Glossary
The vocabulary of carbon markets and compliance — EU ETS, CBAM, allowances and the terms around them — in plain words.
- AbatementAbatement is the concrete reduction of greenhouse-gas emissions required to meet tightening carbon-market caps.
- Abatement costAbatement cost denotes the marginal expense of eliminating an extra tonne of CO₂ for a firm or project.
- AdaptationAdaptation covers measures taken to cope with and build resilience against unavoidable climate-change impacts.
- AdditionalityAdditionality proves that an emissions-reduction project would not occur without carbon-market financing.
- Article 6.2Article 6.2 allows bilateral transfers of carbon credits—ITMOs—directly between cooperating nations.
- Article 6.4Article 6.4 establishes a UN-run global carbon market to replace the Kyoto-era CDM.
- Article 6 (Paris Agreement)Article 6 creates Paris-Agreement rules that let countries trade emission reductions toward their NDCs.
- AuctionA carbon auction lets regulated companies bid competitively for limited emission allowances.
- BankingBanking allows entities to carry unused carbon credits forward into future compliance periods.
- BearishA bearish market stance anticipates falling prices and encourages selling or shorting.
- BECCS (Bioenergy with Carbon Capture and Storage)BECCS pairs bioenergy with carbon capture and storage, yielding net-negative emissions while generating power.
- Benchmark contractA benchmark contract is the most traded futures contract used as a reference price in its market.
- Blended FinanceBlended finance mixes public, private and philanthropic funds to de-risk and scale impact investments.
- Blue BondA blue bond raises capital for projects that protect oceans, reefs and coastal ecosystems.
- BondA bond is a fixed-income instrument through which issuers borrow capital from investors.
- Border Carbon TariffA border carbon tariff imposes climate-aligned import fees to curb carbon leakage from less-regulated regions.
- BullishA bullish outlook reflects optimism that prices will rise, prompting investors to buy.
- BurnToken burn permanently removes tokens from circulation to reduce supply and potentially support value.
- Buy and holdBuy-and-hold investing involves purchasing assets and keeping them long term despite short-term volatility.
- CapA cap sets the maximum total emissions allowed in a trading scheme.
- CarbonCarbon is shorthand for the CO₂ emissions targeted by climate policy and markets.
- Carbon Border Adjustment Mechanism (CBAM)CBAM applies an EU import levy to equalise carbon costs on embedded emissions.
- Carbon BudgetA carbon budget is the cumulative CO₂ that can still be emitted to stay within a temperature target.
- Carbon Capture & Storage (CCS)CCS captures CO₂ from industrial flues and stores it underground, preventing it from entering the atmosphere.
- Carbon Contracts for Difference (CCfD)CCfDs guarantee investors a fixed carbon price top-up for approved industrial decarbonisation projects.
- Carbon CreditA carbon credit represents one tonne of CO₂e avoided or removed, tradable on carbon markets.
- Carbon DividendA carbon dividend returns revenue from carbon taxes or auctions directly to households.
- Carbon Floor PriceA carbon floor price sets a minimum CO₂ price to sustain investment signals when market prices dip.
- Carbon FootprintA carbon footprint tallies all direct and indirect greenhouse-gas emissions linked to an entity or product.
- Carbon IntensityCarbon intensity measures CO₂ emitted per unit of output—energy, revenue or product.
- Carbon leakageCarbon leakage occurs when carbon-intensive activity shifts to regions with looser climate rules.
- Carbon NeutralityCarbon neutrality achieves a balance between residual emissions and equivalent removals.
- Carbon OffsettingCarbon offsetting compensates for emitted CO₂ by financing verified reduction or removal projects.
- Carbon PricingCarbon pricing assigns a monetary cost to emitting greenhouse gases via taxes or trading.
- Carbon RemovalCarbon removal extracts CO₂ from the air and locks it away through DAC, BECCS or forestry.
- Carbon SequestrationCarbon sequestration stores captured carbon long term in biomass, soils or deep geological formations.
- Carbon Spot Price: Live EUA Price, Historical Data & AnalysisA spot price is the going market rate for immediate delivery and settlement of a commodity.
- Carbon Value at Risk (Carbon VaR)Carbon VaR estimates how volatile carbon prices could hit the value of a portfolio or firm.
- Clean dark spreadClean dark spread measures profit from coal-fired power after fuel and carbon costs.
- Clean EnergyClean energy comes from low- or zero-carbon sources such as wind, solar, hydro and nuclear.
- Clean spark spreadClean spark spread gauges gas-fired power profitability after accounting for fuel and carbon costs.
- Clearing HouseA clearing house stands between buyers and sellers, guaranteeing trade settlement and managing risk.
- Climate-Aligned BondA climate-aligned bond’s proceeds or revenues are structured to keep the issuer on a 1.5 °C pathway.
- Climate FinanceClimate finance channels public and private capital into mitigation and adaptation projects.
- Climate RiskClimate risk spans physical hazards and transition shocks that can erode asset and corporate value.
- Commitment of Traders ReportThe COT Report shows weekly aggregated positions of traders in futures markets.
- Compliance Carbon MarketsCompliance carbon markets are government-mandated systems where entities must surrender allowances equal to their emissions.
- Compliance DeadlineA compliance deadline is the annual EU ETS date by which emitters must surrender allowances.
- Compliance entityA compliance entity is legally obligated to report emissions and surrender allowances under a carbon scheme.
- ContangoContango describes a futures curve where later-delivery prices exceed the spot price.
