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Many Western governments, including all of the European Union, have passed laws that require their key industries to meet fixed significant greenhouse gas emissions reduction targets . The se targets create financial incentives for individual companies to reduce carbon emissions ¨C such as carbon dioxide ( CO 2 ) and methane ( CH 4 ) emissions from the combustion of fossil fuels and other activities . If individual companies can not meet their allocated emission targets through internal action to abate emissions, then they are compelled by law to purchase carbon credits to make up the shortfall. These carbon credits can either be excess allocated permits that are purchased from other companies through emissions trading schemes , or else so-called carbon ¡®offsets' , which are created from emissions reductions projects outside of the emissions trading scheme .
Major emissions trading schemes include the European Union's Emissions Trading Scheme (EU ETS) and the International Trading Scheme (IET) under Article 17 of the Kyoto Protocol.
The emission reduction targets under these schemes are ambitious . As a consequence, many companies are finding it cheaper to simply buy carbon credits, rather than attempt to meet their targets solely through their own actions. The carbon credit trade is the fastest growing business in the world.
The only carbon offsets that can be utilized under the European Union Emissions Trading Scheme are carbon credits created under the Clean Development Mechanism (CDM) of the Kyoto Protocol ¨C called Certified Emissions Reductions (CERs).
CMC can also access carbon credits via several other schemes such as the Chicago Carbon Exchange for project's which don't fit into the tight requirements of the CDM.
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The European Union Emissions Trading Scheme (EU ETS) commenced in 2005. The EU ETS is a key mechanism to enable the EU to meet its targets under the Kyoto Protocol. The first phase of the EU ETS covers the period 2005-2007, while the second phase coincides with the Kyoto Protocol's first commitment period, from 2008 to 2012. The first phase of the EU ETS applies to more than 7,000 companies and 12,000 installations in the heavy industrial sectors of the EU. These include energy utilities, oil refineries, iron and steel producers, the pulp and paper industry, as well as producers of cement, glass, lime, brick and ceramics. Under the scheme, greenhouse gas emission allowances, called EU Allowances (EUAs), are allocated to specific industrial sectors through national allocation plans (NAPs). Individual companies receive a share of these EUAs based on historic emissions benchmarks. Individual companies may also purchase Certified Emissions Reductions (CERs) from the Clean Development Mechanism on the international market. The individual companies are then required to acquit sufficient EUAs and CERs to cover their emissions levels in each phase.
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