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Mastering the Commodities Markets by Francesca Taylor

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AN OVERVIEW OF EMISSIONS TRADING

Emissions trading is comprised of two different types of markets: allowance markets and credit markets.

Allowance market trading

Terminology

Allowance A legally defined unit, e.g. AAU, RGA, EUA, allowing the holder to emit one tonne of CO2, or another specific unit of greenhouse gas. These are also known as emission allowances or emission permits.
Greenhouse Gases (GHGs) Gases found in the Earth’s atmosphere that absorb infra-red radiation. Some GHGs are man-made whilst others occur naturally. Under the Kyoto Protocol, six GHGs are covered – carbon dioxide (CO2) most important, hydrofluorocarbons (HFCs), methane (CH4), nitrous oxide (N2O), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6).

In an ...

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