Introduction
As sustainability becomes a priority for businesses worldwide, understanding the terminology used in the renewable energy sector is crucial. This guide provides a detailed overview of key terms related to renewable energy and sustainability, helping you navigate this vital sector.
Voluntary Carbon Markets (VCM)
- Carbon Credit: a tradable certificate representing the reduction, avoidance, or removal of one ton of carbon dioxide or its equivalent in other greenhouse gasses. Carbon credits are typically generated from projects that reduce emissions or enhance carbon sequestration, such as renewable energy projects, reforestation initiatives, or methane capture projects.
- Carbon Offsetting: it’s a voluntary market that enables organizations to support different ecosystems and community services, with carbon finance streaming resources to projects, making the organizations accountable for their unavoidable emissions.
- Additionality: is a key principle in carbon offsetting that refers to the concept that offset projects must result in emissions reductions or removals that would not have occurred in the absence of the project. Projects must demonstrate that they are additional to business-as-usual activities and contribute to real and measurable emission reductions.
Types of projects within the VCM:
- Nature-based Projects:
- Afforestation, Reforestation and Revegetation (ARR): projects focus on establishing new forests or restoring degraded land by planting trees and implementing soil conservation practices.
- 1. Afforestation: This involves planting trees on land that has not been previously forested. Essentially, it’s about creating a new forest where none existed before.
- 2. Reforestation: In reforestation, efforts are made to replant trees in areas that have been deforested. It’s a way to recreate a forest that has disappeared due to human activity or natural causes.
- 3. Revegetation: This process aims at restoring vegetation cover in areas where it has been lost. Revegetation helps rebuild the soil of disturbed land by reintroducing plants.
- Reducing Emissions from Deforestation and forest Degradation in developing countries (REDD+): framework established to protect forests through activities where developing countries can receive results-based payments for emission reductions when they reduce deforestation. In those countries, carbon finance provides resources for overseeing the lands, also enhancing biodiversity and local community benefits.
- Blue Carbon: refers to the carbon captured and stored by the world’s oceans and coastal ecosystems, such as seagrasses, mangroves, and tidal marshes.
- Agricultural Land Management (ALM): projects help to reduce GHG emissions and soil organic carbon (SOC) through activities such as lessening in fertilizer application and tillage, improving water management and residue management.
- Improved Forest Management (IFM): activities avoid emissions or enhance sequestration through activities such as extension of Rotation Age or Prevention Planned Degradation (LtPF).
- Energy Projects:
- Renewable energy: Renewable energy projects focus on harnessing natural, sustainable resources such as solar, wind, hydro, and geothermal energy to generate electricity with little to no greenhouse gas emissions. These projects reduce reliance on fossil fuels and contribute to decarbonizing the energy grid. Carbon credits are generated based on the avoided emissions compared to conventional power generation methods.
- Cookstoves: Efficient cookstoves are designed to use less fuel—typically biomass—while reducing harmful emissions. Traditional cooking methods, especially in the least developed countries, often rely on open fires or inefficient stoves, contributing to deforestation and air pollution. By introducing clean or efficient stoves, these projects improve air quality, decrease health risks, and reduce carbon emissions. The savings in fuel consumption and reduced emissions generate carbon credits.
- Waste Biomass: Waste management projects involve technologies and processes to capture methane, a potent greenhouse gas, from landfills or waste treatment facilities. Projects can also include waste-to-energy systems, where organic waste is used to generate electricity or heat, further reducing emissions. By managing waste responsibly, these initiatives prevent the release of methane into the atmosphere and can produce additional carbon credits for reducing overall greenhouse gas emissions
- Tech Removal Projects:
- Biochar: is a form of charcoal produced from plant matter and stored in the soil as a means of removing carbon dioxide from the atmosphere. It is created through a process called pyrolysis, which involves the thermal decomposition of biomass in an oxygen-limited environment. This process results in a stable form of carbon that can remain in the soil for thousands of years, thus serving as a method for carbon sequestration.
- Direct Air Capture with Carbon Storage (DACCS): is a carbon dioxide removal technology that extracts CO2 directly from the atmosphere through chemical processes. The captured CO2 is then stored in geological formations or in materials, preventing it from re-entering the atmosphere and contributing to climate change.
- Bioenergy with Carbon Capture and Storage is a technology that combines bioenergy production with carbon capture and storage. Biomass, such as crops, forestry residues, or organic waste, is used to generate energy, either through combustion or conversion to biofuels. During this process, the carbon dioxide (CO₂) released is captured and stored underground in geological formations, preventing it from entering the atmosphere. BECCS is considered a "negative emissions" technology because it not only produces renewable energy but also removes CO₂ from the carbon cycle, helping to combat climate change. Carbon credits are generated based on the amount of CO₂ captured and stored.
Main registries on the VCM:
A carbon registry is a system that tracks the creation, verification, and trading of carbon credits. It ensures the integrity of carbon markets by providing a transparent record of project details, the issuance of credits, and their retirement when used. Registries are essential for preventing double-counting and ensuring that carbon reductions are real, measurable, and verified.
