What are CO2 certificates?
In order to reduce greenhouse gas emissions, public institutions on various continents have established control systems, including emission trading systems. On the European continent, it is the European Emissions Trading System (EU ETS). Greenhouse gas emission allowances, known as CO2 emission allowances or carbon certificates, are financial instruments traded on the stock markets. One certificate corresponds to one ton of carbon dioxide not released into the atmosphere (not-emitted CO2).
Carbon dioxide emission allowances under the EU ETS come from the annual allocations by the European Commission to ETS countries and to specific installations (EUAs). They also originate from CO2 and other greenhouse gas emission reduction programmes developed under UN mechanisms such as the CDM (Clean Development Mechanism for CERs and JI (Joint Implementations for ERUs).
It is important not to confuse carbon allowances and carbon certificates with green certificates. The latter applies to certificates obtained by units producing renewable or green energy.
The allowances traded under the EU ETS include:
- EUA - Emission Unit Allowance (current allowances for installations covered by the ETS)
- UAA - European Union Aviation Allowance (allocations for European airlines)
- CER - certified emission reduction (units or allowances from CDM emission reduction projects)
- ERU - Emission Reduction Unit (units or allowances from JI emission reduction projects)
EUA trade has developed due to the existence of a surplus or deficit in GHG emissions against the initial ceiling set at European level. ETS installations that have a surplus of EUA as a result of low emissions compared to the assigned level are allowed to sell this surplus of EUAs. Similarly, units with an EUA deficit, determined by higher production and higher CO2 emissions, have to purchase EUAs to meet the requirements at the end of the accounting year (the end of April each year). The same applies to airlines, which follow the same mechanism of selling and buying EUAA allowances.
In quantitative categories: 1 EUA = 1 EUAA = 1 CER = 1 ERU = 1 ton of CO2
However, their value varies due to several factors and the volatility of the price of each allowance is very high, even over the course of one day of open trading.