Carbon Markets Glossary

AdditionalityRatings & MRV: The principle that a carbon project must demonstrate it reduces or removes emissions beyond what would have occurred without the carbon finance incentive. A project fails the additionality test if the emission reductions would have happened anyway due to regulatory requirements, economic viability, or common practice. Additionality is one of the two most contested quality dimensions in carbon ratings — alongside permanence.
Above-ground Biomass AgbCarbon Science: The total mass of living plant material above the soil surface, expressed in tonnes of dry matter per hectare. AGB is the primary carbon stock measured in forest carbon projects, estimated through field inventory data, allometric equations, and satellite LiDAR sensors such as NASA GEDI. Errors in AGB estimation are a key source of overissuance risk in forestry credits.
Agricultural Land Management AlmVoluntary Markets: A project category covering carbon sequestration in croplands and rangeland through practices such as reduced tillage, cover cropping, improved grazing management, and rice water management. ALM projects are considered high-risk due to measurement difficulty and high reversal rates — sequestered soil carbon can be re-released by subsequent land management changes.
AllowanceCompliance Markets: A tradeable permit issued under a cap-and-trade system entitling the holder to emit one tonne of CO₂ equivalent. In the EU ETS, allowances are European Union Allowances (EUAs). Regulated entities must surrender allowances equal to their verified annual emissions by the compliance deadline or face significant financial penalties.
Article 6Policy & Regulation: The article of the 2015 Paris Agreement providing a framework for international carbon market cooperation. Article 6.2 governs bilateral government-to-government trading of Internationally Transferred Mitigation Outcomes (ITMOs). Article 6.4 establishes a UN-supervised crediting mechanism to replace the CDM. Implementation rules were finalised at COP29 in 2024.
Afforestation Reforestation Revegetation ArrVoluntary Markets: A project category covering the establishment of new forests on previously non-forested land (afforestation), restoration of forests on deforested land (reforestation), and restoration of degraded landscapes (revegetation). ARR projects typically carry crediting periods of 20–100 years and different permanence risk profiles compared to avoided deforestation projects.
Auction Allowance AuctionCompliance Markets: The primary mechanism through which governments distribute new allowances into cap-and-trade systems. The European Energy Exchange (EEX) conducts the majority of EU ETS auctions. Auction results — clearing price, volume, bid-to-cover ratio — are closely watched as indicators of near-term compliance demand and carbon market sentiment.

BaselineRatings & MRV: The projected level of greenhouse gas emissions or removals that would occur in the absence of the carbon project — the counterfactual scenario against which climate benefit is measured. Baseline construction is methodologically complex and a significant source of overestimation risk. Common approaches include project-specific baselines, performance standards, and leakage belt approaches for forestry.
Beccs Bioenergy Carbon Capture StorageCarbon Science: A carbon dioxide removal technology combining bioenergy production with geological storage of the resulting CO₂. Because biomass absorbs CO₂ during growth and that CO₂ is permanently stored underground rather than released, BECCS can produce net-negative emissions. Currently one of the most expensive removal pathways per tonne of CO₂ removed.
BiocharCarbon Science: A carbon-rich solid produced by heating organic biomass in a low-oxygen environment (pyrolysis). Applied to soil, biochar resists decomposition for centuries to millennia. Biochar credits are generated for the difference between carbon sequestered and emissions from the pyrolysis process. Classified as a medium-durability removal pathway.
Buffer PoolRegistries & Standards: A reserve of unissued credits withheld by a registry standard to cover potential future reversals — where sequestered carbon is re-released due to fire, drought, disease, or land management change. Verra’s VCS program maintains a Pooled Buffer Account. Buffer contribution rates are determined by each project’s reversal risk assessment, typically ranging from 10% to 40%.

