The document provides an overview of the Carbon Training 2009 Programme and its modules on climate change and clean development mechanisms (CDM) projects. Module 1 introduces climate change, including its causes and consequences, the international response, and opportunities for mitigation and adaptation. Module 2 focuses on CDM projects, explaining that CDM allows developed countries and companies to invest in emissions reduction projects in developing countries to earn certified emissions reductions to meet their Kyoto Protocol targets at lower cost. The stages of a CDM project are also outlined.

1. CARBON TRAINING 2009 PROGRAMME
MODULES SUMMARIES
MÓDULE 1. Introduction to Climate Change
1. INTRODUCTION
The current introductory module intends to provide a general view of the main aspects regarding
climate change. It aims to give the students the basic tools to be able to understand what climate
change is (how it is caused and its consequences), the measures that can be adopted to alleviate
its effects and to adapt ourselves to the impacts that are already unavoidable.
It also details the different responses that have risen internationally throughout history and it will
analyse the possibility of reaching a Sustainable Development through a Global Approach.
2. INTERNATIONAL RESPONSE TO CLIMATE CHANGE
The international community has recognised that climate is changing, and that it is due to
greenhouse gas emissions originating from human activity. The United Nations Framework
Convention on Climate Change, represented by almost all countries, of December 2007
acknowledged this. In said international reunion the results from the Fourth Assessment Report of
the Intergovernmental Panel on Climate Change (IPCC) were recognised and adopted.
The Kyoto Protocol came into force, after six years delay, on 16 February 2005, only after
ratification of 55 nations representing 55% of greenhouse gases. This historic event, in which the
industrialised countries took responsibility for the consequences of their activities towards the
environment, is the result of numerous negotiations, meetings and studies.
3. WHAT IS CLIMATE CHANGE? CAUSES AND CONSEQUENCES
In the strict sense of the term, climate change refers to any change in climate over time, whether it
is due to natural climate variability or as a result of human activity.
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2. Evidence of Climate Change. The Scientific Foundations for Global Warming
The most recent scientific studies conclude that anthropogenic influence (i.e. of human origin) has
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effected global warming and cooling. The results, considered to be highly accurate, , show that
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global warming has been the net effect of human activity since 1750, with a radiative forcing of
-2
+1.6 [from +0.6 to 2.4] Wm
However, the average global temperature increase is causing other changes on a global scale:
 Melting of the polar ice caps
 Retreating glaciers
 Rising sea levels
 Extreme weather
Natural climate variability
Climate has changed many times on a geologic
level, and will do so again. There are planetary
effects that demonstrate such, like changes in: the
Earth's axial tilt, the amount of incoming solar energy, the Earth's orbital eccentricity, or the relative
distribution of the oceans and continents. But these changes have occurred on a geologic scale
(over hundreds of millions of years), and have induced large-scale extinctions.
Climate changes are therefore a constantly occurring feature of Earth. But today, when we discuss
climate change, we are not referring to the events that occur on a geologic time scale, we are
referring to much shorter periods that may be caused by human activity.
As mentioned previously, human activity induces a change in the existing natural balance in the
Earth-atmosphere system. Burning fossil fuels at a faster rate than they can be created results in an
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9 out of 10 are likely to be correct.
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Radiative forcing is a measure of the influence a factor has in altering the balance of incoming and
outgoing energy in the Earth-atmosphere system, and is an index of the importance of the factor as
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a potential climate change mechanism. It is expressed in Watts per square meter (Wm ).
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3. increase in CO2 concentrations in the atmosphere, which can not be taken up by the natural sinks
and which consequently causes global warming. This man-made extra warming is called the
“enhanced” greenhouse effect.
Projections of Future Climate Changes on Earth
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In 1996, the IPCC began the development of a new set of emission scenarios . Four different
narrative storylines were developed to describe consistently the relationships between the forces
driving emissions and their evolution to add context for the scenario quantification.
Projections of future climate changes according to these scenarios are as follows:
 By 2100, carbon cycle models project atmospheric CO2 concentrations of 540 and 970 ppm
for the illustrative SRES models.
 Climate sensitivity is likely to be in the range of 1.5 and 4.5°C.
 Globally averaged water vapour, evaporation and precipitation are projected to increase.
 More hot days and heat waves are very likely over all land areas.
 Projections of global average sea levels rise from 1990 and 2100 lie in the range 0.11 and
0.77 m.
Furthermore, the following results have been obtained from the projections from scenarios
describing a future that has stabilised GHG concentrations, Ice sheets will continue to react to
climate change during the next several thousand years, even if the climate is stabilised and local
annual average warming of larger than 3°C.
The Kyoto Protocol
The Kyoto Protocol sets legally binding limits on greenhouse gas emissions from industrialised
countries. It also introduces innovative market-based mechanisms – the so-called Kyoto flexible
mechanisms – to keep the cost of curbing emissions as low as possible.
Under the protocol, industrialised countries as a whole are required to reduce their emissions of six
greenhouse gases (CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur
hexafluoride) by around 5% below 1990 levels during the first “commitment period” from 2008 to
2012. A five-year period was chosen rather than a single target year to smooth out annual
fluctuations in emissions due to uncontrollable factors such as the weather. There are no emission
targets for developing countries.
The Kyoto Protocol entered into force in February 2005. In early 2009, 183 states and the European
Union had ratified the protocol.
