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 traps and uses the methane gas caused by decomposing waste reduces the emissions that would otherwise escape 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 removes emissions from the atmosphere as carbon dioxide is taken in by the trees as they grow
Environmental credits/offsets are created according to the rules of regulated schemes to which those projects belong or according to international standards for emission offsetting projects.
- RECs are “Renewable Energy Certificates” created under the Commonwealth Government’s Mandatory Renewable Energy Target.
- NGACs are “Greenhouse Abatement Certificates” created under the New South Wales Government’s Greenhouse Gas Abatement Scheme
- GFCs are “Greenhouse Friendly Credits” created under the Commonwealth Government’s Greenhouse Friendly TM program. These are also referred to as VERs.
- CERs are “Certified Emission Reductions” created under the Kyoto Protocol
- ERUs are “Emission Reduction Units” created under the Kyoto Protocol
- 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
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 that are accredited by the Office of the Renewable Energy Regulator which is a statutory authority of the Commonwealth Government.
A REC is evidence that 1MWh of renewable energy has been supplied to the electricity systems (though some small scale units such as household solar hot water and photovoltaic systems are, for simplicity, issued with RECs for several years in advance).
Under Commonwealth law, electricity retailers and other large electricity purchasers are obliged to source an increasing amount of electricity from renewable energy sources. They demonstrate their compliance with this obligation by purchasing and surrendering RECs each year.
More information and updates can be found at the official site: www.orer.gov.au
Greenhouse Abatement Certificates (NGACs)
An NGAC is created by emission reduction projects, such as lower emissions power generation, demand-side energy efficiency 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 (GFCs)
A GFC is created by emission reduction projects, such as landfill gas flaring, switching to cleaner fuels, waste composting and new forestation and avoided deforestation that are approved under the Greenhouse Friendly program by Australian Greenhouse Office (“AGO”) of the Commonwealth Government’s Department of the Environment and Water Resources.
A GFC is evidence that 1 tonne of greenhouse gases has been reduced, avoided or removed from the atmosphere. A GFC 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. GFCs 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.
More information and updates can be found at the official site: www.greenhouse.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 CDM is governed by the CDM Executive Board whose members are appointed by both developed and developing countries. The CDM Executive Board is subject to the collective guidance of the countries who are parties to the Protocol.
The rules that govern CDM projects are very prescriptive and are more detailed and encompassing than as are applicable in 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.
The eligibility of the project must be exposed to public comment, be validated by an accredited valuator and be approved by the CDM Executive Board after a further 1-2month period of opportunity for objections to be raised has elapsed. A CER is only issued after the historic performance of the project has been verified and certified by an accredited verifier/certifier and after a further 15 day period of opportunity for objections to be raised has elapsed.
Emission Reduction Units (ERUs)
An ERU is created by emission reduction, avoidance or removal projects that are 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, Germany or Russia.
The JI mechanism is governed by the JI Supervisory Committee whose members are appointed by both developed and developing countries. 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.
Irrespective of when a JI projects starts reducing emissions, ERUs can only be issued for emissions reductions that occur after 1 January 2008 because this is when the Kyoto compliance period 2008-12 starts and AAUs are first available to be converted into ERUs.
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 but which:
- Cannot claim another type of unit right from the actual start date of the project, or
- Do not qualify for those other mechanisms for various jurisdictional or other technical reasons.
For example, a common source of VERs is from the emission reductions of JI or CDM projects that occur 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.
For ERU projects, this time gap exists because ERUs can only be claimed from 1 January 2008 regardless of the actual start date of the project.
VERs come from projects which are approved against the standards required of CDM and JI projects.