Cap-and-tradeCompliance Markets: A regulatory mechanism setting a maximum limit (cap) on total GHG emissions from covered sectors, distributing tradeable allowances up to that cap. Entities emitting less than their allocation can sell surplus; those emitting more must buy additional allowances. The cap tightens over time to drive systematic reductions. Also known as an Emissions Trading Scheme (ETS).
Cca California Carbon AllowanceCompliance Markets: A tradeable compliance instrument under California’s Cap-and-Trade Program, covering approximately 450 large industrial facilities and fuel distributors representing 85% of the state’s GHG emissions. CCAs trade on CME Group and ICE. California links its program with Quebec under the Western Climate Initiative (WCI), creating a combined carbon market of approximately 400 million tonnes CO₂e annually.
Cdm Clean Development MechanismPolicy & Regulation: A project-based crediting mechanism under the Kyoto Protocol allowing developed countries to earn Certified Emission Reductions (CERs) from projects in developing countries. The CDM issued over 2 billion CERs between 2001 and 2020 but was widely criticised for poor additionality controls and integrity issues. It is being replaced by the Article 6.4 mechanism under the Paris Agreement.
Co-benefitsVoluntary Markets: Non-climate environmental and social benefits generated alongside carbon sequestration or emissions reductions. Common co-benefits include biodiversity conservation, watershed protection, community livelihoods, gender equity, and SDG contributions. Co-benefits drive premiums in the voluntary market — Gold Standard projects command a significant price premium over equivalent VCS credits.
Corresponding AdjustmentPolicy & Regulation: An accounting mechanism under Article 6 ensuring that a mitigation outcome transferred between countries is subtracted from the seller country’s NDC accounting and added to the buyer’s. Corresponding adjustments prevent double counting — where the same tonne of emissions reduction is counted toward two countries’ climate commitments simultaneously.
CorsiaCompliance Markets: ICAO’s global carbon offsetting scheme for international aviation. Airlines on international routes must offset emissions growth above a 2019/2020 baseline using CORSIA-eligible emissions units. CORSIA-eligible credits must meet strict additionality, permanence, and quality criteria. The mandatory phase commenced in 2027, covering all international flights.

Daccs Direct Air Capture StorageCarbon Science: A technology capturing CO₂ directly from ambient air using chemical processes, then permanently storing it in geological formations. DACCS represents the highest-durability removal pathway available — 10,000+ year storage — but currently costs $300–$1,000 per tonne removed, significantly above nature-based alternatives. DACCS credits command the highest prices in the voluntary carbon market.
Double CountingPolicy & Regulation: The risk that a single emissions reduction or removal is counted more than once toward climate goals — by two different buyers, by a buyer and the host country’s NDC, or across different accounting frameworks. Under Article 6 of the Paris Agreement, corresponding adjustments are the mechanism designed to prevent double counting in internationally transferred mitigation outcomes.
DurabilityCarbon Science: The expected duration over which sequestered or stored carbon will remain out of the atmosphere. Carbon removal pathways span a durability spectrum: geological storage (DACCS, BECCS) is considered permanent at 10,000+ years; biochar offers medium durability at 100–1,000 years; nature-based solutions such as forests and soil carbon typically offer decades of durability, subject to reversal risk.

Enhanced WeatheringCarbon Science: A CDR approach that accelerates natural rock weathering by spreading crushed silicate minerals (typically basalt) on agricultural land. As minerals weather, they react with CO₂ and water to form stable carbonates washed into the ocean. Quantifying net carbon removal per tonne of mineral applied remains an active scientific research area with significant measurement uncertainty.
Eua European Union AllowanceCompliance Markets: The compliance instrument of the EU ETS, entitling the holder to emit one tonne of CO₂ equivalent. EUAs are the world’s most liquid carbon instrument, with approximately 8–10 billion tonnes equivalent trading annually across spot and derivatives markets. The EU ETS covers power generation, heavy industry, aviation, and from 2024, maritime shipping.
Eu Ets European Emissions Trading SystemCompliance Markets: The world’s largest and oldest carbon cap-and-trade system, launched in 2005 and covering approximately 10,000 installations across the EU and EEA. Now in Phase IV (2021–2030), the EU ETS generates €40–80 billion in annual auction revenue and serves as the global benchmark for compliance carbon pricing. The Linear Reduction Factor drives a 4.3% annual cap reduction from 2024.

Forward CurveTrading & Finance: The term structure of carbon prices across different delivery dates. In compliance markets like the EU ETS, the forward curve reflects expectations about policy stringency, abatement costs, and supply/demand dynamics over future compliance periods. Backwardation (near-term prices above forward) and contango (forward above spot) carry distinct signals about compliance demand and inventory management.
Free AllocationCompliance Markets: The distribution of allowances to regulated entities at no cost, typically based on historic emissions (grandfathering) or industry benchmarks. Free allocation mitigates carbon leakage risk for energy-intensive, trade-exposed industries. Under the EU ETS, free allocation is being phased out in parallel with the Carbon Border Adjustment Mechanism (CBAM) between 2026 and 2034.