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The approved new set of emission scenarios is described in the IPCC’s Special Report on Emissions
Scenarios (SRES)
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4. 4. GREENHOUSE GASES
Water vapour (H2O), carbon dioxide (CO2), nitrous oxide (N2O), methane (CH4), and ozone (O3)
are the main greenhouse gases in the atmosphere. There are also a number of entirely human-
made greenhouse gases, as previously mentioned, such as the halocarbons and other chlorine and
bromine-based substances, dealt with under the Montreal Protocol.
Below is a summary of the greenhouse gas sources:
Landfills Emissions from anaerobic digestion of organic
CH4 emissions matter
generated from Coal mines Emissions from mine ventilation
energy and waste Gas pipelines Emissions from gas production, processing,
transmission and distribution.
NO emissions from Combustion Combustion of moving and stationary sources
combustion and Industrial sources Nitric acid is the greatest industrial source of N0
industrial sources emissions.
Crops
CH4 and NO Cattle and poultry Emissions coming from natural organic processes
emissions Animal digestion associated with crops and cattle. They can not be
from farming avoided but can be reduced (plant genetics,
fertilizers, etc.)
Semiconductors
Magnesium Industry Synthetic gas emissions with high global warming
Aluminium Industry power come from applications which are crucial in
Gases which have a Electric sector complicated production processes and which
high impact on the require security and reliability
greenhouse effect Refrigeration Emissions coming from leaks in refrigeration
(HFCs, PFCs SF) systems
Tropospheric ozone Transport Tropospheric ozone and particles influence global
precursor emissions Biomass combustion radiation. The particles have an effect on global
and particles warming, but are always associated with CO
emissions which have an impact on cooling. Its
influence is still not determined.
Greenhouse gases emissions by sector
5. MITIGATION OPPORTUNITIES
Studies conducted by experts in climate change mitigation strongly agree that there is a substantial
economic potential for the mitigation of global GHG emissions over the coming decades that could
offset the projected growth of global emissions or reduce emissions below current levels (high
agreement, much evidence).
Key mitigation technologies and practices by sector. Sectors and technologies are listed in no
particular order. Non-technological practices, such as lifestyle changes, which are cross-cutting, are
not included in this table.
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5. Sector Key mitigation technologies and Key mitigation technologies and
practices currently commercially practices projected to be
available commercialised before 2030
Energy supply Improved supply and distribution efficiency; Carbon Capture and Storage (CCS)
fuel switching from coal to gas; nuclear for gas, biomass and coal-fired
power; renewable heat and power electricity generating facilities;
(hydropower, solar, wind, geothermal and advanced nuclear power; advanced
bioenergy); combined heat and power; renewable energy, including tidal
early applications of Carbon Capture and and waves energy, concentrating
Storage, CCS ( e.g. storage of removed solar, and solar PV.
CO2 from natural gas).
Transport More fuel efficient vehicles; hybrid Second generation biofuels; higher
vehicles; cleaner diesel vehicles; modal efficiency aircraft; advanced electric
shifts from road transport to rail and public and hybrid vehicles and more
transport systems; non-motorised transport powerful and reliable batteries.
(cycling, walking): land-use and transport
planning.
Buildings Efficient lighting and day lighting; Integrated design of commercial
more efficient electrical appliances and buildings including technologies such
heating and cooling devices, improved as intelligent meters that provide
cook stoves, improved insulation; passive feedback and control; solar PV
and active solar design for heating and energy integrated in buildings.
cooling; alternative refrigeration fluids,
recovery and recycle of fluorinated gases.
Industry More efficient end-use electrical Advanced energy efficiency; CCS for
equipment; heat and power recovery; cement, ammonia, and iron
material recycling and substitution; control manufacture; inert electrodes for
of non-CO2 gas emissions; and a wide aluminium manufacture.
array of process-specific technologies.
Agriculture Improved crop and grazing land Improvements of crops yields.
management to increase soil carbon
storage; restoration of cultivated peaty
soils and degraded lands; improved rice
cultivation techniques and livestock and
manure management to reduce CH4
emissions; improved nitrogen fertilizer
application techniques to reduce N0
emissions; dedicated energy crops to
replace fossil fuel use; improved energy
efficiency.
Forestry/forests Afforestation; reforestation; forest Tree species improvement to
management; reduced deforestation; increase biomass productivity and
harvested wood products management; carbon sequestration; improved
use of forestry products for bioenergy to remote sensing technologies for
replace fossil fuel use. analysis of vegetation/soil carbon
sequestration potential and mapping
land use.
Waste Landfill methane recovery; waste Biocovers and biofilters to optimise
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6. management incineration with energy recovery; CH4 oxidation.
composting of organic waste; controlled
waste water treatment; recycling and waste
minimization.
Source: IPCC, 2007. Contribution of Working Group III to the Fourth Assessment Report of the
IPCC on Climate Change. Summary for Policymakers.
Policies, measures and instruments to mitigate climate change
The governments have a wide range of national policies and instruments to mitigate climate change
in their reach, some of which through practice, have proven to be effective from an environmental
and economic viewpoint and are viable.
Among the existing instruments and policies the results of the following stand out:
 Integration of climate policies into wider development policies
 Specific mitigation regulations and norms
 Taxes that do not guarantee a specific emission level, but may regulate the carbon price.
 Negotiable permits that establish a carbon price.
