Carbon Markets Glossary

A fundamental principle requiring that emission reductions or removals from a carbon credit project would not have occurred without the incentive provided by carbon finance. Projects must demonstrate that the activity faces genuine barriers (financial, technological, regulatory, or institutional) that carbon revenue helps overcome.

A systematic assessment to determine whether a project's emission reductions are additional to what would have occurred in the baseline scenario, typically involving barriers analysis, investment analysis, and common practice evaluation.

A tradeable permit issued by a government authority that authorizes the holder to emit one metric tonne of CO₂ equivalent during a specific compliance period. Allowances are the fundamental units traded in cap-and-trade systems and must be surrendered to cover actual emissions.

A provision of the Paris Agreement enabling voluntary bilateral or multilateral cooperation between countries through the transfer of Internationally Transferred Mitigation Outcomes (ITMOs). Requires corresponding adjustments to prevent double counting.

A provision of the Paris Agreement establishing a centralized UN-supervised crediting mechanism (Paris Agreement Crediting Mechanism) that issues A6.4 Emission Reductions with mandatory adaptation levy and overall mitigation requirements.

A provision of the Paris Agreement creating a framework for non-market approaches to international cooperation, including finance, technology transfer, and capacity building that do not involve transfer of mitigation outcomes.

The ability to save unused emission allowances or credits from one compliance period for use in future periods. Banking provides temporal flexibility and can help smooth price volatility across time periods.

The reference scenario representing emissions that would occur in the absence of a carbon credit project. Baselines are critical for quantifying emission reductions and must be established using conservative, transparent methodologies.

The most likely course of events in the absence of a carbon project, used as the reference point for quantifying emission reductions. Must be realistic, credible, and conservatively estimated.

Charcoal produced by pyrolysis of biomass that can sequester carbon in soils for decades to centuries while providing agricultural co-benefits through soil improvement.

A carbon removal technology combining biomass energy production with CO₂ capture and permanent geological storage, potentially achieving net negative emissions.

A collective risk management mechanism where a percentage of carbon credits from nature-based projects are withheld to compensate for potential reversals due to natural disturbances, human activities, or other risks to permanence.

An emissions trading system where a regulatory authority sets a limit (cap) on total greenhouse gas emissions and issues allowances equal to that cap. Entities can trade allowances to minimize compliance costs while ensuring the overall cap is not exceeded.

A tradeable certificate representing one metric tonne of CO₂ equivalent that has been verifiably reduced, removed, or avoided through a specific project or activity. Also called carbon offsets in voluntary markets.

The total amount of greenhouse gas emissions caused directly and indirectly by an individual, organization, event, or product, usually expressed in terms of CO₂ equivalent.

The increase in greenhouse gas emissions outside a system's boundaries as a result of emission reduction activities within those boundaries. Can occur when production shifts to less regulated jurisdictions or when market effects induce emissions elsewhere.

Achieving net-zero carbon dioxide emissions by balancing CO₂ emissions with equivalent CO₂ removals or offsets. May not include other greenhouse gases unlike net-zero targets.

The extraction of CO₂ from the atmosphere through biological processes (forests, soils) or technological solutions (direct air capture, enhanced weathering), providing net negative emissions.

A fiscal instrument that puts a price on greenhouse gas emissions by imposing a fee per metric tonne of CO₂ equivalent emitted. Unlike cap-and-trade, carbon taxes provide price certainty but do not guarantee specific emission levels.

Carbon Border Adjustment Mechanism - The EU's system to apply carbon costs on certain imports from countries without equivalent carbon pricing, designed to prevent carbon leakage and encourage global carbon pricing adoption.

Chinese Certified Emission Reductions - China's domestic offset program that was revived in 2024 to supply credits into China's national emissions trading system after being suspended in 2017.

Clean Development Mechanism - A project-based crediting mechanism established under the Kyoto Protocol allowing developed countries to invest in emission reduction projects in developing countries and receive Certified Emission Reductions (CERs).

Financial flows from developed to developing countries to support climate change mitigation and adaptation efforts, including through carbon markets, green bonds, and other innovative financing mechanisms.

Mandatory carbon pricing systems established by law where covered entities must hold allowances or credits equal to their emissions. Examples include the EU ETS, California Cap-and-Trade Program, and RGGI.

An accounting procedure required under Article 6.2 of the Paris Agreement where transferring and acquiring countries adjust their national inventories to prevent double counting of internationally transferred mitigation outcomes.

A tradeable unit representing one metric tonne of CO₂ equivalent emission reduction or removal that has already occurred, verified by an independent third party, and issued by a recognized registry or standard.

The length of time during which a carbon project can generate credits, typically 7-10 years with possible renewal for voluntary market projects, or 10-21 years for CDM projects.

Technology that removes CO₂ directly from ambient air using chemical processes, typically for permanent geological storage or utilization in long-lived products.

