Certified emissions reduction (CER)
Certified Emissions Reduction (CER) is a quantifiable unit of greenhouse gas (GHG) emissions that is either reduced by sources or removed by sinks, specifically under the Clean Development Mechanism (CDM) framework. Developed countries can finance projects in developing nations that aim to achieve emissions reductions beyond what would occur in the absence of these projects. Each CER corresponds to one metric ton of GHG reduced or removed, and the gas’s global warming potential (GWP) determines the number of CERs generated for different gases, such as methane, which can yield varying quantities of CERs based on the time horizon assessed.
The CDM not only assists developed countries in meeting their Kyoto Protocol emission reduction targets but also promotes sustainable development in developing nations. As of 2012, approximately 1.2 billion metric tons of CERs had been generated, reflecting the mechanism's impact on global emissions reduction efforts. CERs can be traded in the carbon market, fostering investment in projects aimed at reducing GHG emissions. However, the system's integrity is dependent on accurate measurement and validation to prevent overestimation of emissions reductions, which could lead to increased overall emissions. Revitalized in 2020 after a significant market collapse, the CER program continues to play a role in global climate change mitigation strategies.
Certified emissions reduction (CER)
Definition
A is a unit of greenhouse gas (GHG) emissions reduced by sources or removed by sinks and achieved under a (CDM) project. Under the CDM, developed countries can invest in or finance projects in developing countries. These projects must result in a reduction of emission or removal of GHGs from the atmosphere additional to any that would have occurred in the absence of the projects. The difference between the emissions that would have been released without the project (referred to as the baseline emissions) and what was actually released is validated and certified by an independent body and confirmation is issued by the CDM Executive Boards as a CER. Developed countries that have under the Kyoto Protocol can use CERs to contribute to meeting their targets. These QELRCs are set out in Annex B of the protocol, and developed countries are allowed to use CERs to achieve part, but not all, of their commitments. CERs are also known as carbon credits.
A CER represents 1 metric ton of GHG emissions, either removed from the atmosphere or prevented from being released into the atmosphere. The amount of CERs issued for 1 metric ton of GHG reduction or removal depends on the type of gas and its global warming potential (GWP). The GWP of a gas refers to an estimation of its contribution to climate change or the effect it has on the climate. All gases are defined relative to carbon dioxide (CO2), whose GWP is 1, so for 1 metric ton of CO2 reduced or removed, one CER or carbon credit can be issued. The GWP of other gases may vary depending on the time horizon over which the impact of the gas is being determined—for most gases, the impact reduces as the time horizon increases. The GWP of methane, for example, ranges from 56 for a time horizon of 20 years, to 21 for 100 years, to 6.5 for 500 years. This means that for 1 metric ton of methane reduced or removed from the atmosphere, 56, 21, or 6.5 CERs can be generated, depending on the relevant time horizon.
Significance for Climate Change
As of October 2008, about 227 million metric tons of CERs were being generated annually from registered CDM projects. The total CERs from all roughly 1,184 registered CDM projects amounted to about 1.2 billion metric tons by the end of 2012. The purpose of the CDM includes assisting developing countries in their efforts to stabilize the amount of GHGs in the atmosphere at a safe level and assisting developed countries to meet their commitments to reduce their GHG emissions. The aim of the CDM therefore is to support the mitigation of climate change.
The quantity of CERs generated from CDM projects represents how successful the CDM has been in achieving this goal. In particular, the CER system is the only streamlined means for developing countries to participate in the CDM, because under the Kyoto Protocol, developing countries have no set emission-reduction targets. Since all CERs are generated from projects implemented in developing countries, they represent emission reductions achieved in developing countries, in addition to those achieved in developed countries. In addition, the CDM is expected to assist developing countries in achieving sustainable development, helping them move to a more climate-friendly development path.
CERs can also be traded on the carbon market. Some developed country entities invest in CDM projects in order to use the CERs generated to meet their reduction targets under the Kyoto Protocol. Other entities invest in projects in order to obtain CERs from the projects and sell them on the carbon market. In addition, developing-country entities also finance or invest in projects and trade the CERs generated from them in the carbon market. Trade in CERs has helped create a market for trade in carbon, thereby increasing the number of entities, especially private entities, interested in carbon credits, and potentially in efforts to reduce GHG emissions.
The issuance of CERs could also potentially have a negative impact on climate change. Developed countries with reduction targets can use CERs to meet these targets. If the emission reductions generated by a CDM project are overestimated and too many CERs issued for the project, this would result in no decrease, or even a net increase, in GHG emissions, as these CERs would count toward developed country targets, and these countries could in fact theoretically increase their emissions by this amount.
While this system was initially successful, it failed in 2012. In an event now known as the "carbon panic of 2012," the credit price fell from €25 per metric ton of CO2 to just .5€. Following this dramatic pricing collapse, the system was slated for complete liquidation. However, in 2020, the United States and numerous developing countries worked to rescue the CER program. They collectively agreed to allow the use of CER credits under their domestic environmental tax systems and credit trading systems. This directly led to a reinflation of credit prices and the program's international revival, providing nations with additional incentives to reduce their carbon output.
Bibliography
Ali, Paul A. U., and Kanako Yano. Eco-Finance: The Legal Design and Regulation of Market-Based Environmental Instruments. New York: Kluwer Law International, 2004.
Kainou, Kazunari. "Collapse of the Clean Development Mechanism Under the Kyoto Protocol and Its Spillover: Consequences of 'Carbon Panic.'" CEPR, 16 Mar. 2022, cepr.org/voxeu/columns/collapse-clean-development-mechanism-scheme-under-kyoto-protocol-and-its-spillover. Accessed 20 Dec. 2024.
Lecocq, Franck. State and Trends of the Carbon Market, 2004. Washington, D.C.: International Bank for Reconstruction and Development/World Bank, 2005.
Yamin, Farhana, ed. Climate Change and Carbon Markets: A Handbook of Emissions Reductions Mechanisms. London: Earthscan, 2005.