Transcript International CDM Market and its Management Rules

International CDM Market
Dr. Manuel Fuentes
Power
Sao Paulo, December 7th, 2006
IT Power – a brief introduction
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International organisation
consulting on energy, climate
change & international
development
Established 1981 in UK
Clients include private companies
and banks, UN Agencies,
Multilateral Finance Institutions,
UK Government, EU and Bilateral
Agencies
70+ staff worldwide
Power
Sao Paulo, December 7th, 2006
Presentation contents
Structure of Carbon Market
 CDM
 European Emissions Trading Scheme
 Voluntary market
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Power
Sao Paulo, December 7th, 2006
United Nations Framework Convention on
Climate Change (UNFCCC)
First discussed at Earth Summit in Rio
de Janeiro in 1992
 Objective: “To achieve… stabilisation of
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greenhouse gas concentrations in the
atmosphere at a level that would prevent
dangerous anthropogenic interference
with the climate system”
Article 2, UNFCCC
Power
Sao Paulo, December 7th, 2006
Kyoto Protocol
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Most important decision of UNFCCC
Adopted in December 1997
Developed countries agreed to reduce emissions to
5.2 percent below 1990 levels, within
commitment period 2008 to 2012
Kyoto Protocol enforced February 2005
Power
Sao Paulo, December 7th, 2006
GHG Emissions
• Carbon Dioxide (CO2)
• Methane (CH4)
• Nitrous oxide (N2O)
• Hydrofluorocarbons (HFCs)
• Perfluorocarbons (PFCs)
• Sulfur hexafluoride (SF6)
5.2 %
1990
Power
2000
2010
Sao Paulo, December 7th, 2006
Mechanisms
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Clean Development Mechanism:
– Aims to assist non-Annex I countries achieve sustainable
development
– Annex I countries with emission caps pay to implement
projects to achieve emission reductions in developing
countries. Credits issues based on emission reductions of
project.
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Joint Implementation
– Annex I country assists another Annex I country to
implement project to reduce emissions.
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International Emissions Trading
– Trade of emissions allowances or reduction credits. Aim is to
reduce total costs of achieving collective emissions
reductions. Total amount of emissions reductions of Annex I
countries does not change.
Power
Sao Paulo, December 7th, 2006
Why a Carbon Market?
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Regulatory pressure on firms, governments, and even
individuals to constrain their greenhouse gases
(GHGs) emissions
Voluntary reasons firms, governments, individuals
and other organisations constrain emissions – carbon
neutral
Both domestic reductions and purchase of outside
“GHG emission reductions”
As GHGs settle in the atmosphere, it does not matter
where emissions are reduced
Opportunity for countries such as Brazil to benefit
from investment in activities to reduce
Power
Sao Paulo, December 7th, 2006
Structure of the Carbon Market
Kyoto
compliance
EU, Canada, Japan
& New Zealand
(Annex 1
Governments)
EU
Emissions
Trading
Scheme
JI & CDM
Retail
Voluntary
Power
Domestic trading schemes e.g. UK
ETS, NSW GHG abatement scheme,
Chicago Climate Exchange, Canada
domestic scheme, Japan?
Sao Paulo, December 7th, 2006
Clean Development Mechanism
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Carbon finance for sustainable development projects
with benefits such as job creation, clean energy service
provision etc.
Reduced Kyoto compliance costs of greenhouse gas
reductions for industrialised countries
CDM projects are undertaken in non-Annex I countries
and may be
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Unilateral (participants: host country only)
bi-lateral (participants: host country + Annex 1 country)
multi-lateral (participants: host country + a number of
annex 1 country partners)
The emission reductions credits achieved are referred to
as Certified Emission Reductions (CERs):
1 CER = 1 tonne CO2 equivalent
Power
Sao Paulo, December 7th, 2006
CDM Eligibility
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Real, measurable and long-term benefits related
to mitigating climate change
Voluntary participation of each party involved
Projects must result in GHG reductions that are
“additional”
Project must help host country in achieving
sustainable development
CERs generated for 10 or 21 (7+7+7) years for
reduced GHG (“basket of 6” - in CO2eq)
emissions compared to “business as usual”
scenario – baseline
Power
Sao Paulo, December 7th, 2006
Small scale projects
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Simplified procedures -administrative levy
halved
Possible project activities:
i. Renewable energy up to 15MW
ii. Energy efficiency improvements up to equivalent
of 15GWh/ year
iii. Others which reduce emissions and which
directly emit less than 15 000 tCO2 per year. E.g.
improved fertiliser use, management of rice
cultivation…
Power
Sao Paulo, December 7th, 2006
What is bundling?
