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| Environmental Products Glossary
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NOx Terms
| Allowance: | Equivalent to one ton of emissions, allowances are used to cover the emissions from any given source. | | Banking: | Banking refers to the reservation of allowances for a future year. Banked allowances in the NOx market are not equivalent to a ton of emissions and are generally equivalent to a fraction of a ton. | | CAIR: | The Clean Air Interstate Rule is the EPA's newest program to reduce emissions and calls for each state to make a program to reduce emissions. | | Flow Control: | NOx has a built-in value reduction for banked allowances established to ensure that levels close to the established cap are achieved by limiting the value of banked allowances. If the number of banked allowances is more than 10% of the current vintage allocation, their value is reduced based on the following formula:
Banked allowances falling outside of the percentage that may be used at a 1:1 value may be used at a reduced 2:1 value | | NATS: | The National Allowance Tracking System, or NATS is used to keep track of the allowances held by each individual. | | SIP: | The State Implementation Program (SIP) is the cornerstone of the EPA's newest program to reduce ozone emissions. It allows each state to set a standard to which they will be accountable and use a cap-and-trade market to reduce their emissions. | | "True Up": | True up refers to the EPA’s freezing of account on November 30th to deduct used emissions allowances to ensure that accounts are balanced before new vintage allowances are issued. The period occurring between October and November, with all accounts being frozen on November 30th, following this, the EPA verifies emissions, and allowances equivalent to this year’s emissions are deducted from each account. | | Vintage: | Vintage refers to the issuing year of the allowance in question. The vintage may be “banked” or reserved for a future year if emissions have already been covered, however they do not maintain value over time (See Flow Control). |
SO2 Terms
| Allowance: | Equivalent to one ton of emissions, allowances are used to cover the emissions from any given source. | | Banking: | Banking refers to the reservation of allowances for a future year. Banked allowances maintain their value in SO2 Markets. | | CAIR: | The Clean Air Interstate Rule is the EPA’s newest program to reduce emissions, and calls for each state to make a program to reduce emissions. | | NATS: | The National Allowance Tracking System, or NATS is used to keep track of the allowances held by each individual. | | SIP: | The State Implementation Program (SIP) is the cornerstone of the EPA's newest program to reduce ozone emissions. It allows each state to set a standard to which they will be accountable and use a cap-and-trade market to reduce their emissions. | | "True Up": | The period occurring following May 31st, when all accounts are frozen by the EPA, emissions are verified, and credits equivalent to this year’s emissions are deducted from each account. | | Vintage: | Vintage refers to the issuing year of the allowance in question. The vintage may be “banked” or reserved for a future year if emissions have already been covered. | Greenhouse Gas Terms
| Annex I | Annex I consists of countries that are developing or have transition economies. These countries are those listed as part of the Organization of Economic Development (OECD), as well as those in Central and Eastern Europe, excluding the countries formerly known as Albania and Yugoslavia. These countries have agreed under article 4.2 of the Kyoto protocol to reduce their emissions, and if they choose to ratify the Protocol, makes them eligible for emissions targets between 2008 and 2012. | | Annex II | Annex II countries have firmly established economies and are well developed. Under the Kyoto Protocol, it is their responsibility to assist developing nations (Annex I) countries with creating sustainable resources and financing. Annex II countries are the original 24 OECD members, with the addition of the European Union. | | Banking: | The act of reserving allowances for a year in the future. Emissions generated as CERS during the period between 2000 and 2008 may be used in meeting standards in the first compliance period. | | Baseline: | The standard of emissions against which changes are measured. | | Joint Implementation (JI): | Kyoto establishes that developed countries may generate CERs through Joint Implementation, collaboration between the developed country and a developing country. Developed countries may finance the construction new renewable facilities overseas in developing countries to generate CERs. | | OECD: | OECD stands for the Organization for Economic Cooperation and Development. This group consists of Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, South Korea, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Spain, Sweden, Switzerland, Turkey, UK and the USA. | | VER: | Voluntary Emissions Reductions are not for compliance, but instead are individuals or organizations seeking to offset their carbon emissions. | Renewable Energy: | Compliance Period: | The period of time for which an emissions source must procure credits to cover all emissions. The Compliance period begins January 1st and ends December 31st of each year. | | RECs: | A Renewable Energy Credit or REC represents one megawatt hour of renewable energy. RECS may be traded and are used during compliance periods to meet standards. | | Rec Account: | REC accounts are the where all credits are tracked. When trading, the credits are moved to the counterparty’s REC account. Each year, the REC accounts are frozen so that an appropriate number can be deducted to cover emissions. | Emission Reductions Credits (ERCs)