The problematic situation where the same emission reduction is counted toward multiple climate goals or by multiple entities. Article 6 rules require corresponding adjustments to prevent this in international transfers.

A carbon removal approach that accelerates natural rock weathering processes by spreading crushed rocks on agricultural or coastal areas to sequester atmospheric CO₂.

Emissions Trading System - A cap-and-trade program that limits total greenhouse gas emissions from covered sectors and allows trading of emission allowances. The EU ETS is the world's largest international ETS.

A principle requiring that indigenous peoples have the right to approve or reject projects affecting their lands, territories, or resources, and that this consent is given freely without coercion.

An international standard for carbon credit projects that emphasizes sustainable development co-benefits alongside emission reductions. Requires mandatory stakeholder consultation and SDG impact assessment.

An emissions trading system that sets benchmarks for carbon emissions per unit of output rather than absolute emission caps. Companies that outperform benchmarks can sell surplus allowances to those under-performing, as used in China's National ETS.

Internationally Transferred Mitigation Outcome - A unit of greenhouse gas emission reduction or removal that is transferred from one country to another under Article 6.2 of the Paris Agreement for use toward NDC achievement.

The unintended increase in greenhouse gas emissions outside a project's boundaries as a result of project activities. Can be geographic (activity shifting), market-driven (price effects), or ecological in nature.

A systematic analysis of the environmental impacts of a product or service throughout its entire lifecycle, from raw material extraction through disposal or recycling.

Monitoring, Reporting, and Verification - The three-step process ensuring that emission reductions are accurately measured, transparently reported, and independently verified by accredited third parties.

Nationally Determined Contribution - Each country's self-determined climate action plan under the Paris Agreement, outlining emission reduction targets and implementation measures for achieving them.

Achieving a balance between greenhouse gas emissions produced and emissions removed from the atmosphere, typically through a combination of emission reductions and carbon removals or offsets.

A carbon credit representing emission reductions or removals used to compensate for emissions that occur elsewhere. The term emphasizes the compensatory nature of using credits to 'offset' unavoidable emissions.

A requirement under Article 6.4 of the Paris Agreement where a minimum percentage of credits are cancelled to ensure the mechanism delivers a net atmospheric benefit beyond zero-sum offsetting.

The 2015 international climate accord establishing a framework for global climate action, including Article 6 mechanisms for international cooperation and carbon market activities.

The durability of emission reductions or removals over time. Critical for forest and soil carbon projects that face risks of reversal due to natural disturbances, human activities, or management changes.

Reducing Emissions from Deforestation and forest Degradation, plus conservation, sustainable forest management, and enhancement of forest carbon stocks. A mechanism providing financial incentives for forest protection in developing countries.

A secure database system that issues, tracks, and records the ownership and transfer of carbon credits or allowances. Ensures transparent accounting and prevents double issuance or double claiming.

The loss of previously sequestered carbon due to natural disturbances (fire, pests, drought) or human activities (logging, land conversion). Particularly relevant for nature-based carbon projects.

Environmental and social protection measures ensuring that carbon projects do not cause harm to local communities, indigenous peoples, biodiversity, or ecosystems. Required by most major standards.

Emission reduction targets that are aligned with the level of decarbonization required to keep global temperature increase below 1.5°C or 2°C compared to pre-industrial levels.

Direct greenhouse gas emissions from sources owned or controlled by an organization, such as fuel combustion in company vehicles or on-site power generation.

Indirect greenhouse gas emissions from purchased electricity, steam, heating, or cooling consumed by an organization but generated by external sources.

All other indirect greenhouse gas emissions occurring in an organization's value chain, including business travel, employee commuting, waste disposal, and supply chain emissions.

The process of engaging affected communities, local authorities, and other interested parties in carbon project development to ensure informed participation and address concerns.

The UN's 17 interconnected global goals adopted in 2015 to achieve a better and more sustainable future. Many carbon standards require projects to demonstrate contributions to relevant SDGs.

The independent assessment of a carbon project's design before implementation to confirm it meets all applicable standards and methodology requirements. Conducted by accredited Validation and Verification Bodies (VVBs).

Verified Carbon Standard - The world's largest voluntary greenhouse gas program administered by Verra, with over 1.1 billion credits issued from projects in 125+ countries.

The independent assessment of a project's actual performance after implementation to confirm that claimed emission reductions or removals have occurred and are accurately calculated. Required for credit issuance.

A decentralized market where entities voluntarily purchase carbon credits to meet sustainability goals, support net-zero commitments, or demonstrate climate leadership, without regulatory mandate.

Validation and Verification Body - Independent third-party organizations accredited by carbon standards to validate project designs and verify actual emission reductions. Essential for ensuring credit quality and integrity.

Internationally Transferred Mitigation Outcomes that have been authorized under Article 6.2 but never properly accounted for through corresponding adjustments, creating potential double counting risks.