- Corporate Social Responsibility (CSR)CSR integrates environmental and social considerations into corporate strategy and reporting.
- Council of the European UnionThe EU Council represents member-state governments, negotiating and adopting EU legislation.
- Covered sectorsCovered sectors are industries subject to emission caps within the EU ETS.
- Emissions Trading SchemeAn emissions trading scheme caps total emissions and lets entities trade allowances to reduce costs.
- Energy Attribute Certificate (EAC)An EAC certifies that one megawatt-hour of electricity was generated from a renewable source.
- ESG CriteriaESG criteria assess environmental, social and governance performance in investment decisions.
- ESMA (European Securities and Markets Authority)ESMA is the EU authority overseeing securities markets to protect investors and ensure integrity.
- ESRSESRS are mandatory EU sustainability reporting standards that underpin the CSRD disclosure regime.
- EU ETSThe EU ETS is Europe’s flagship cap-and-trade system for power and industry emissions.
- EU ETS 2EU ETS 2 will extend carbon trading to buildings and road transport sectors.
- European CommissionThe European Commission drafts EU legislation and steers climate initiatives like the Green Deal.
- European CouncilThe European Council gathers EU heads of state to set strategic policy directions.
- European Green DealThe European Green Deal is the EU’s growth plan to reach climate neutrality by 2050.
- European ParliamentThe European Parliament is the EU’s elected chamber that amends and approves legislation.
- European Union Allowance (EUA)An EUA grants the right to emit one tonne of CO₂ within the EU ETS.
- EU Taxonomy RegulationThe EU Taxonomy Regulation classifies economic activities as environmentally sustainable for investors.
- Exchange platformAn exchange platform is an electronic marketplace where carbon units are traded in real time.
- Fit for 55Fit for 55 is the EU legislative package targeting a 55 % emissions cut by 2030.
- Free AllocationFree allocation hands sectors EU As gratis to soften competitiveness losses and leakage risk.
- FTT : Understanding the French Financial Transaction Tax
- Fuel SwitchingFuel switching replaces high-carbon fuels with lower-carbon alternatives to cut emissions quickly.
- Futures contractA futures contract obliges parties to transact an asset at a predetermined price on a future date.
- Gas storageGas storage facilities hold natural gas underground to balance seasonal demand and ensure security.
- GHG ProtocolThe GHG Protocol is the global standard for measuring and reporting Scope 1, 2 and 3 emissions.
- Green BondA green bond finances projects with verifiable environmental benefits under recognised frameworks.
- Greenhouse Gas (GHG)Greenhouse gases trap heat in the atmosphere and include CO₂, methane and nitrous oxide.
- GreenwashingGreenwashing is marketing that exaggerates or fabricates the environmental merits of a product or firm.
- Guarantee of OriginA guarantee of origin proves the renewable source of each megawatt-hour sold to end users.
- InflationInflation is the sustained rise in the general price level of goods and services.
- Innovation FundThe Innovation Fund awards EU grants to deploy breakthrough low-carbon technologies.
- Internal Carbon PriceAn internal carbon price is the notional CO₂ cost companies use to guide investment choices.
- ISSBISSB sets a global baseline for climate-related financial disclosure, complementing existing frameworks.
- Markets in Financial Instruments Directive (MiFID)MiFID sets EU-wide rules that protect investors and ensure transparent, orderly financial trading.
- Market Stability Reserve (MSR)MSR automatically adds or releases EU As into the market to smooth allowance gluts or shortages.
- Modernization FundThe Modernization Fund channels EU ETS revenue into clean-energy upgrades in Central- and Eastern-European states.
- Paris-Aligned Benchmark (PAB)A Paris-aligned benchmark decarbonises its index constituents toward a 1.5 °C trajectory.
- Physical RiskPhysical risk covers climate-driven damage from acute events like storms and chronic shifts like heat.
- Power Purchase Agreement (PPA)A PPA is a long-term agreement to buy electricity—often renewable—at a fixed price.
- Primary marketThe primary market is where new securities or allowances are first issued and sold to investors.
- REDD+REDD+ incentivises developing nations to reduce deforestation-related emissions and enhance forest carbon stocks.
- ReplicationReplication builds a portfolio that mirrors an index’s performance using the underlying asset basket.
- RepowerEUREPowerEU accelerates renewables and efficiency to cut the bloc’s dependence on imported fossil fuels.
- Science Based Targets initiative (SBTi)SBTi validates corporate emission-reduction targets as consistent with climate-science pathways.
- Scope 3Scope 3 captures indirect emissions across a company’s upstream and downstream value chain.
- Secondary MarketThe secondary market is where previously issued securities or allowances change hands between investors.
- Stranded AssetA stranded asset loses value because climate policy or technology change makes it unviable.
- SurrenderingSurrendering is the act of submitting allowances to regulators to cover verified emissions for the year.
- Synthetic Risk and Reward Indicator (SRRI)SRRI scores a fund from 1 (low) to 7 (high) on its historic volatility and reward potential.
- TCFDTCFD gives companies a framework to disclose climate risks, governance and strategy to investors.
- Total Number of Allowances in circulation (TNAC)TNAC tracks the total surplus of EU ETS allowances and triggers MSR supply adjustments.
- Transaction LogA transaction log records every issuance, transfer and surrender of allowances in carbon registries.
- TTF Gas – Dutch Benchmark for European what is it?TTF gas is the Dutch Title Transfer Facility price that benchmarks wholesale natural-gas trades in Europe.