 Financial incentives aimed at strengthening the use of new technologies
 Voluntary agreements between industry and governments that have been achieved in
some countries to accelerate the use of the best available techniques and emissions
control.
 Diffusion of information (public awareness campaigns as an example) that promotes
informed choices and possible changes in public and company behaviour, etc.
 RD&D, to encourage technological advances, reduce costs and make it possible to
progress towards stabilisation.
6. ADAPTING TO THE UNAVOIDABLE IMPACTS OF CLIMATE CHANGE
According to the United Nations, “adaptation is a process through which societies make themselves
better able to cope with an uncertain future. Adapting to climate changes entails taking the right
measures to reduce the negative effects of climate change (or exploit the positive ones).
There are different types of adaptation, for example: preventive and reactive, private and public,
and autonomous and planned.
Natural and social systems more or less adapt to the climate conditions that surround them. Climate
change presents new pressures on these systems. There will be changes that will influence the
relative survival probability of many species in natural systems. Social systems will be submitted to
selective pressures, although it is likely that there will be innovation and change as individuals and
organisations are capable of adapting to new climate conditions.
Undoubtedly, the ability to adapt and lessen the effects of climate change depends on the
socioeconomic and environmental circumstances and the availability of information and technology.
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7. Costs of inactivity and early adaptation to climate change
A considerable number of climate scientists and economists agree that the threat to the
ecosystems, human health, business and real estate sectors and remaining infrastructures will be
minimised by anticipating the possible climate change consequences, subsequently avoiding that
they reach a disastrous extent. These conclusions come from several studies, including the Stern
report and those conducted on the economic impacts of climate change, by the European Union
(Green Paper “Adaption to Climate Change in Europe”: Options for EU Action).
According to the data collected in this Green Paper, the damage caused by sea level rises in the
scenario where adaptation measures were not taken, could incur costs four times greater than if
additional flood defences were created.
7. GLOBAL CLIMATE CHANGE MANAGEMENT: TOWARDS SUSTAINABLE
DEVELOPMENT
There is growing understanding of the possibilities to choose and implement climate response
options (both in the area of adaptation and global climate mitigation) in several sectors to realise
synergies and avoid conflicts with other dimensions of sustainable development.
Climate change policies related to energy efficiency and renewable energies are often economically
beneficial, improve energy security and reduce pollutant emissions.
Reducing both loss of natural habitat and deforestation can have significant soil and water
biodiversity conservation benefits, and can be implemented in a socially and economically
sustainable manner. Similarly, forestation and bioenergy plantations can restore degraded land,
manage water run-off, retain soil carbon and benefit rural economies.
Also, certain decisions about macro-economic policy, agricultural policy, multilateral development
bank lending, insurance practices, electricity market reform, energy security and forest
conservation, for example, which often treated as being apart from climate policy, can significantly
reduce emissions (see Table 1). At the same time, non-climate policies can affect adaptive capacity
and vulnerability.
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8. Module 2. Project Management for reducing emissions
(clean development mechanisms)
1. INTRODUCTION TO CDM PROJECTS
In this first topic of the module on Project Management for Reducing Emissions, and in particular
Clean Development Mechanisms (CDM), we are going to attempt to provide an overview of these
types of projects. The student will be able to understand the concept of the Clean Development
Mechanism as well as its current status in order to get an idea of its importance in the fight against
climate change. Furthermore, the student will be introduced to the different stages of the CDM
project as well as to sections 2 and 3 which will be developed in this module.
The Clean Development Mechanism (CDM) is an agreement under the Kyoto Protocol, established
in article 12, which allows the governments of industrialised countries (also called developed
countries or Annex 1 countries in the Kyoto Protocol) and companies (natural or legal persons,
public or private entities) to underwrite agreements for achieving targets of reducing greenhouse
gases (GHGs) in the first commitment period undertaken between 2008 – 2012. This allows them
to invest in projects for reducing emissions in developing countries (also called non Annex 1
countries in the Kyoto Protocol) as an alternative to acquiring Certified Emission Reductions (CERs)
at lower prices than in their markets.
CDM: a tool to combat climate change
The Clean Development Mechanism (CDM) constitutes an alternative tool that compensates for the
emissions of a country or company (whose government has imposed emission restrictions). In this
way, a country or company can use the flexible mechanisms to fulfil their quota of emissions at a
lower cost than in the emissions trading scheme. This mechanism allows certified emission
reductions to be obtained to compensate for the excess of emissions that the company or the
country has made up to a limited percentage (for example, 15% of the emissions that are
undertaken to be reduced).
CER: unit of pollution
Certified Emission Reductions (CERs) have been created for projects that reduce emissions in
developing countries (non Annex 1 countries). These projects are certified once they have
prevented greenhouse gases from entering the atmosphere. A CER is equivalent to not emitting
into the atmosphere 1 tonne of carbon dioxide equivalent (1 tCO 2e).
The company or country with imposed emission restrictions that purchases these CERs is investing
directly in a project that reduces emissions in a developing country, since the project developer in
the developing country receives an additional income for their project activity of reducing
greenhouse gas emissions.
The purpose of CDM
The Clean Development Mechanism contributes to the final objective of creating a market which, as
well as achieving a real and measurable reduction of emissions, also creates a series of
investments into underdeveloped countries, thus contributing to creating sustainable economic
development in these countries.
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9. The number of registered projects is growing every year, and each one of the projects will issue
certified emission reductions during a period (crediting period) that could last for 21 years.
