ERAC Carbon Markets & Emissions Trading 2 — Questions and Answers
Question 1: Which metric is used to convert different greenhouse gases into a common unit for carbon trading purposes?
- Global Warming Potential (GWP) expressed as CO2-equivalent (Correct answer)
- Net Calorific Value (NCV) per unit of fuel combusted
- Energy Intensity Ratio (EIR) per unit of GDP
- Specific Carbon Content (SCC) per cubic meter of gas
Correct answer: Global Warming Potential (GWP) expressed as CO2-equivalent
Global Warming Potential (GWP) allows different greenhouse gases to be expressed as CO2-equivalent (CO2e) based on their heat-trapping ability over a 100-year period, enabling standardized carbon accounting and trading.
Question 2: In the California Cap-and-Trade Program, what is the 'price ceiling' also called?
- Allowance Price Containment Reserve (APCR) (Correct answer)
- Hard Price Cap
- Cost Containment Reserve (CCR)
- Maximum Allowable Permit Price (MAPP)
Correct answer: Allowance Price Containment Reserve (APCR)
California's program uses an Allowance Price Containment Reserve (APCR), which releases additional allowances at predetermined price tiers to prevent market prices from exceeding the hard price ceiling.
Question 3: What does 'permanence' mean in the context of carbon offset quality standards?
- The guarantee that the project developer will remain in business for 100 years
- The assurance that emission reductions or removals will be maintained over the long term (Correct answer)
- The requirement that credits cannot be resold once purchased by an end buyer
- The obligation that projects operate continuously without interruption
Correct answer: The assurance that emission reductions or removals will be maintained over the long term
Permanence ensures that carbon stored or avoided by a project (e.g., forest preservation) will not be reversed, typically managed through buffer pools or insurance mechanisms to account for risks like fire or disease.
Question 4: The Social Cost of Carbon (SCC) is primarily used by policymakers to:
- Set compliance penalties for emitters under cap-and-trade programs
- Estimate the economic damages associated with emitting one additional ton of CO2 (Correct answer)
- Determine the market clearing price for carbon allowances at auction
- Calculate the tax rate applied to fuel imports at national borders
Correct answer: Estimate the economic damages associated with emitting one additional ton of CO2
The Social Cost of Carbon quantifies the net economic damage caused by one additional metric ton of CO2 emitted today, enabling cost-benefit analyses of climate policies and regulations.
Question 5: What is 'leakage' in the context of carbon market regulations and emission caps?
- Unauthorized release of data from carbon registry databases
- The shift of emissions-intensive activities to regions with less stringent climate policies (Correct answer)
- Physical escape of carbon dioxide from underground geological storage sites
- The transfer of allowances between subsidiary companies within a corporate group
Correct answer: The shift of emissions-intensive activities to regions with less stringent climate policies
Carbon leakage occurs when emission-intensive industries relocate to jurisdictions without equivalent carbon pricing, potentially negating the environmental benefit of the original regulatory cap.
Question 6: Which provision in Article 6 of the Paris Agreement governs internationally transferred mitigation outcomes (ITMOs)?
- Article 6.2 (Correct answer)
- Article 6.4
- Article 6.6
- Article 6.8
Correct answer: Article 6.2
Article 6.2 of the Paris Agreement establishes the cooperative approach framework for bilateral and multilateral carbon trading through Internationally Transferred Mitigation Outcomes (ITMOs) between countries.
Question 7: A 'corresponding adjustment' under Article 6 of the Paris Agreement is required to prevent:
- Excess volatility in carbon allowance auction prices
- Double counting of emission reductions toward two countries' NDCs simultaneously (Correct answer)
- Private sector entities from participating in sovereign carbon markets
- The use of pre-2020 Kyoto Protocol credits in post-2020 markets
Correct answer: Double counting of emission reductions toward two countries' NDCs simultaneously
Corresponding adjustments require the host country to add the transferred ITMOs back to its own accounting, ensuring that the same emission reduction is only counted once toward global climate goals.
ERAC Carbon Markets & Emissions Trading 2
Which metric is used to convert different greenhouse gases into a common unit for carbon trading purposes?