Concept of Offsetting

International carbon offsets further take advantage of the least cost of abatement or MAC to lessen the economic burden for industry and governments to achieve emissions targets. Similar to an emissions allowance, a carbon offset is measured in tonnes of C02e and represents one certified metric tonne of C02 reduction. While the voluntary market participates in this arena, it is largely led by the compliance market which reached 118 billion USS in 2008 [24].

Under the Kyoto Protocol, carbon offsets represent an opportunity for companies that have across border operations in countries with emissions caps (Annex-1 countries) and those without (Non Annex-1 countries). This is very common in the chemical industry and investigated further in this section in the chemical context. There are also large opportunities for the chemical industry to generate offsets for sale to other companies that fall under compliance.

Flexible Mechanisms of the Kyoto Protocol

The flexible mechanisms of the Kyoto Protocol, introduced in the introductory chapter, are the only existing methods to produce carbon offsets acceptable for compliance under nationally recognized cap-and-trade schemes such as the EU ETS. Recognizing the benefits of carbon reduction in the atmosphere, the mechanisms were established to lessen the economic cost of emissions compliance for signatory countries to the Protocol and promote the transfer of clean technologies and investment. There are two mechanisms for generating offsets under the Protocol; the CDM between an Annex-1 country and a non Annex 1 country; and JI between two Annex 1 countries [25].

These mechanisms provide additional flexibility to companies operating within a global context to maximize assets and achieve companywide carbon reductions at the least cost. This mechanism acts as a principle financial incentive for com-

Figure 2.7

Number of approved CDM projects in the chemical and petrochemical industries panies to generate revenue through the sale of emission reductions (so called carbon credits). Developing a CDM Project

The CDM defined in Article 12 of the Kyoto Protocol is the most established carbon offset scheme and enables the implementation of project-based emission reductions in developing countries (non Annex-1 countries). This section examines the CDM registration cycle and what steps must be undertaken by project developers when applying for salable certified emission reductions (CERs). One CER represents a tonne of reduced C02 compliant within a cap-and-trade system such as the EU ETS.

The CDM represents a good opportunity for an industrial installation to claim emission reductions for activities undertaken to conserve energy, switch to lower carbon fuels or abate harmful greenhouse gas emissions. There are a number of project types in the chemical industry that are eligible under the CDM and the most successful initiatives thus far have targeted high GWP gases, such as HFC23 and N20.

For example, companies such as Rhodia have undertaken CDM projects to reduce N20 emissions from adipic acid production plants in South Korea and Brazil. Rhodia's two projects combined are expected to produce 12000000 CERs per year, at an estimated market value of more than half a billion Euros up to the end of the Kyoto commitment period [26]. Figures 2.7 and 2.8 show the

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