The CDM therefore fulfils a triple objective:
 It allows the investor country to use CERs to meet their own targets of reducing or limiting
emissions.
 The developing country receives investments into projects based on clean technologies.
 The atmospheric integrity of the model is maintained as, if the projects are additional (see
below for the definition of additionality), they contribute to achieving the final objective of the
Framework Convention: stabilising the concentration of GHGs in the atmosphere.
2. DEVELOPMENT OF THE CDM PROJECT
A project that claims to be registered under the Clean Development Mechanism scheme must
follow a process in which several stages are distinguished.
Actors in the CDM project
Several actors with well-defined functions intervene in each stage. To summarise, these actors are:
 Project Participants (PP): private or public companies, or entities that have become
associates in order to develop the CDM project. They can be from the country where the
project is being developed (host country) or from a country with emissions restrictions
(Annex 1 country).
 Designated National Authority (DNA): public organisation which must approve the project.
There must be one in the host country and another in the country that is purchasing the
Certified Emission Reductions.
 Designated Operational Entity (DOE): private independent entity which performs an
independent study of the project and issues a report on the same.
 Executive Board (EB): organisation belonging to the United Nations which makes the final
decision on the project.
3. STAGES OF THE CDM PROJECT
A Clean Development Mechanism project must go through a series of stages in sequential order.
The sequence of activities can be separated into two stages: pre-registration (Implementation) and
post-registration (Operation).
Pre-registration stage (Implementation)
In the first stage, the PP will prepare the Project Design Document (PDD) and will submit it to be
validated by the DOE. Once the EB has completed the validation, the Clean Development
Mechanism project will be registered. The main processes of this stage are:
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10. Process Group Description of the process
Responsible
PDD PP The PDD (Project Design Document) presents essential information
Preparation on the project activity and is a key product for the validation,
registration and verification of the project. In particular, the PDD
contains information on the project activity, the approved
methodology applied to the design of the base line and monitoring
and calculation of the emission reductions expected from the project
activity.
Validation DOE Validation is the process of independently evaluating the project
activity in order to ensure that the requirements of the CDM are
fulfilled in accordance with the PDD. The DOE determines whether
the project meets the necessary requisites to be considered a CDM
project. There is a formal procedure for the validation.
Approval by DNA The PP must obtain written approvals of their voluntary participation
the DNA from the Designated National Authority (DNA) of each involved
party, including the host country. The detailed approval procedures
are specific to each party (country).
Registration EB Registration is the formal acceptance of a validated project as CDM
project activity. The registration is carried out by the Executive
Board (EB) of the CDM. There is a formal procedure to acquire
registration. The PP will pay a registration fee during the registration
period.
Post-Registration Stage (Operation)
Once the project is registered, the PP will begin monitoring the data in accordance with that
described in the PDD. Periodically (for example annually), the PP will submit the monitoring period
summarised in the Monitoring Report to be verified by the DOE. Once it has been verified, the DOE
will certify the emissions and the EB will issue the CER. The main processes in this stage are:
Process Group Description of the process
responsible
Monitoring PP The PP will collect and file all the relevant and necessary data to
calculate the reduction of GHG emissions generated by the CDM
project activity, in accordance with the Monitoring Plan stated in the
PDD. The PP will present a Monitoring Report to the DOE at the
end of the process.
Verification DOE Verification is the periodic independent review and a posteriori
determination of the reduction of GHG emissions observed
(monitored) with the aim of ensuring that the reduction of the
emissions has been real. Verification is carried out by a Designated
Operational Authority (DOE). This DOE must be different from that
which carried out the process of validation for large scale CDM
projects.
Certification DOE Certification is the written insurance issued by a DOE that a project
activity has reduced GHG emissions by the amount stated in the
verification.
Issuance EB The Executive Board will issue certified emission reductions (CERs)
equivalent to the verified reduction of GHG emissions. There is a
formal procedure for the issuance of CERs.
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11. As can be observed, the key process in the implementation stage is the registration, while in the
operation stage, the issuance of carbon credits (CER) is crucial. In any case, a CDM project is a
sequence of processes and a mistake or a correct decision in an initial process can affect
subsequent processes.
CARBON PROFESSIONALS
The Clean Development Mechanism constitutes an additional source of income for the activity of
projects which prevent greenhouse gases from entering the atmosphere. This income constitutes
an incentive so that more and more projects of this type are developed in developing countries.
In order to secure these types of projects, the intervention of consultant companies, which are
engaged in the development of CDM projects, is often necessary to obtain carbon credits, thus
creating a new type of professional: the carbon professional. The companies which are engaged in
the development of CDM projects must identify projects that could be registered under the Clean
Development Mechanism scheme.
Often, project developers in developing countries are unaware of the possibility of registering their
projects on this scheme, which can provide them with an additional income thus making their
projects profitable. In other cases, project developers do not consider the possibility of carrying out
these projects until, thanks to the profits obtained from the CDM, a certain activity becomes
feasible, whether for economic reasons or the transfer of technology which occurs. A carbon
professional can intercede in the decision making process for large projects.
It is possible that the project developer does not need the services of another company which
provides advice on CDM development and therefore the whole process is carried out
independently. The developer will only contact other companies interested in purchasing CERs
when the project has already been registered or has issued carbon credits. In this case, the carbon
professional will be integrated into the developer’s own team of staff.