Gedi Global Ecosystem Dynamics InvestigationTechnology & Data: A NASA LiDAR instrument on the International Space Station providing three-dimensional measurements of forest canopy structure at 25-metre footprint resolution. GEDI data enables direct estimation of above-ground biomass, reducing reliance on ground-based sampling in forest carbon projects. Increasingly used as an independent reference layer for verification of forestry credit claims.
Gold StandardRegistries & Standards: A voluntary carbon standard and registry founded by WWF and NGOs in 2003, requiring projects to demonstrate rigorous co-benefits including community development and biodiversity outcomes. Gold Standard credits command a significant premium over equivalent VCS credits. The registry maintains approximately 1,800 active projects globally across clean energy, water, land use, and waste sectors.
Greenhouse Gas GhgCarbon Science: Atmospheric gases that absorb and re-emit infrared radiation, trapping heat in the atmosphere. The Kyoto Protocol identifies six regulated GHG categories: CO₂, methane (CH₄), nitrous oxide (N₂O), HFCs, PFCs, and SF₆. Each gas has a different Global Warming Potential (GWP100) — methane has a GWP100 of approximately 28–34 relative to CO₂.

Ifm Improved Forest ManagementVoluntary Markets: A forest carbon project category covering changes to logging practices on working forests that result in higher standing carbon stocks. IFM projects extend harvest rotation lengths, reduce logging intensity, or protect high-conservation-value areas. Credits are generated from the difference between projected carbon stocks under the new management regime versus the baseline harvesting scenario.
Itmo Internationally Transferred Mitigation OutcomePolicy & Regulation: A mitigation outcome transferred between countries under Article 6.2 of the Paris Agreement, counting toward the receiving country’s NDC. ITMOs represent the international unit of account for government-to-government carbon trading under the Paris framework. Unlike CDM CERs, ITMOs require corresponding adjustments to prevent double counting against national climate commitments.

LeakageRatings & MRV: The displacement of emissions-producing activities from within a carbon project boundary to outside it, reducing net climate benefit. Three main types: activity displacement (e.g., logging moved to adjacent forest), market leakage (higher timber prices stimulating harvest elsewhere), and ecological leakage (displaced wildlife pressure). Leakage deductions of 10–40% are commonly applied to forest carbon credits.

Market Stability Reserve MsrCompliance Markets: A supply-side management mechanism introduced in the EU ETS in 2019 that automatically withdraws allowances from auction when the total number of allowances in circulation (TNAC) exceeds a specified threshold, and releases them when TNAC falls below a lower threshold. The MSR replaced backloading and has been credited with significantly strengthening EU ETS prices since its introduction.
Mrv Monitoring Reporting VerificationRatings & MRV: The three-stage process by which carbon projects demonstrate the validity of their emission reduction or removal claims. Monitoring involves ongoing measurement of project carbon stocks against the approved methodology. Reporting compiles this data into a credit issuance request. Verification is an independent third-party audit that validates reported data against methodology and registry requirements.
MethodologyRegistries & Standards: A standardised, registry-approved set of rules governing how a specific project type measures, reports, and verifies its emission reductions or removals. Methodologies define baseline approaches, monitoring requirements, additionality criteria, and leakage accounting procedures. Verra’s VCS program alone lists over 60 active methodologies spanning forestry, agriculture, energy, and waste.

Ndc Nationally Determined ContributionPolicy & Regulation: A country’s national climate plan submitted under the Paris Agreement, stating its targets for reducing GHG emissions and adapting to climate change. NDCs are updated every five years with expected progressively higher ambition. The use of Article 6 carbon market mechanisms is governed by NDC accounting rules including corresponding adjustment requirements.
Ndvi Normalised Difference Vegetation IndexTechnology & Data: A satellite-derived index measuring vegetation health and density, calculated from near-infrared and red light reflectance. Values range from -1 (bare soil/water) to +1 (dense healthy vegetation). NDVI time series from Sentinel-2 and Landsat are used to monitor canopy cover change in forest carbon projects, providing early warning signals of deforestation, fire, and drought stress.
Net ZeroPolicy & Regulation: A state in which total GHG emissions are balanced by equivalent removals from the atmosphere. Unlike carbon neutrality — which may rely entirely on offsets — net zero is expected to prioritise deep emissions reductions (90%+) across all scopes, using high-quality permanent carbon removals only for residual hard-to-abate emissions. SBTi defines net zero as requiring 90–95% absolute emissions reductions.

