Transcript Energy - World Bank

Challenges and
Opportunities for Addressing
Global Climate Change
February 2006
Slide 1 – Outline
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Global Energy Outlook
Status and Trends of the Carbon
Market
Short Term Challenge: is there
enough supply to meet Kyoto
commitments?
Long-Term Challenge: market
continuity given post 2012
uncertainty
Scaling Up
Slide 2 - Historical GHG Emissions
Slide 3 - Global Energy Outlook (IEA 2004)
80 % of global emissions are from burning of fossil
fuels; energy sector largest contributor to GHG
With no significant change in current energy
policies:
• world energy needs will be 60 % higher in 2030; two
thirds of increase from developing countries
• Global CO2e emissions on course to increase by 1.7
% per year until 2030; 70 % of which from developing
countries
• Fossil fuels will continue to dominate the global
energy mix, accounting for 85 % of increase in overall
energy use until 2030
Renewable Energy: share of renewable energy will
decrease slightly from 20 % in 2002 to 18 % in 2030
• renewable energy consumption (including large
hydro) could increase by 60 %
• share of non-hydro renewable energy in electricity
generation could triple from 2 % in 2002 to 6 % in 2030
Markets have to be
part of solution
Slide 4 - Current Demand
Trends in Carbon Market
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Market driven by Kyoto entry into force:
• Requires developed countries to reduce emissions by
5.2% below 1990 levels in 2008-2012
• Total demand about 5.5 billion tons of CO2e
• Much of the obligation devolved to private firms, in
particular in Europe with coming into force of European
Emissions Trading Scheme in January 2006
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Demand for international credits in the order of 3
billion tons
• Japan short by 1 billion tons
• Canada short by 1.2 – 1.5 billion tons
• Europe short by 800 million tons -1.3 billion tons
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Modest demand by European private sector in
2005-2007
Slide 5 - Structure of the
Carbon Market
Project-Based
Transactions
JI and CDM
Allowance
Markets
EU Emission
Trading Scheme
UK ETS
Voluntary
Retail
Other
Compliance
New South Wales
Certificates
Chicago Climate
Exchange
Slide 6 - Eligibility Issues
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Eligibility Demonstrated through:
• Barrier analysis: project faces barriers that prevent
its implementation
• Investment analysis: project is economically or
financially less attractive than other alternatives
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Relatively simple for project which generate no financial or
economic benefit other than the sale of emission reductions
For other projects, use financial indicator such as IRR,
NPV, etc. to compare alternatives
Common Practice: project is likely eligible if
project is not common practice
Slide 7 - Total Value of
Contracts over 1 b$ (data in million
U.S.$, nominal)
600
500
Known
Estimated
400
300
200
100
0
1998
1999
2000
2001
2002
2003
2004
2005
(Jan-Apr)
Slide 8 -Main Buyers: European
Governments & Firms
In percent of volume purchased From Jan.04 to Apr.05
USA
4%
Japan
21%
Australia
3%
Canada
5%
New Zealand
7%
Gov. Netherlands
16%
Other EU
32%
UK
12%
Slide 9 - Supply Concentrated in
Middle-Income Countries
In percent of volume sold from January 2004 to April 2005
Rest of Latin America
22%
OECD
14%
Transition
Economies
6%
Africa
0%
Brazil
13%
India
31%
Rest of Asia
14%
Slide 10 –
Non-CO2 Gases Dominate
In percent of volume purchased from Jan.04 to Apr.05
Landfill Gas
Capture
10%
Other
N2O
7%
4%
Hydro
12%
HFC
25%
Wind
7%
Forestry
(LULUCF)
4%
Energy
Efficiency
2%
Biomass
11%
Animal
Waste
18%
Slide 11 - Carbon Economics
Increases in Project Rates of Return as a result of
additional revenues from sales of Emissions
Reductions (“Carbon”) at $4/tCO2e
Technology
DIRR
financial
Hydro, Wind, Geothermal
Gas Flaring
0.5-2.5%
2- 4 %
Crop/Forest Residues
3-7%
Municipal Solid Waste
5-15+%
Slide 12 - Short Term Challenge: Is there
enough supply in the carbon market?
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Domestic efforts: at least 50 percent of effort will
come from domestic efforts (2.5 to 3 billion tons)
Clean Development Mechanism: reduction of CO2
and CH4 assets (from energy, waste management
and agro-forestry): not likely to be much more than
400 Mt for 2012 delivery
Clean Development Mechanism: reduction of
industrial gases such as HFC23 and N20 (primarily
from China) could supply 1 billion tons
Joint Implementation will be small, no more than 50
Mt
Remainder must come from Emissions Trading with
Economies in Transition, but greening will be required
– implies about $30 billion of new investment over
the next 4-5 years
Slide 13 – Lead Time Required to
Deliver CDM Assets
High Demand
on Project
Finance
High Delivery
Risk
Long Lead
Times
High Contribution
to long term lowcarbon
infrastructure and
adaptation
Clean-Coal
Coal-to-Gas
Large Hydro
Urban and
Agri-waste to Energy
Industrial
Energy Efficiency
5yrs 4yrs 3yrs
2yrs
BioCarbon
sinks
Repowering
Medium Hydro
Wind, Biomass
Cogen/CHP
1yr
N2O,
HFC23,
PFCs
6months
Perflourocarbons
Small-Scale Energy
Efficiency and Renewable
Energy Projects
Negligible
Demand on
Project Finance
Low Delivery
Risk
Short Lead
Times
Low Contribution
to long term lowcarbon
infrastructure and
adaptation
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Slide 14 –
Longer Term Challenge
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Long-term viability of carbon market is not assured
Most energy-sector projects, need 10 years of secure
carbon revenues for projects to reach financial closure;
Bank Carbon Funds uniquely purchases beyond 2012
Without a commitment of governments to limit GHG
emissions beyond 2012, the carbon market will remain soft
and the private sector is unlikely to enter in a meaningful
manner
The real challenge is set a long-term stabilization target for
atmospheric concentrations of GHGs, which would equate
to an emissions target – the challenge would be to agree on
intermediate emissions targets, allocations of emissions
rights, and long term stable market mechanisms to ensure
economic efficiency and resource transfers to support lowcarbon growth paths
Slide 15 - Scaling Up
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Opportunity: Carbon Market has potential
to be larger than ODA flows between
2013 - 2050
Potential to use the carbon market as a
mechanism to catalyze high volumes of
transactions and investments
However, we need to move from current
project-by-project approach to
programmatic and sectoral approaches >
Need to lower regulatory risk to monetize
carbon revenues and cover the
incremental cost and risk of lower carbon
development
Slide 16 - Standardization of
Carbon Assets in Energy
Sector
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Some technologies are amenable to global
tests of eligibility: off-grid renewable
power (diesel standard), composting and
recycling of solid waste
Other technologies will require national
standards: on-grid renewable power, use
of efficient equipment depending on
national common practice
Public-incentive schemes / regulations
should be eligible for carbon finance
Challenges and
Opportunities for Addressing
Global Climate Change
February 2006