Carbon Emission Reductions (CERs)
What are CERs?
Certified Emission Reductions (CERs) are like any other assets of a company, with the Emission Trading System (ETS) or Carbon Market acting as the "trading platform".
Who generates/produces CERs?
Clean Development Mechanism (CDM) projects generate CERs to the tune and extent spelt out in their respective Project Design Document (PDD) registered with the Executive Board.
1 CER is equal to 1 tonne of CO2-e equivalent. It is directly fungible under Article 6 of the Kyoto Protocol with Assigned Amount Units (AAUs), Emission Reductions Units (ERUs) and Removal Units (RMUs).
Trading in CERs
Once certified, these CERs are credited into the holding account of the one who generates them — i.e. the CDM project participant who will have a holding account opened in their name by the UNFCCC. From there the owner of the CERs (i.e. the CDM project participant) can transfer their CERs to anyone else who has a holding account or who has an account in a linked Directory. This can be done through one of the Annex I countries' trading systems or, more likely, in a cross-country trading system like the European Union CO2 Emission Trading System (ETS).
The CDM project participant is likely to transfer these CERs either to some one to whom they have already promised them in return for an initial payment at the time of project inception (i.e. the forward purchaser or forward funder), or to the highest bidder through a trading platform.
Who buys CERs?
- Assigned Amount Units (AAUs) are issued by the Annex 1 Parties (i.e. industrialised countries who have signed the Kyoto Protocol) to their installations (i.e. factories, power utilities, transport industry, etc.) under their respective annual National Allocation Plans. Each installation is not allowed to emit Greenhouse Gases (GHGs) over and above its AAUs. Installations have to report to their respective emissions to their national agencies every year, and any GHGs emitted over and above their AAUs will incur a fine.
- Emission Reductions Units (ERUs) are emission reductions generated by Joint Implementation projects in other Annex 1 countries or in countries in transition.
- Removal Units (RMUs) are emission reductions generated through sink activities within Annex 1 countries.
These three types of emission reduction requirements plus CERs have created a market for trading emission reductions under the Kyoto Protocol.
Does India have a quota to reduce GHGs under the Kyoto Protocol?
Currently, there is no need for a developing country to buy CERs, as developing countries with a Carbon Footprint of less than 2 tCO2-e have no legally binding commitments to reduce GHGs — i.e. they are not in the Annex I list. Instead, developing countries generate CERs because they want to get financing for their clean energy, energy efficiency or forestry projects.
Can Indian industry generate CERs without CDM funding?
Occasionally an industry-type CDM project participant may already have all their funding in place. They will generate CERs every year even without needing to show that their CERs contribute to the viability of their project activity. Basically any project activity that generates emissions over and above what would have happened in the absence of the project activity is eligible to sell CERs.
This is very much in the spirit of the Kyoto Protocol.
How about the rural poor?
The rural poor are generally not in the position to translate their existing sustainable lifestyles or other existing GHG abatement activities into CERs without some investment.
This topic is complex and is examined in more detail in the section of eligible project activities.