16/01/2012 10:29 GMT | Updated 14/03/2012 05:12 GMT

2012 - A Big Year For Carbon Credits

Over the last five years, the terms 'Climate Change' and 'Carbon Footprint' have increasingly become a part of everyday vocabulary. It therefore seems bizarre that so few people understand, or have even heard of, the concept of Carbon Credits; the most effective way for large companies to battle climate change.

In 1997 the UN implemented an international agreement known as the Kyoto Protocol. This treaty established targets for industrialised countries to reduce their greenhouse gas emissions by around five per cent over a five year period (2008- 2012).

In keeping with this, companies have been assigned emissions quotas which dictate the volume of Greenhouse Gasses that they are permitted to emit into the atmosphere per year. If a company exceeds their allowance they must offset the difference by purchasing Carbon Credits from an authorised project. Thus 1 Carbon Credit is a certificate permitting you to emit 1 tonne of CO2 (or equivalent greenhouse gas).

These credits come in two forms; CERs and VERs. Certified Emissions Reductions (CERs) are issued in compliance with the Kyoto Protocol, so any company who needs to offset their quota would look to buy these. Companies can obtain the CERs from various emissions mitigation projects which have been authorised by the UN.

Voluntary Emissions Reductions (VERs), whilst being identical to CERs in their nature, are not bound by the terms of the Kyoto Protocol and so allow other industries which are designed to reduce emissions (but which aren't certified by the UN) to produce and market Carbon Credits. These initiatives include gas recovery, storage and sequestration, alongside forestry projects.

Experts at Tullett Brown feel that 2012 promises to be full of potential for the Carbon Credit markets. Currently, the CER market is considerably larger than the VER forum and despite the fact that the end of 2012 sees the end of the original terms of Kyoto, the decision was made in Durban to extend Kyoto to 2015. The demand for VERs is set to soar. Administrations across the globe are more serious than ever about reducing carbon emissions and limiting pollutants produced by companies.

As of 1 January 2012, the EU imposed an 'airline tax' as a part of their Emissions Trading Scheme (ETS); the initiative behind using Carbon Credits to reduce the amount of greenhouse gasses emitted. The tax (approved by the European Court of Justice) stipulates that any airlines flying to or from any of the 27 EU member states will have to pay Carbon emissions on the whole of their journey (not just whilst they are over EU airspace). Airlines which do not meet these levies are liable to be fined and potentially band from flying into the regions effected.

The tax has so far proved contentious having received criticisms from operators in China, India, the US and Canada. The EU, however, are promising to stand firm.

Whatever the outcome of this new initiative, and however the issue of the 'new' Kyoto Protocol is resolved, it is clear that the decisions made in 2012 will impact the landscape of Carbon offsetting for many years to come.