Ocean Alkalinity Enhancement OaeCarbon Science: A marine carbon dioxide removal approach that increases seawater alkalinity — by adding alkaline minerals or electrochemically generating alkaline solutions — to enhance the ocean’s ability to absorb and store CO₂. OAE has the theoretical capacity to remove gigatonnes of CO₂ annually but faces significant MRV challenges: quantifying net carbon removal requires complex ocean chemistry modelling.
Offset Carbon CreditVoluntary Markets: A unit representing one metric tonne of CO₂ or CO₂e reduced, avoided, or removed from the atmosphere through a certified project. Credits are issued by registry standards (VCS, Gold Standard, ACR, CAR) once independently verified. Each credit carries a unique serial number and is retired upon use. The retirement record constitutes the auditable evidence of an offset claim.
Otc Over-the-counterTrading & Finance: Bilateral transactions between two parties executed directly or through a broker, outside of a formal exchange. The majority of voluntary carbon credit trades occur OTC — particularly for forward deliveries, large block trades, and specialised project-type transactions. OTC markets offer more flexibility than exchange markets but lack centralised price discovery and introduce counterparty credit risk.

PermanenceRatings & MRV: The requirement that carbon sequestered or stored by a project remains out of the atmosphere for a meaningful time horizon. Permanence risk — the probability of a reversal event releasing stored carbon — is one of the most significant quality dimensions in carbon ratings. Nature-based projects carry higher permanence risk than geological storage. Buffer pools are the primary registry mechanism to manage this risk.
Price Floor CeilingCompliance Markets: Administrative price controls in some cap-and-trade systems setting minimum (floor) and maximum (ceiling) allowance prices to limit extreme volatility. California’s program includes both a Reserve Price (floor) and Cost Containment Reserve (ceiling). The EU ETS uses the Market Stability Reserve (MSR) for indirect supply management rather than explicit price bands.
Project DeveloperVoluntary Markets: An organisation or individual responsible for originating, developing, registering, and managing a carbon offset project. Project developers bear upfront costs of project design, verification, and registry listing, and receive credits generated upon verification. They may sell credits directly to corporate buyers or via intermediaries — brokers, traders, or market gateway networks.

Rating Carbon RatingRatings & MRV: An independent, evidence-based assessment of the environmental integrity of a carbon credit or project, expressed on a standardised scale. Carbon ratings evaluate additionality, permanence, leakage, MRV quality, and co-benefit claims. Unlike registry verification — which confirms methodology compliance — an independent carbon rating assesses whether the methodology adequately captures real-world climate impact.
Redd+ Reducing Emissions Deforestation DegradationVoluntary Markets: A climate mitigation framework creating financial incentives to protect tropical forests. REDD+ projects generate credits by demonstrating that a protected forest would have been deforested or degraded under the baseline scenario. REDD+ is the largest category in the VCM by volume but has faced significant scrutiny over baseline overestimation, leakage, and community governance risks.
Retirement CancellationRegistries & Standards: The permanent removal of a carbon credit from circulation upon use for offsetting. Registry systems record retirements in a public ledger. A retired credit cannot be resold or reused. The retirement record — including serial number, project ID, vintage, and stated purpose — constitutes auditable evidence of the offset claim and is the primary defence against double-counting allegations.
Rggi Regional Greenhouse Gas InitiativeCompliance Markets: A cooperative cap-and-trade program covering CO₂ emissions from the power sector across 12 northeast and mid-Atlantic US states. RGGI is the first mandatory, market-based CO₂ reduction program in the United States. Allowances are auctioned quarterly and trade on CME Group. Proceeds are reinvested by member states in clean energy and energy efficiency programs.