In conclusion, CDM, and by extension climate change, is generating a demand for new types of
professionals. The CDM Cycle is, in some way, the basis for any carbon professional.
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12. MODULE 3. Carbon Strategies: application trends and
experiences
1. GHG EMISSIONS INVENTORIES
The main value of a GHG inventory lies in generating sufficiently valid information so that it can be
taken into account as a strategic value of the company.
An emissions inventory is the first step towards a more holistic and universal strategy in an
organisation. Having a relevant, unabridged, consistent, transparent and precise inventory
(concepts that will be examined further later in the chapter) from the very beginning is essential,
since it constitutes the basis upon which other initiatives are built.
1. Standards
The majority of the GHG inventory’s programs and initiatives use what was set out in the GHG
Protocol as a basis, specifically the “Corporate Accounting and Reporting Standard”.
In order that an inventory constitutes an impartial and reliable representation of a company’s
emissions, the GHG Protocol says that the accounting and reporting of greenhouse gases must be
based on the principles of relevance, completeness, consistency, transparency and accuracy.
The GHG Protocol introduces the concept of direct and indirect GHG emissions, as was outlined in
the introduction. Basically, direct GHG emissions are emissions from sources that are owned or
controlled by the company. Meanwhile, indirect GHG emissions are the result of activities of the
company but occur at sources that are owned or controlled by another company.
2. Emissions factor
An emission factor is that which allows GHG emissions to be estimated from available activity data
(such as tonnes of fuel used, tonnes of product produced) and total GHG emissions. This is the
most commonly used method for obtaining GHG emissions data when carrying out inventories.
The general formula used is:
E = AD · EF
Where,
E is Emissions (CO2 eq)
AD is Activity Data
EF is Emission Factor
The main sources where emission factors can be found in order to estimate emissions are
described below:
- The 2006 IPCC guidelines for national greenhouse gas inventories provide methodologies for
estimating anthrogenic emissions by sources.
- National reports: Every year, countries throughout the world report information regarding their
GHG emissions. These reports can be very useful for finding more specific emission factors.
- GHG Protocol.
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13. 2 CARBON FOOTPRINT
The term carbon footprint is understood to mean the total amount of carbon dioxide and other
greenhouse gases that are directly and indirectly caused by an individual, an organisation, an event
4
or a product . This concept is directly related to emissions inventories. The main difference lies in
the fact that the carbon footprint focuses on a particular good or service, whereas an inventory is of
an entire organisation.
One of the main difficulties when working out a carbon footprint is the complexity of supply chains in
the globalised world in which we live.
In this sense, different standards are being developed to meet this demand for the gathering and
generation of data.
The main standards are:
- PAS 2050 by Defra. Department for Environment, Food and Rural Affairs.
- Product and Supply Chain Standard the creators of the GHG Protocol are developing the
purpose
- ISO 14067.
3 REDUCTION OF EMISSIONS
The growth of the world economy, despite the current financial crisis, in global terms has sped up in
comparison with the previous decade. Although it is clear that this is positive, it also has a negative
impact on the environment. One of the greatest environmental problems is climate change, which is
produced by the emission of greenhouse gases into the atmosphere.
In order to reduce an organisation’s carbon footprint, a series of steps must be followed:
1. Carrying out a greenhouse gas emissions inventory: it is very important to know where our
emissions are, in order to know where to act and how to do so in the most efficient manner.
2. Emissions analysis: the results of the inventory must be analysed in depth. One must know
which the most relevant emission sources are and which can be acted on more easily and
with the least effort.
3. Measures study: see which measures are the most efficient for the emission sources that
have been analysed previously.
4. Reduction plan: design and application of the measures considered in the previous phases
4 EMISSIONS REDUCTION THROUGH SUSTAINABLE MOBILITY
Progress in transport activities, such as infrastructure resources, leads to effects on the
environment, which lead to an increase in protection and environmental policies. Transport is
growing in Spain at a faster rate than in other countries, and faster than the economy as a whole.
Therefore, harmful environmental effects increase as a result of transport, such that transport is one
of the greatest factors affecting the environment.
4
Carbon Trust: Carbon Footprinting, 2007.
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14. Mobility Management is, above all, a form of making the transport of passengers and goods aimed
towards demand, which involves new associations and a series of tools to support and promote a
change in attitude and behaviour as regards sustainable modes of transport. These tools are
normally based on information, the organisation and coordination, and require promoting.
5 VOLUNTARY MARKETS
In general, the world’s carbon markets can be divided into two: voluntary markets and regulated
markets (obligatory compliance). The voluntary carbon markets include all the carbon exchanges
that are not required by a regulation.
Over recent years, numerous standards and registers have been introduced into the voluntary
carbon market, consequently greatly increasing the competition between the different VERs (as
many types of VERs as standards). These standards are not regulated by the United Nations.
Amongst the different standards, the methodology and type of projects carried out can vary, as well
as the quality criteria.
Some of the standards that are most commonly used are The Voluntary Carbon Standard (VCS),
The Gold Standard (GS) y el Climate Action Reserve (CAR)
The records are designed to track the transactions and ownership of credits, as well as to reduce
the risk of a credit being sold to more than one client (double counting). When dealing with such an
intangible raw material as a carbon credit, such records are crucial. That said, they have not been
5
relevant to the OTC market until recently.
Carbon neutralisation is the final step to be taken in compensating the impact that a company or
organisation’s activity has on the environment.