- Verra: Verra manages the Verified Carbon Standard (VCS), one of the largest global carbon registries. It certifies projects that reduce or remove greenhouse gas emissions, including Nature-Based Solutions, renewable energy, and technology-based projects. Tradable credits are called Verified Carbon Units (VCU).
- Gold Standard: The registry emphasizes projects with strong sustainability and social benefits, alongside emission reductions. Originally focused on renewable energy, it now includes various sectors like agriculture and waste management. Tradable credits are referred to as Verified Carbon Units (VER).
- CDM: the first carbon registry, established under the Kyoto Protocol to allow developed countries to invest in emission-reduction projects in developing countries and earn Certified Emission Reduction (CER) credits.
Carbon Compliance
- EU Emissions Trading Scheme (ETS): this is a cap-and-trade scheme that forms an important cornerstone of European climate policy and is the largest carbon market in the world. In 2024, the scheme was extended to include maritime emissions to incentivize the shipping industry towards using more sustainable fuels and operational practices.
- European Union Allowances (EUAs) are certificates that permit the holder to emit one metric ton of CO2 per certificate. Cap and trade systems work by limiting the number of carbon allowances available each year. Emitters captured within an emissions trading scheme must buy allowances to match their emissions. As the number of allowances decreases, the price per allowance will increase, making alternative technologies relatively more financially attractive.
- Cap and Trade: A declining "cap" is set to limit GHG emissions, and companies are required to obtain and surrender allowances equal to their emissions. They can do so either at a government auction or by trading with other companies.
Renewable Energy & Energy Certificates
Terms related to renewable energy sourcing, tracking, and certification.
- Power Purchase Agreements (PPAs): long-term contracts between an electricity producer and an off-taker that enable the purchase of electricity at a predetermined price, off-take structure and tenure.
- Gas Purchase Agreements (GPAs): long-term contracts between a biogas or biomethane producer and an off-taker, for the produced output at a predetermined price, off-take structure and tenure.
- Association of Issuing Bodies (AIB): is a European organization responsible for ensuring the transparency and reliability of Guarantees of Origin (GOs) across European countries. It’s developed and operated by the European Energy Certificate System (EECS), which standardizes the issuance, transfer and cancellation of GOs to facilitate cross-border exchange.
- Energy Efficiency Certificates (EECs): EECs are certificates issued to companies or organizations that have successfully implemented energy efficiency measures, resulting in a reduction in their energy consumption. These certificates are often used as evidence of compliance with energy efficiency regulations or as tradable instruments in energy markets.
- Energy Attribute Certificates (EACs): certificate that guarantees the generation of a specific amount of energy from a renewable source. Each certificate represents 1MWh produced by a renewable energy plant. Commonly used EACs include:
- Guarantees of Origin (GOs): issued to producers of renewable energy in the European Union (EU) to prove the energy is renewable and from sources such as solar, wind, hydropower, biomass and geothermal.
- Renewable Energy Guarantees of Origin (REGO): issued to producers of renewable energy in the UK and Northern Ireland. It proves that the energy was generated from renewable sources such as solar, wind, hydropower, biomass and geothermal.
- Renewable Energy Certificates (RECs): translates to 1 MWh of green electricity injected into the grid and used in North America (USA and Canada).
- International Renewable Energy Certificates (I-REC): translates to 1 MWh of green electricity injected into the grid and used outside of North America and Europe, such as South Africa, Latin America and Singapore.
- Renewable Obligation Certificates (ROCs): Renewable Obligation Certificates are tradable certificates issued to renewable electricity generators in the United Kingdom as evidence of the renewable origin of their electricity. These certificates are used to demonstrate compliance with renewable energy obligations set by governments or regulatory bodies.
Climate Goals & Neutrality
Terms focused on the reduction or elimination of greenhouse gas emissions to achieve climate targets.
- Carbon Neutral: refers to balancing carbon emissions with carbon removal or offsetting measures. It involves reducing emissions wherever possible and offsetting any remaining emissions through investments in projects that remove or sequester carbon dioxide from the atmosphere.
- Carbon Footprint: A carbon footprint is a calculated value or index that makes it possible to compare the total amount of greenhouse gasses that an activity, product, company or country adds to the atmosphere.
- Scope 1, 2, and 3 Emissions
- Scope 1: Direct emissions from owned or controlled sources, such as fuel combustion in company-owned vehicles and manufacturing processes.
- Scope 2: Indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the company.
- Scope 3: All other indirect emissions that occur in a company’s value chain, including both upstream and downstream emissions such as purchased goods and services, business travel, waste disposal, and use of sold products.
Sustainability & Corporate Reporting
Terms related to corporate sustainability performance and environmental impact disclosures.
- Sustainability Reporting: is the disclosure of non-financial performance information, containing data pertaining to social, economic, environmental and governance issues, with the intent of communicating progress towards sustainability objectives.
- Environmental, Social, and Governance (ESG): a set of standards used to measure a business’ environmental and social impact. It is usually used in the context of investing, but also applies to other stakeholders such as customers, suppliers, employees, and the general public.
