What are Environmental Credits?

Environmental Credits are created by projects that reduce, avoid or remove greenhouse gas emissions from the atmosphere.  For example:

• A landfill gas project that flares methane gas, that prevents from escaping to the atmosphere
• A wind farm project produces electricity instead of coal-fired power stations and avoids the emissions would otherwise have been caused by those coal-fired power stations
• A forestry project sequesters carbon dioxide in trees as they grow

That is, they can be a LGC or an STC type of REC in which case they are renewable carbon technologies only. If the project is a methane landfill gas project then it will be able to create a different type of certificate because it is a project that reduces tonnes of carbon released into the atmosphere but it will be able to create NGACs. There are different rules and this is explained further below.

• RECs are “Renewable Energy Certificates” created under the Commonwealth Government’s Mandatory Renewable Energy Target up until 1 January 2011
• NGACs are “Greenhouse Abatement Certificates” created under the New South Wales Government’s Greenhouse Gas Abatement Scheme
• CERs are “Certified Emission Reductions” created under the Kyoto Protocol, CDM Rule (from Developing countries)
• ERUs are “Emission Reduction Units” created under the Kyoto Protocol, JI Rule (from developed countries). They also refer to Greenhouse Friendly (GHF) Credits created under the Commonwealth Government’s Greenhouse Friendly TM program. These are also referred to as VERs
• VERs are “Verified Emission Reductions” created under international standards such as the WWF, Gold Standard and the International Emissions Trading Association’s Voluntary Carbon Standard (VCS)

What are the different types of environmental credits?

Renewable Energy Certificates (RECs)

A REC is created by eligible sources of renewable energy, such as wind, hydro and biomass for every MWh of renewable energy produced. Under Commonwealth law, electricity retailers and other large electricity purchasers are obliged to source 20% of their electricity from renewable energy sources by 2010. They demonstrate their compliance with this obligation by purchasing and surrendering RECs each year. See the Renewable Energy Section for more on small and large scale renewable energy certificates (STCs and LGCs).

More information and updates can be found at the official site: www.orer.gov.au

NSW Greenhouse Gas Abatement Certificates (NGACs)

An NGAC is created by emission reduction projects, such as lower emissions power generation and forestry carbon sequestration, that are accredited by the NSW Independent Pricing and Regulatory Tribunal (IPART), which is a statutory authority of the New South Wales Government.

An NGAC is evidence that 1 tonne of greenhouse gases has been reduced, avoided or removed from the atmosphere.

Under NSW law, electricity retailers and other large electricity purchasers are obliged to reduce the emissions intensity of electricity supplied to their NSW customers. They demonstrate their compliance with this obligation by purchasing and surrendering NGACs each year.

More information and updates can be found at the official site: www.greenhousegas.nsw.gov.au.

Greenhouse Friendly TM Credits (GHF ERUs)

An ERU is created by emission reduction projects, such as landfill gas flaring, switching to cleaner fuels, waste composting and new forestation and avoided deforestation that were approved under the Greenhouse Friendly (GHF) administered by Australian Greenhouse Office (“AGO”) of the Commonwealth Government’s Department of the Environment and Water Resources. This initiative was operational from 2001 until 30 June 2010.

An ERU is evidence that 1 tonne of greenhouse gases has been reduced, avoided or removed from the atmosphere. A project needs to meet strict eligibility criteria set by the AGO that the emission reductions occur in Australia, are permanent and verifiable and that the project is not a business-as-usual project that would have gone ahead anyway without Greenhouse Friendly approval. ERUs are only created after the actual emission reduction performance of the project has been verified by a member of the AGO’s Panel of Independent Verifiers.
The National Carbon Offset Standard (NCOS) began 1 July 2010 and will provide the functions of Greenhouse Friendly in a way that complements the Governments proposed carbon trading scheme and helps Australia meet its Kyoto commitment.

More information and updates can be found at the official site: http://www.climatechange.gov.au/greenhousefriendly/

Certified Emission Reductions (CERs)

A CER is created by emission reduction, avoidance or removal projects that are approved under the Clean Development Mechanism (“CDM”) of the Kyoto Protocol.
The rules that govern CDM projects are very prescriptive and are more detailed than other schemes.

A CDM project must be located in a country that is a party to the Protocol but does not have an emission limit under the Kyoto Protocol, such as Brazil, China or India. It must be approved by that host country and, specifically, approved as contributing to sustainable development in that country. It must be capable of producing emission reductions that are real, long-term and measurable, not create any significantly adverse environmental or social impacts and invite and take due account of local stakeholder views on the project. It must use an Approved Methodology that is applicable to that type of project, to calculate the emission reductions.

Emission Reduction Units (ERUs)

An ERU is created by emission reduction, avoidance or removal projects approved under the Joint Implementation (“JI”) mechanism of the Kyoto Protocol.

A JI project is fundamentally the same as a CDM project except that it is located in a country which does have an emission limit under the Kyoto Protocol, such as New Zealand or Russia.

The standards for project approval, measuring, monitoring and verification of emission reductions and the issuance of ERUs are fundamentally the same as for CDM projects except that host countries can have a greater say in approving JI projects. This is because an ERU is created by a country actually cancelling a unit of its own Kyoto emission limit (Assigned Amount Units – AAUs) and not by the creation of additional Kyoto compliance units.

Verified Emission Reductions (VERs)

A VER is created by emission reduction, avoidance or removal projects that either are approved under one of the above mechanisms or have the same fundamental attributes of these types of projects. It’s a term that’s used loosely in the market to refer to all environmental certificates, but usually voluntary ones (that are bought by people wanting to go over and above what the government is already doing about carbon reduction.)
For example, a common source type of VER is the Voluntary Carbon Standard (VCS) certificate. VCS VERs or Voluntary Carbon Units (VCUs), provide JI and CDM projects with an additional stream of financial revenue. These projects can create VCUs from the actual start date of the project until the date from which the project’s emission reductions can be claimed as CERs or ERUs.

For CER projects, this time gap often exists because CERs can only be claimed from the CDM Registration Date of the project which is the last step in the detailed approval processes and can be after the actual start date of the project.

VERs mostly come from projects which are approved against the standards required of CDM and JI projects, but also include some small scale certificates.