When considering the concept of carbon neutralisation, this can be defined as: “neutralising
emissions is the process of balancing CO2 emissions originating from human activity by supporting
projects that contribute to reduce or eliminate emissions in other places”.
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OTC (Over The Counter) market: a decentralised financial market, where the contracting is carried
out by phone or electronically, meaning that one single price is not usually set.
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15. MODULE 4. Legal aspects overview
Climate change, and consequently carbon markets, represent a real challenge for all legal, national,
community, and international players and opens a new field thus far unknown and therefore, not
regulated. From a legal standpoint, climate change is one of the biggest challenges in recent times.
From national governments to enforcers of the law, to international and regional organisations, and
the European Union, a new commercial area hitherto unknown has been discovered which is
forcing a modification to existing legislation, as well as requiring regulation of this new commercial
industry for the sake of the planet.
The primary objective of the present legal module is therefore to provide an overview on the
legislation, either international or national, and how private commercial relations have regulated and
dealt with climate change.
Consequently, this module starts with a short historical review along the main issues of the climate
change norm from 1979 to the present day, forming the following six distinct sections:
1.- The first phase will cover the European Union's adhesion to the KP (Kyoto Protocol), which
resulted in the creation of a European Cap & Trade system. This system allows emission trading
geared towards achieving compliance with the commitments undertaken by European Union
Member States to reduce their CO2 emissions through the ability to buy and sell allowances. The
commented system became operational in 2008, fruit of the European commitment to limit GHG
emissions established in the Kyoto Protocol by 8% during 2008-2012 compared to 1990. The
European system is an own system of the European Union based on Article 17 of the Kyoto
Protocol whose participants are non-governmental entities and not states.
Also in this chapter we will be able to analyze the various Community and Spanish legislation
applicable to the system created
2.- The second section examines the flexible mechanisms of the KP, their scope in relation to
reducing emissions, and their impact on the level of compliance of commitments imposed by
international treaties.
This way, the KP establishes three flexible mechanisms (i) purchase and sale emission allowances;
(ii) Joint Implementation (JI); and Clean Development Mechanism (CDM). These mechanisms are
created to provide the countries in Annex I to the UNFCCC to achieve its goals of reducing and
limiting greenhouse gas emissions (GHG). This chapter analyses two of the previous mechanisms:
CDM and JI.
The purpose of the CDM and JI is nothing more than facilitating countries in Annex I to the
UNFCCC to meet the commitments of reducing greenhouse gas emissions acquired by obtaining
emission reductions in countries with no obligation to reduce (CER -certified emission reduction- or
ERU -emission reduction units-). This is because the atmosphere is equally damaged by
greenhouse gas emissions regardless of their source of origin and at the same time, is also
favoured by the reductions of emissions regardless of where these are achieved.
Apart from these mechanisms, this section will focus on the purchase and sale agreement of
emissions reductions, called ERPA, and the different aspects each side should consider at the
moment of negotiate an acquisition of carbon credits resulted from the development of a project
based on flexible mechanisms described above, paying particular attention to the regulation of its
most important aspects as the conflict between the parties, the risks and costs of itself. Finally, we
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16. will make a brief mention of the LULUCF decision that reflects the possibility of implementing the
CDM to forestation and reforestation projects.
3.- The third section focuses in the study of carbon funds as financial instruments, created and
promoted by various organisations and multilateral and national entities
It will be analysed therefore, the principal carbon funds involved, reviewing some of them, it will be
explained the legal structure of these funds from the standpoint of Spanish Law, as well as the
necessary documents for its regulation. Finally, it will be analyzed the main risks that can take
participants in the carbon funds.
Through Carbon Funds involved institutions seek to promote sustainable development by gaining
economic benefits due to carbon markets have become a great business opportunity. Similarly, it is
aimed to have a positive economic impact by investing in clean technologies and helping facilities to
comply with the targets set in Kyoto. In this sense, these structures can buy carbon credits to meet
its commitments without resorting to the secondary market, thereby obtaining better economic
conditions without having to invest directly in projects. Thus we get the mitigation of the risks
associated with such operations, since investors provide capital which the fund invests in different
projects and receives in return credits generated by projects in accordance with their participation.
4 .- The fourth section presents the aim to bring the reality of the voluntary markets closer to the
student, explaining the less regulated and regulated forms of trade in emission rights
Since the implementation of the Kyoto system and due to the growing concern of the media and
public opinion about climate change, businesses and consumers have become aware of the
consequences, promoting environmental and social responsibility. Therefore, various initiatives
have been created to help businesses, institutions and individuals to combat climate change, one of
which is the compensation or reduction of GHG emissions
So many people decide to offset emissions by investing in projects that reduce real and additional
emissions. . For this reason, this section will deepen the main differences between the different
types of emission reductions that may result from the development of a volunteer project, the
differences in emission reductions resulting from a project developed in accordance with the
mechanisms stipulated in the Kyoto Protocol and the type of contract used in the operations of
voluntary credit trading
Therefore, the standard voluntary market must be considered a supplement and not a threat to the
CDM as it is an opportunity for small projects, benefiting the sustainability and providing
opportunities for countries that have not ratified the Kyoto Protocol and unregulated sectors.
