The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 Parties at the UN Climate Change Conference (COP21) in Paris, France, on 12 December 2015. It entered into force on 4 November 2016.

Its overarching goal is to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels” and pursue efforts “to limit the temperature increase to 1.5°C above pre-industrial levels.”

However, in recent years, world leaders have stressed the need to limit global warming to 1.5°C by the end of this century.

That’s because the UN’s Intergovernmental Panel on Climate Change indicates that crossing the 1.5°C threshold risks unleashing far more severe climate change impacts, including more frequent and severe droughts, heatwaves and rainfall.

To limit global warming to 1.5°C, greenhouse gas emissions must peak before 2025 at the latest and decline 43% by 2030.

The Paris Agreement is a landmark in the multilateral climate change process because, for the first time, a binding agreement brings all nations together to combat climate change and adapt to its effects.

Source and further reading: UNFCCC.

Net-metering is a simple arrangement that ensures consumers that install a generator (usually photovoltaic (PV) systems) receive a one-for-one credit for any electricity their systems generate and export to the grid within a billing period. In this case, production and consumption is compensated over a longer period (up to one year). Under a net-metering scheme, all kWh of the generator are equally valorized.

One of the primary instruments for achieving the Paris Agreement goals is Nationally Determined Contributions (NDCs). These are the national climate pledges that each Party is required to develop that articulate how they will contribute to reducing greenhouse gas emissions and adapting to impacts. 

NDCs are where countries set targets for mitigating the greenhouse gas emissions that cause climate change and for adapting to climate impacts. The plans define how to reach the targets, and elaborate systems to monitor and verify progress so it stays on track. Since climate finance is key to implementing the plans, NDCs ideally also detail a financing strategy.

The Paris Agreement recognizes that the long-term goals specified in its Articles 2 and 4.1 will be achieved through time and, therefore, builds on a ratcheting up of aggregate and individual ambition over time.

NDCs are submitted every five years to the UNFCCC secretariat. In order to enhance the ambition over time the Paris Agreement provide that successive NDCs will represent a progression compared to the previous NDC and reflect its highest possible ambition. (Source: UNFCCC)

A carbon tax is a tax levied on the carbon emissions required to produce goods and services. Under a carbon tax, the government sets a price that emitters must pay for each ton of greenhouse gas emissions they emit. Businesses and consumers will take steps, such as switching fuels or adopting new technologies, to reduce their emissions to avoid paying the tax.  

Carbon taxes are intended to make visible the “hidden” social costs of carbon emissions, which are otherwise felt only in indirect ways like more severe weather events. In this way, they are designed to reduce carbon dioxide (CO2) emissions by increasing prices of the fossil fuels that emit them when burned. This both decreases demand for goods and services that produce high emissions and incentivizes making them less carbon-intensive

An emissions trading system, also known as emissions trading scheme and abbreviated as ETS, is a market mechanism that allows those bodies (such as countries, companies or manufacturing plants) which emit (release) greenhouse gases into the atmosphere, to buy and sell these emissions (as permits or allowances) amongst themselves. 

Emissions mean the release of greenhouse gases and/or their precursors into the atmosphere over a set area and period of time. The European Union Emission trading system (EU ETS) is based on the idea that creating a price for carbon offers the most cost-effective way to achieve the significant cuts in global greenhouse gas emissions that are needed to prevent climate change from reaching dangerous levels. 

The EU ETS is the first international trading system for carbon dioxide emissions in the world and applies not only to the EU Member States but also to the other three members of the European Economic Area – Norway, Iceland and Liechtenstein. It covers over 11 000 heavy energy-using installations (power stations & industrial plants) and airlines operating between these countries, which are collectively responsible for close to half of the EU’s emissions of CO₂ and 45 % of its total greenhouse gas emissions.

Greenhouse gases constitute a group of gases contributing to global warming and climate change.

