30 billion dollars of which us$25 billion was in the European Union where there is an EU Emissions Trading scheme in place since 2005 and the rest of the world us$5 billion where there is a market for clean development mechanism (CDM) and joint implementation (JI) projects. In contrast the size of the carbon market in New Zealand as of 2007 was only approximately us$20 million dollars based on the transactions which have been carried out to date. The carbon market is growing rapidly having doubled every year for the past three years over the period 2004 - 2007.

Benefits for project developers

Under the Kyoto Protocol project developers of renewable energy and energy efficiency projects can obtain carbon credits for reducing emissions below a baseline of what would have happened under a business as usual scenario. The mechanisms which enable creation of value from carbon assets are called joint implementation and the clean development mechanism.

Joint Implementation

Jointly implemented projects that limit or reduce emissions or enhance sinks are permitted among developed countries under Article 6 of the Kyoto Protocol. JI activity is also permitted in Article 4.2(a) of the FCCC, between all Parties. As defined in the Kyoto Protocol joint implementation would allow developed countries, or companies from those countries, to cooperate on projects to reduce greenhouse gas emissions and share the emissions reduction units (ERUs). Investing in joint implementation projects may be a more cost-effective way for companies to meet future carbon liabilities.

Clean Development Mechanism (CDM)

Defined in Article 12 of the Kyoto Protocol, CDM projects undertaken in developing countries are intended to meet two objectives: (1) to address the sustainable development needs of the host country; and (2) to generate emissions credits called certified emission reductions (CERs) that can be used to satisfy commitments on Annex 1 Parties and thus increase flexibility in where government Parties meet their reduction commitments. Investing in CDM projects may offer companies a cost-effective means of meeting future carbon liabilities.

Emissions Trading

Emissions trading is a market-based approach to achieving environmental objectives that allows those reducing GHG emissions below what is required to use or trade the excess reductions to offset emissions at another source inside or outside the country. In general, trading can occur at the domestic, international and intra-company levels. Article 17 of the Kyoto Protocol allows for emissions trading between Annex B parties of assigned amount units (AAUs). A global market for emissions allowances is slowly being created. A voluntary emissions trading scheme was created in the UK at the start of 2002 and a smaller scheme in Denmark. From 2005, a mandatory european wide emissions trading scheme is proposed to be launched and member states are currently in the process of drawing up allocation plans which will outline how various sectors of the economy will be affected. From 2008 full international emissions trading is envisaged under the Kyoto Protocol.

TradeMe VERs and CERs

Trading Carbon Credits

Trading carbon credits in New Zealand can include different types of carbon credits units such as AAUs, CERs, ERUs, and NZUs all of which have different values and different rules. The advantages of working with CMS to sell your carbon credits is that we have a superior understanding of the carbon market and can help you maximize the value from your units on the best terms. If you win, we win.

Kyoto Carbon Credits

Assigned Amount Units (AAUs) – AAUs are the government held Kyoto Units which are allocated to countries under the Kyoto Protocol such as New Zealand which have taken on legally binding caps.

New Zealand Units (NZUs) – NZUs are the carbon credit units being awarded by the New Zealand government under the New Zealand Emissions Trading Scheme (NZ ETS). NZUs will be backed by AAUs from the national registry which makes them interchangeable with international Kyoto Units.

Emission Reduction Units (ERUs) – Emission Reduction Units are Kyoto carbon credits from developed countries that have ratified the Kyoto Protocol such as Russia, Ukraine, the countries of eastern Europe and New Zealand.

Certified Emission Reductions (CERs) – Certified Emission Reductions are Kyoto carbon credits from developing countries that have ratified the Kyoto Protocol but have no legally binding caps on their emissions such as China, India, Brazil and others.

tCERs and lCERs are temporary and long-term CERs from forestry projects in developing countries which have ratified the Kyoto Protocol. tCERs and lCERs are not going to be eligible under the NZ ETS.

Removal Units (RMUs) – RMUs are carbon credit units from forestry projects such as afforestration or reforestation which capture carbon.

European Union Allowances (EUAs) – EUAs are the carbon credit units which have been allocated to companies participating in the European Union Emissions Trading scheme. EUAs must be surrendered by companies in the EU ETS or they face a 100 euro per tonne fine. As an alternative to surrendering EUAs, European companies can also surrender CERs or ERUs. EUAs can only be used for compliance in the European Union Emissions Trading scheme. They cannot be used for compliance purposes in other countries, including New Zealand.

Non Kyoto Carbon Credits

Verified Emission Reductions (VERs) – VERs are non-Kyoto carbon credit units. They can be used for voluntary offsetting for corporate branding, corporate social responsibility and for public relations purposes. VERs can be from projects which meet certain minimum standards such as the gold standard, the voluntary carbon standard, or VER+. In New Zealand, several projects which were awarded Kyoto carbon credits for the years 2008-12 have VERs for the emission reductions which have been achieved up until the end of 2007. Unlike carbon credits allocated under the Kyoto Protocol, VERs do not require approval or authorisations from governments.

It is important to note that VERs cannot be used by companies for compliance either in New Zealand Emissions Trading Scheme or internationally.

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