Therefore, the voluntary market offers new opportunities for a large number of projects
5. Then, in the fifth section of the Carbon Training legal module, an introduction of CO2 capture and
storage (CCS) in emission allowance trading community regulations will be developed. Capturing
and storing carbon dioxide (CCS) is a process of separating CO2 emitted by industrial and energy
related sources, transporting it to a storage site and isolating it from the atmosphere over time
In accordance with the discussion in the special report of the Intergovernmental Panel on Climate
Change (IPCC) that was held in Montreal in September 2005, the CCS appears as one of the
mitigation measures for stabilization of atmospheric GHG concentrations
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17. Globally, several countries are currently researching and developing projects that capture and
geological store CO2, including the USA, Canada, member countries of the European Union and
Australia.
However, the obstacles that will have to be overcome so that this technology can be fully
operational and extended to a global level are many and varied: technological, scientific, economic,
environmental and legal. This is therefore, a high process cost for technologies, in most cases,
especially immature permanent storage of CO2 underground and potential risks to the environment
and the health of future generations, not to mention the lack of clarity and development of existing
regulation in this regard.
Also, under this chapter we focus on the major legal issues that may arise with respect to the CCS,
the development prospects of such projects under the CDM and also, in the recently published
Directive 2009/31, 23 April 2009 by establishing the legal framework regulating the geological
storage of CO2.
6. - The sixth and final section focuses on legal trends regarding the future of carbon markets in the
short term. This will summarize in this chapter the main elements of the package of energy and
climate change under the EU level, reviewing also some perspectives on the Kyoto Protocol that
were opened during the Conference held in Copenhagen December 2009.
Thus, referring to the new reforms that the European Union prepares concerning the European
system of emission trading, the changes will be discussed in the existing directives such as those
2003/87CE Directive, including aviation activities or developments made by Directive 2009/29CE
To sum up what is intended by this module is to show on one side, in a comprehensive and easy
way, all the existing rules on climate change, so that we understand and we support the need for
developed countries to take seriously their leadership role and responsibility in reducing climate
change impacts, contributing further to the development of underprivileged countries through.
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18. MODULE 5: Finance in carbon markets overview
Climate change is having significant repercussions not only in the environmental field, but also in
social and economic-financial. This module focuses on this last one, which is structured in the
following topics:
 Theme 1: Economic and organizational aspects of the fight against climate change.
 Theme 2: New Carbon Economy: Agents of the financial sector and assets linked to
carbon.
 Theme 3: Carbon markets and trading platforms.
 Theme 4: Assets of carbon trading and financial operations.
 Theme 5: Financial Markets adaptation
 Theme 6: The financial information relating to the assets of carbon.
The objective of this topic is that the student learns the major economic implications of climate
change, the costs associated with it, and the strategies being adopted by organisations to address
them.
Specifically, first in theme 1, it is analysed the main characteristics of low-carbon economy which,
among other things, involves the decoupling of economic growth in the consumption of fossil fuels,
analyzing then the main advantages and disadvantages of nowadays different sources of
renewable energy. Likewise, we consider the negative externalities of climate change and it is
considered the main instruments that can be used to address them: carbon markets and taxes on
emissions.
Second, we analyze the impact of climate change on different socio-economic sectors, with
particular reference to measures that could be taken as adaptation, linked to structural change of
economic growth such us reduction, which are considered for different sectors in particular.
Thirdly, we present the main findings in the Stern report, we analyzed: the costs involved in
alternative "business as usual" and a fight against climate change active, the influence of climate
change on annual production in different countries, the differences between the impacts in
developed and developing countries, and mitigation policies.
Finally, this theme examines the implications of climate change for organizations of different
sectors, referring to the reasons that may have to contribute to emissions reduction, the factors that
force them to it and the barriers that they can find. This theme also considers the different activities
that organizations can carry out to obtain strategic benefits to combat climate change, and the
different strategic responses that can be taken against emissions trading.
For this first theme, the proposed activity for the student is to analyze the information on an
organization that is proposed as an object of study and answer a series of questions about its
organizational response to the challenge of climate change.
The didactic objectives of theme 2 are that students learn the impact of the fight against climate
change on different players in the financial sector, the various assets with carbon as its source,
focusing on the assets that have their origin in the Kyoto Protocol and the main characteristics and
risks of carbon-linked assets.
Thus, the theme 2 begins by analyzing the regulatory and market components that characterize the
current model for combating climate change. Next, we consider how the new environment is
affecting the way of acting of the various players in the financial sector of the new carbon economy.
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19. In particular, we analyze these changes for: funders, who must analyze the risks and opportunities
posed by the projects as well as action protocols, investors, highlighting the role of investment
promoters, institutional investors and investors with less risk averse in projects related to carbon,
insurance entities, which should cover risks in new events and consider the birth of new products
such as catastrophe bonds, and consultants and advisors, who serve on the technical aspects,
legal, accounting, strategic in relation to measures to combat climate change.
The last part of unit 2 refers to assets linked to carbon. It outlines the main characteristics that
define the statutory and contractual assets and discusses in detail the different types of assets
originating from the Kyoto Protocol: the EUAs (European Union Allowances), the CERs (Certified
Emission Reductions) and ERUs (Emission Reduction Units). For this second theme, the proposed
activity is to identify the different products associated to carbon that are traded on a relevant
market, as well as point out their main characteristics.