The Kyoto Protocol, an environmental agreement adopted by many of the parties to the United Nations Framework Convention on Climate Change (UNFCCC) in 1997 to curb global warming, nowadays covers seven greenhouse gases:

• the non-fluorinated gases:
  • carbon dioxide (CO₂)
  • methane (CH₄)
  • nitrous oxide (N₂O)

• the fluorinated gases:
  • hydrofluorocarbons (HFCs)
  • perfluorocarbons (PFCs)
  • sulphur hexafluoride (SF₆)
  • nitrogen trifluoride (NF₃)

Converting them to carbon dioxide (CO₂) equivalents makes it possible to compare them and to determine their individual and total contributions to global warming.

Hydrogen, the most abundant and lightest element in the world, has a wide range of industrial applications, from refining to petrochemicals to steel production. It is also a high-yield energy source that is far more efficient than other fuels.

Green hydrogen is produced by using renewable energy for electrolysis, which splits water molecules into their constituent hydrogen and oxygen. The green hydrogen produced in this way is a clean energy source that can be stored for long periods of time and transported over long distances. 

Many experts believe that hydrogen – in combination with decarbonised electricity – will take a big step towards net zero emissions. Hydrogen is expected to play a particularly important role in achieving net-zero emissions in sectors such as steel production, high-temperature heating and long-distance transport. It can also provide load balancing for intermittent renewable energy sources such as wind power and solar energy. Electrolysis could absorb excess energy, and when there is little wind or sun, the hydrogen could be burned in gas turbines to meet electricity demand. Hydrogen is, therefore, necessary to achieve net-zero emissions

A green certificate is a tradable good that proves that a certain electricity was generated from renewable energy sources. 

Usually, one certificate represents the generation of one megawatt hour (Mw/h) of electricity. What is defined as “renewable” varies from certificate trading system to certificate trading system. 

As a rule, at least the following sources are considered renewable:

• Wind (often further subdivided into onshore and offshore)
• Solar energy (often further subdivided into photovoltaic and thermal energy)
• Waves (often further subdivided into onshore and offshore) and tides (often further subdivided into onshore and offshore)
• Geothermal energy
• Hydropower (often further subdivided into microhydro, small and large)
• Biomass.

Green certificates represent the environmental value of the renewable energy produced. The certificates can be traded separately from the energy produced. Several countries use green certificates as a means to bring support for green power generation closer to the market economy, rather than the more bureaucratic investment subsidies and feed-in tariffs. Such national trading schemes exist, for example, in Poland, Sweden, Italy, Belgium.

Once renewable energy is in the grid, it can no longer be separated from conventionally generated energy. Thus, buying a green certificate is equivalent to buying a certificate that the certificate holder has consumed energy from the renewable share of the total energy in the grid. Therefore, the purchase of a certificate has no influence on how much renewable energy was actually generated – only how it was distributed.

Under a feed-in premium (FIP) scheme, electricity from renewable energy sources (RES) is typically sold on the electricity spot market and RES producers receive a premium on top of the market price of their electricity production.

FIP can either be fixed (i.e. at a constant level independent of market prices) or sliding (i.e. with variable levels depending on the evolution of market prices). Fixed FIP are simpler in design but there is a risk of overcompensation in the case of high market prices and of undercompensation in the case of low market prices. Therefore, fixed FIP are usually combined with predetermined minimum and maximum levels (“floor” and “cap”) either for the FIP or for the total remuneration (FIP + market price). Sliding (or “floating”) FIP are calculated on a continuous basis as the difference between (technology-specific) market prices (usually averaged over a certain period of time, e.g. one month) and a predefined reference tariff level (often corresponding to existing FIT). If market prices are higher than the reference tariff level, no FIP is paid. In some cases, there is also a minimum market price used for FIP calculation to increase sensitivity of RES operators to market prices and to reduce costs for the RES support scheme in the event of low or even negative market prices. (Source: Energypedia)

Tariff degression is a mechanism, according to which the price (or tariff) ratchets down over time. This is done to track and encourage technological cost reductions.