Multiple
greenhouse gas
reducing projects
One single
CDM project
Bundling
organisation
(e.g. ESCO)
Power
CER
Investor
Sao Paulo, December 7th, 2006
The EU Emissions Trading Scheme (1)
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An entity-based domestic “cap and
trade” emissions allowance programme
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Governed by Community Law using a
special unit of trade – “allowances”
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Compatible with international emissions
trading under Kyoto, contributing
towards Kyoto targets
Power
Sao Paulo, December 7th, 2006
The EU Emissions Trading Scheme (2)
Summary:
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Phase 1: 2005-07
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Phase 2: 2008 -12
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Covers the EU 15 &
the 2004 Accession
States
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50% of all carbon
emissions in the EU
(12,000 plants)
Power
Sao Paulo, December 7th, 2006
The EU ETS - who is affected?
Energy – combustion installations over
20MW
 Ferrous Metals
 Minerals – kilns, glass, ceramic, cement
 Other
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– (Pulp and Paper)
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Renewables, transport & other sectors
are NOT included
Power
Sao Paulo, December 7th, 2006
EU Allowances
1 EUA = 1 tonne CO2 equivalent = 1
CER
 1 EUA trading for 15€
 Penalty value for failing to meet EUA =
100€/EUA for 2008-2012 period!!
 1 CER trading for 6€
 Higher risks associated with CER
investors…
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Power
Sao Paulo, December 7th, 2006
How can CERs and ERUs be used in
the ETS?
EU ETS and Linking directive
 under the EU ETS each installation is required to
surrender a number of allowances corresponding to
their verified emission volume for each calendar year
 in the event that an installation has insufficient
allowances for compliance, the shortage can be
covered by:
– purchasing additional allowance from the market
– surrendering a specified number of CERs and, from 2008,
ERUs from its operator’s holding account
– surrendering of CERs and ERUs are subject to specified
preconditions
Power
Sao Paulo, December 7th, 2006
Preconditions for surrendering CERs
Since 2005 CERs can be used for compliance
 up to a percentage of the allocation to each
installation - specified by its Member State
 CERs are not converted into EU allowances –
but entered directly into the surrendered
allowance table
 UNFCCC ITL required for the transfer of CERs
into an EU registry –still to be implemented
Power
Sao Paulo, December 7th, 2006
Voluntary Action by Firms, Individuals
and….even Governments
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A large number of companies have engaged in
volunatry programs to reduce their GHG emissions
– e.g. Novartis (Swiss Pharmaceutical company) to reduce
GHGs by 5% below 1990 levels over 2008-2012 (in line with
government’s commitment)
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Individuals and Firms have engaged in purchases of
small amount of emission reductions to become
“carbon neutral” (event, corporation, or product)
– HSBC to become carbon neutral (made 1st purchase of
170,000 tCO2e assorted credits (3 mths offsetting)
– IT Power offsets emissions from international travel
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UK Government
– chosen to offset emissions from staff/operations through
purchase of credits: 1st purchase from Kuyasa Gold Standard
CDM project in South Africa
–
Power
Sao Paulo, December 7th, 2006
Buyers
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Public funds (Government only)
Public-private funds (e.g. Community Development
Fund, Baltic Sea Region Testing Ground Facility,
Italian Carbon Fund);
Private funds (e.g. European Carbon Fund, Japan
Greenhouse Gas Reduction Fund);
Private purchasing pools (e.g. CRM, ICECAP and GGCAP).
World Bank and other multilateral organisations
Brokers
Direct investment by companies
Many and the list keeps growing!!
Power
Sao Paulo, December 7th, 2006
Thank you
Manuel Fuentes
+44 1256 392700
[email protected]
Power
Sao Paulo, December 7th, 2006