The burning of fossil fuels is a major source of greenhouse gas (GHG) emissions, especially for power, cement, steel, textile, fertilizer and many other industries which rely on fossil fuels (coal, electricity derived from coal, natural gas and oil).

The major greenhouse gases emitted by these industries are: Carbon dioxide (CO2); Methane (CH4); Nitrous oxide (N2O); Hydrofluorocarbons (HFCs); Perfluorocarbons (PFCs); and Sulphur hexafluoride (SF6) - all of which increase the atmosphere's ability to trap infrared energy, and thus affect the climate.

A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one ton of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent (tCO2e) equal to one ton of carbon dioxide.

Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. Emissions become an internal cost of doing business and are visible on the balance sheet alongside raw materials and other liabilities or assets.

Since GHG mitigation projects generate credits, this approach can be used to finance carbon reduction schemes between trading partners and around the world. There are also many companies that sell carbon credits to commercial and individual customers who are interested in lowering their footprint. These carbon off-setters usually purchase the credits from an investment fund or a carbon development company that has aggregated the credits from individual projects.

Buyers and sellers can also use an exchange platform to trade, such as the Carbon Trade Exchange, which is like a stock exchange for carbon credits. Currently there are five exchanges trading in carbon allowances: the European Climate Exchange, NASDAQ OMX Commodities Europe, PowerNext, Commodity Exchange Bratislava and the European Energy Exchange.

Managing emissions is one of the fastest-growing segments in financial services in the City of London, with a market estimated to be worth about €30 billion in 2007.

For trading purposes, one allowance or Certified Emission Reduction (CER) is considered equivalent to one metric ton of CO2 emissions. These allowances can be sold privately or in the international market at the prevailing market price.

These trade and settle internationally, and hence allow CER`s to be transferred between countries.
For example:

• Consider a business (Co XYZ) that owns a factory putting out 100,000 tons of greenhouse gas emissions in a year. Its government enacts a law to limit the emissions that the business can produce. So the factory is given a quota of say 80,000 tons per year. The factory either reduces its emissions to 80,000 tons or is required to purchase carbon credits to offset the excess. After costing up alternatives the business may decide that it is uneconomical or infeasible to invest in new machinery for that year. Instead it may choose to buy carbon credits on the open market from organizations that have been approved as being able to sell legitimate carbon credits.
• As its Thai operational plans evolve, ECI will be in a position to sell XYZ offset emissions generated in line with various project initiatives, such as recovering methane and other designated greenhouse gases from its landfill site activities and processing such (together with RDF feedstock) via gasification technology, to feed a cement kiln and/or a power station that each previously would use fossil fuel.
• So, although the XYZ factory continues to emit gases, it would pay another group (e.g. ECI) to reduce the equivalent of 20,000 tons of carbon dioxide emissions from the atmosphere for that year.

Unchecked, energy use and hence emission levels are predicted to keep rising over time. Thus the number of companies needing to buy credits will increase, and the rules of supply and demand will push up the market price, encouraging more groups to undertake environmentally friendly activities that create carbon credits to sell.

ECI should be well placed to benefit from future activity in this marketplace. Our operations will open the way for the Company to attract and offset carbon credit allowances under the Certified Emission Reduction (CER) Scheme via the carbon credit trading marketplace - in line with a private and/or exchange based transaction. Such an outcome would enable ECI to access low cost capital, and has the potential to introduce an added future dimension to the business.