The learning objectives of unit 3 is for the student to learn the types of markets, and their main
characteristics, in which carbon-linked assets can be traded, the establishment, operation, and
main characteristics of the European market for emission allowances and the main platforms
through which carbon assets can currently be traded
To do so, item 3 starts by analyzing in great detail the defining characteristics of the ETS (European
Trade Scheme), through to complete the regulated markets for carbon market with the
consideration of IETS (International Emissions Trading Scheme) markets, the New South Wales
Greenhouse Abatement Scheme, the Regional Greenhouse Gas Initiative and others that are
currently being implemented in New Zealand, Japan and the United States.
Also, in unit 3 are considered voluntary carbon markets, in particular the Chicago Climate
Exchange and the OTC market (Over-The-Counter), paying special attention to the VER (Verified
Emission Reduction).
Unit 3 is supplemented by the analysis of the main differences between regulated and voluntary
markets, the operation of the accounts and records in the carbon markets and, ultimately, different
trading platforms for assets linked to carbon in particular: European Climate Exchange (ECX),
Chicago Climate Exchange (CCX), Climex, Austrian Energy Exchange (FEX), European Energy
Exchange (EEX), Greenhouse Gas Exchange (GHGx) NordPool, Powernext Carbon and
SENDECO2. The activity for the student at the end of unit 3 is to identify the different phases and
develop the entire procedure through the web RENADE, for opening an account on this record from
which it might do transactions to emissions rights.
The learning objectives of unit 4 are that the student knows: the various factors that may influence
upward or downward on the price of carbon emissions allowances, the characteristics of major
financial transactions that may be associated with active carbon in different markets and the
development of carbon markets from its origins to the present.
In this unit, we first consider those factors that can influence the price of carbon, including the
switch gas-carbon, climate, emissions allocation, CERs created by CDM projects and other
macroeconomic factors. Then, operations carbon assets are detailed, in particular: cash or spot
transactions, transactions with futures, options, zero cost collar, semi-flexible structures for sale,
monetization, carbon collaterization, leverage carbon finance, repo structures -swaps, swaps CER-
EUAs and cross commodities. Finally, this theme 4 closes with a brief description and analysis of
the evolution of carbon markets. For theme 4, the proposed activity for the student is to participate
in a forum broadcast their opinions on the issues raised by the teacher and the other students, in
relation to financial products and contract structures.
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20. Unit 5 aims to familiarize the student with those tools available for companies that can be used to
reduce their exposure to climate change risks. In particular, students should know the weather
derivatives and the clauses introduced in certain debt emissions that is subordinated to the non-
occurrence of natural disasters.
Theme 5 begins considering how the financial markets have developed assets for finance needs
and risk management that traditional products could not meet, focusing on weather derivatives.
From these financial instruments that fall within the so-called adaptation, are detailed their
characteristics and operational system, and are considered in some depth these aspects: the
underlying (heating degree days, cooling degree days and cumulative average temperatures), the
structures (calls, puts, swaps and futures) and liquidation (as well as notional) contracts, for which
explanation is used several practical examples.
Unit 5 is completed by what is called disaster bonds (cat bonds) characterized by emissions debt
(bonds or obligations) which payment of principal and / or interests is conditioned upon to an event
of a catastrophic nature, does not occur. The theme ends with a reference to the main features and
operation of this financial instrument, as well as events that can trigger the failure to repay the bond,
called the trigger event, which can be simple or referred to a number of losses, may also be defined
in different ways.
The activity proposed to the student is the realization of a questionnaire to determine the degree of
knowledge acquired over the first five units of the module.
The last topic of the module, unit 6, has as training objectives: to know the different accounting
practices to the financial reflection of the emissions rights of the companies, within the mitigation
mechanisms, and how they affect its financial statements; and grant, trade and other contracts
relating to the carbon assets under international accounting standards, coming from voluntary or
regulated markets, defined as mitigation mechanisms.
Unit 6 initially states, as a general introduction, the usefulness of the information provided by the
Accounting as well as its content. Then, It presents the main characteristics of carbon assets as
assets from the point of view of accounting regulation, referring to the disparities in their accounting
treatment, which mainly focus on: the nature of the emissions rights as an asset: intangible assets
or inventory, and how to evaluate initially and throughout his life allowance.
Due to in the companies’ financial statements we can find incorporated emissions rights as assets,
but with different nature criteria, recognition and measurement, this theme discusses the different
accounting treatment of allowances, in particular those provided by: the IASB (International
Accounting Standard Board), U.S. GAAP, the accounting practices more prevalent in businesses
when they register their allowances and the Resolution of February 8th, 2006 the ICAC.
It is also considered the particularities from the accounting point of view present emissions rights
such as CERs, ERUs and VERs.
Unit 6 concludes referring to those parts of the report that must produce companies in which you
can find information on carbon finance specifically: accounting policy (on intangibles, inventories,
provisions for emissions, deferred income and adjustments by changes in value), risk management
policy (on the risks that the company is sensitive and hedging strategy) and some specific items
(intangibles and inventories, provisions for emissions, derivatives, equity and deferred income).
Also, this topic 6 contains an appendix giving several case studies on the impact on balance sheet
and income statement of allowances according to IFRIC 3 (repealed), the FERC rule, the PwC
survey, IETA (2007) resolution and ICAC.
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21. The activity proposed to the student to finalize this unit is: to search and download the annual
accounts of a business group for 2008, to identify the balance, in which items are included related
elements related to carbon assets and environmental obligations, to identify in the memory,
following the content of the unit 6, data and explanations related to carbon assets and
environmental obligations and to express an opinion on those areas that should provide further
details.
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