| | ERC: | Emissions Reductions Credits, or ERCs are used to construct new facilities in non-attainment regions. They are generated through the reduction of emission from an existing facility, through either shutting down, permanent limitation of capacity, or the installation of new technology to clean up emissions. ERCs are available for a variety of environmental pollutants. | | Non-Attainment Region: | Non-attainment regions are regions that do not meet the EPA’s standards for ambient air quality. They are subject to special regulations as a result of this, and ERCs are required to build any new polluting facility within them. | Nuclear | U3O8 (Yellowcake): | U3O8 or Yellowcake is milled and treated uranium ore. It is unrefined and contains natural uranium. Through conversion, it is treated to become UF6, Uranium Hexafluoride. | | Conversion: | Conversion is a service to convert the U3O8 into UF6. It is essential that the uranium be in the UF6 form for further refinement. | | UF6 | Uranium Hexafluoride is a crystalline solid that easily sublimes into a gas. Through SWU, it becomes EUP. | | Tails: | Uranium tails are the leftovers from the UF6 refinement process, and are unusable for fission, and thus a waste product. Tails contain mostly U238, however, as the refinement process is not 100% efficient, a small amount of U235 remain in the tails. | | Optimum Tails | Optimum tails for Uranium represents the most cost efficient way of refining Uranium, with the smallest possible amount of U235 in the waste stream. | | SWU | SWU (Seperative Work Units) is a unit of measurement that refers the amount of energy necessary to enrich uranium by 1% by volume. It is the process used to convert UF6 into EUP. It is either done in a centrifuge or through gaseous diffusion. Centrifuge uses less energy and is more effective. | | EUP | Enriched Uranium Product is the final stage of the enrichment process. It is approximately 4-5% U235 by volume, significantly up from the 0.7% that occurs naturally. The EUP is suitable for use in reactors after it has been processed into pellets or fuel rods. | Market conventions related to allowance trading: - Firm Bid or Offer :The price at which a buyer or seller will purchase (bid) or sell (offer) allowances.
- Spot Market: The leading bid and leading offer for which parties will purchase or sell current vintage allowances. The spot market is the most active in SO2 trading, and is for immediate cash settlement.
- Bid/Ask Spread: The difference between the lead bid and the lead offer. The Bid/Ask Spread varies daily, and can be anywhere between $0.25 :$0.50 up to $3 :$5, depending on the degree of certainty buyers and sellers have in the market.
- Transaction Size: The size of transaction varies based on the buyer and seller. Spectron Energy’s team of brokers can arrange for transactions of any size.
- Market Depth: The Spot Market typically has between 10,000 and 20,000 firm bids shown at any given time.
Allowance Transaction Structures: - Immediate Settlement Transaction: This type of transaction is the most liquid, with daily volumes often exceeding 25,000 allowances. Immediate Settlement Transactions can occur for allowances of any vintage; however, generally the most active allowances are those of the current vintage. After a successful trade, a cash settlement is to be paid to the seller within 3 days of confirmation from the EPA’s Allowance Tracking System verifying that the allowances were successfully delivered from the seller’s account to the purchaser’s account.
- Forward Transactions: A forward transaction consists of an agreement between buyer and seller to exchange allowances for money at a future date as specified. The allowance is sold at a price based on the forward market curve, which is a speculation of the price of the allowance based on the current price and escalated based on the money of market participants for the specific term of the trade. Markets are typically available for months much later of the given vintage year, generally near the end, but contracts are also available for delivery of allowances as far as 3 years in the future.
- Stream Transactions: Streams of allowances may be sold in consecutive years, (i.e., from 2003 through 2005) allowing the seller to deliver a set number of allowances each consecutive year. Both immediate settlement and forward settlement is typically available on this type of transaction.
- Option Transactions: Many different varieties of options are available, allowing the buyer a great deal of flexibility. Options range from straight put and call options that place a ceiling or floor for prices, to more complex options including collars, straddles, strangles, put and call spread options, time spreads and even combinations of various options into compound options. Most option transactions are “European,” only usable on the expiration date.
- Vintage Swaps or Loans: Allowances may be exchanged directly for other allowances in a swap or loan. Generally, a utility short on credits may trade allowances of a future vintage in exchange for current vintage allowances that may be used if the utility is short. Both sides of this transaction benefit, as the utility that is short on allowances has covered its emissions, and the seller has insured future stability by securing more allowances of a future vintage, as they generally trade at a lower rate. Generally in allowance swaps, a ratio based on price is used to determine the number of newer vintage allowances that will be exchanged.
- Cross-Commodity or Interpollutant Swap: In a non:monetary exchange, allowances may be exchanged for allowances of another emission or commodity at an appropriate price ratio, ensuring that both sides of the transaction are equal in value.
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