CAP Carbon Markets & Trading Flashcards

What California law established the state's Cap-and-Trade Program?

Answer: AB 32 (Global Warming Solutions Act of 2006)

California's Cap-and-Trade Program was established under AB 32, the Global Warming Solutions Act of 2006, which set the state's 2020 GHG reduction target.

In carbon markets, what does 'leakage' refer to?

Answer: The increase in emissions outside a regulated area caused by carbon pricing policies within it

Carbon market leakage occurs when emission-reduction policies shift production to unregulated regions, potentially offsetting global emission gains.

What is a Renewable Energy Certificate (REC)?

Answer: A tradeable instrument representing the environmental attributes of one MWh of renewable electricity generation

A REC represents the environmental attributes of one megawatt-hour of renewable electricity and can be sold separately from the physical electricity.

Which of the following best describes a 'price floor' in a carbon allowance market?

Answer: A minimum auction reserve price set to prevent carbon allowance prices from collapsing

A price floor is a minimum reserve price in cap-and-trade auctions designed to provide market stability and encourage long-term investment in low-carbon technology.

What is 'double counting' in carbon markets?

Answer: When the same emissions reduction is claimed by more than one party toward their climate targets

Double counting occurs when the same GHG emission reduction is counted toward more than one entity's climate target, undermining the environmental integrity of the market.

What is the key distinction between compliance and voluntary carbon markets?

Answer: Compliance markets are legally mandated for regulated entities; voluntary markets allow companies to purchase offsets by choice

Compliance carbon markets are legally required under regulation (e.g., RGGI, California Cap-and-Trade), while voluntary markets allow organizations to offset emissions at their own discretion.