Sar Synthetic Aperture RadarTechnology & Data: An active remote sensing technology using microwave radar to create imagery regardless of cloud cover, smoke, or darkness. SAR is essential for tropical forest monitoring where cloud cover prevents optical satellite imaging. ESA Sentinel-1 (C-Band) and JAXA ALOS-2 PALSAR (L-Band) are the primary sources for forest carbon MRV — L-Band penetrates deeper into dense canopies, improving biomass estimates.
Sbti Science Based Targets InitiativePolicy & Regulation: A global initiative enabling companies to set emissions reduction targets aligned with Paris Agreement goals. SBTi requires reducing Scope 1, 2, and material Scope 3 emissions by approximately 42–50% by 2030 and 90–95% by 2050. Offsetting does not count toward SBTi targets — only direct emissions reductions qualify. Over 9,000 companies had approved or committed SBTi targets as of 2026.
Scope 1 2 3 EmissionsCarbon Science: A GHG Protocol framework for categorising corporate emissions. Scope 1: direct emissions from owned sources. Scope 2: indirect emissions from purchased energy. Scope 3: all other indirect value chain emissions — upstream (supply chain, purchased goods) and downstream (product use, end-of-life). Scope 3 typically represents 70–90% of a company’s total carbon footprint.
Sentinel Esa Satellite ProgrammeTechnology & Data: A family of earth observation satellites operated by ESA under the Copernicus programme. Sentinel-1 provides C-Band SAR; Sentinel-2 provides 10-metre multispectral optical imagery with a 5-day revisit; Sentinel-5P monitors atmospheric methane and CO₂. The fully open-access Sentinel archive provides the backbone of many carbon project monitoring systems globally.
Spot PriceTrading & Finance: The current market price for immediate delivery of a carbon credit or allowance. In the VCM, spot prices vary significantly by project type, vintage, standard, and quality rating — from under $1/tonne for older legacy credits to $400+/tonne for high-quality technology removal credits. Compliance market spot prices (EUAs, CCAs) reflect the marginal cost of abatement for covered entities.

Third-party Verifier VvbRatings & MRV: An independent organisation accredited by a carbon registry standard to validate project design documents and verify monitoring reports. Verifiers (Validation/Verification Bodies, VVBs) confirm that a project’s methodology has been correctly applied and reported emission reductions are accurately calculated. VVB accreditation is granted by standards bodies such as UNFCCC, Verra, Gold Standard, and ANAB.
Tonne Co2e Carbon Dioxide EquivalentCarbon Science: The standard unit for measuring GHG emissions and removals, expressing different gases on a common CO₂ basis using 100-year Global Warming Potential values (GWP100). One tonne of methane equals approximately 28 tonnes of CO₂e. All carbon credits represent one tonne of CO₂e reduced, avoided, or removed from the atmosphere.

Uk EtsCompliance Markets: The UK’s domestic cap-and-trade system launched in January 2021 following Brexit. UK Allowances (UKAs) are auctioned through ICE Futures Europe. The UK government has proposed 2026 reforms to align the scheme with net zero pathways and is exploring linking with the EU ETS to increase market depth and liquidity.
UnfcccPolicy & Regulation: The United Nations Framework Convention on Climate Change — the international treaty establishing the primary framework for global climate negotiations, adopted in 1992. The UNFCCC provides the institutional structure for all subsequent climate agreements including the Kyoto Protocol (1997) and Paris Agreement (2015). The annual Conference of Parties (COP) is the supreme decision-making body.

Vcm Voluntary Carbon MarketVoluntary Markets: The market in which carbon credits are bought and sold voluntarily — outside regulatory compliance obligations — by corporations, governments, and individuals seeking to offset emissions or invest in climate projects. The VCM is estimated to have transacted approximately 150–200 million tonnes annually in recent years, declining in 2023–2024 following quality and integrity concerns.
Vcs Verified Carbon Standard VerraRegistries & Standards: The world’s most widely used voluntary carbon standard, administered by Verra. The VCS program has issued over 1.5 billion VCUs (Verified Carbon Units) across 1,800+ registered projects in 80+ countries. Verra also administers the Climate, Community & Biodiversity (CCB) Standards for co-benefit verification and the SD VISta sustainable development standard.
Vcu Verified Carbon UnitRegistries & Standards: The carbon credit unit issued under Verra’s Verified Carbon Standard programme. Each VCU represents one metric tonne of CO₂e reduced or removed by a VCS-registered project. VCUs are held, transferred, and retired in Verra’s registry platform. Each VCU carries a unique serial number encoding the project, issuance batch, and vintage year for full traceability.
VintageVoluntary Markets: The year in which the emission reductions or removals represented by a credit actually occurred — distinct from the issuance year. Vintage is a significant pricing factor: older vintage credits (pre-2016) typically trade at substantial discounts to recent vintages due to concerns about earlier methodology standards and shifting buyer preferences. CORSIA restricts eligible vintage to 2016 onwards.

Wci Western Climate InitiativeCompliance Markets: A linked cap-and-trade program between California and Quebec allowing regulated entities in both jurisdictions to use allowances interchangeably. The WCI creates a combined carbon market of approximately 400 million tonnes CO₂e annually and holds quarterly joint auctions administered through the California Air Resources Board (CARB).

Explore the carbonratings platform

Explore the carbon
ratings platform