- Sustainable Development Goals (SDGs): a set of 17 goals and 169 targets, adopted by all countries in the UN, aimed at resolving global social, economic and environmental issues.
- Renewable Energy Directive III (RED III): an EU Directive that raises the overall renewable energy target to 42.5% by 2030, introduces stricter sustainability criteria and GHG reduction targets for biofuels and the transport sector, and establishes a new Union Database for tracing renewable fuels. The RED III also introduces more harmonized standards for Guarantees of Origin as well as sector-specific targets for buildings, heating and cooling.
- Corporate Sustainability Reporting Directive (CSRD): an EU Directive that will require over 50,000 European companies and 10,000 international companies to account for and declare their Scope 1, 2, and 3 emissions as well as their decarbonization roadmaps.
- Corporate Sustainability Due Diligence Directive (CS3D): will require large companies to conduct thorough due diligence to identify, prevent and decrease environmental and social harms. This will apply not only to their business operations but also to their subsidiaries, value chains and supply chains, forming an important pillar of the EU’s initiative on sustainability and traceability.
- Green Claims Directive (GCD): from 2026, this directive will require companies to back their sustainability claims up with rigorous scientific evidence, verified by an accredited third party. This will combat greenwashing and ensure that support for renewable energy and sustainable initiatives is genuine.
Biomethane
Biomethane: Processed and purified biogas with natural gas qualities. Biomethane can be injected into the regular gas grid and is easily stored and operable without any modification to infrastructure. It is produced when bacteria digest organic matter (biomass) in the absence of oxygen. Two main categories of organic substances can be distinguished: Energy Crops and Waste & Residue.
- Biomethane Guarantees of Origin (GOs): issued to producers of renewable gas in the European Union (EU) to prove it comes from a biological source. One GO represents 1 MWh of gas produced.
- Proof of Sustainability (PoS): Additional certification issued by a 3rd party which assures the traceability of sustainable material across the Supply Chain. On this Certificate, additional information such as the C.I. Score (Measured in gCO2eq/MJ) and which Feedstock (Crop, Waste, Manure) was used.
- Renewable Gas Guarantees of Origin (RGGOs): issued to producers of green gas in the UK and Northern Ireland. One RGGO is issued for each kWh of green gas produced. These are valid for 39 months.
- Renewable Thermal Certificate (RTC): US based certificates that verify the environmental attributes of generating and using one dekatherm of renewable thermal energy. RTCs are issued for various fuel sources, including clean hydrogen, renewable natural gas (RNG/ Biomethane), Biogas, and Combined Heat and Power (CHP).
- BioLNG/BioCNG: renewable alternatives to liquified and compressed natural gas.
Biofuels & Feedstocks
Terms related to renewable energy produced from biological sources.
Biofuels: they serve as a renewable alternative to fossil fuels since they generate less greenhouse gas emissions. Depending on the production pathway, biofuels have different GHG emissions associated with their use. EU Member states have a national obligation to blend biofuel into the energy mix for road transport. As a matter of example, wholesalers of petroleum products blend Biodiesel (<7%) with Fossil Diesel (>93%) and market B7, in order to reach their sustainability targets. Some examples of biofuels are:
- Fatty Acid Methyl Esters (FAME): type of biodiesel, which are esters of fatty acids. They are produced through a process called transesterification, where fats (like vegetable oils, animal fats, or waste cooking oils) react with an alcohol (usually methanol) in the presence of a catalyst to form FAME and glycerol.
- Sustainable Aviation Fuel (SAF): is an aircraft fuel produced from sustainable resources, such as cooking oil, plant oils, municipal waste, and agricultural residues, which can reduce greenhouse gas emissions by up to 80% compared to traditional jet fuel.
- Hydrotreated Vegetable Oil (HVO): is a biofuel made by the hydrocracking or hydrogenation of vegetable oil. Hydrocracking breaks big molecules into smaller ones using hydrogen while hydrogenation adds hydrogen to molecules.
- Biofuel tickets: A biofuel ticket is granted to a company that successfully places biofuels on the transport sector. As biofuels must generally be blended with petroleum products to be sold to end customers, obliged parties themselves are usually the beneficiaries of biofuel tickets’ issuances. These tickets are used by oil companies to fulfil their obligation. If the target is already exceeded, the surplus can be sold to other obligated parties that couldn’t reach their target through physical biofuel supply. In this case, a transfer of biofuel tickets from the seller to the buyer takes place on an electronic platform (or registry).
Feedstocks: feedstocks are the primary sources used for the production of biofuels. They range from agricultural crops to wastes/residues (which are greater incentivized given the lower GHG emissions associated with their production). Some examples of feedstocks are:
- Soybean Oil: it is a vegetable oil that gets extracted from the soybean. It is one of the most commonly used vegetable oil feedstocks for biodiesel production.
- Used Cooking Oil (UCO): is defined as the purified oils and fats of plant and animal origin that have been used to cook food. It is a significant feedstock for biodiesel production, especially in the EU.
- Palm Oil Mill Effluent (POME): is a by-product of the palm oil production process. It’s an oily wastewater generated by palm oil processing mills and consists of various suspended components.