Transcript Carbon Market at a glance

Kyoto Protocol and Carbon Market
Dr. Venkata Ramana Putti
Workshop on Carbon Finance
Sarajevo, Bosnia-Hercegovina
April 17, 2009
Climate Change
Earth’s climate is warming and human
activities are primarily responsible
(>90% certainty)
280 to 430ppm concentration between
1850 and 2000 (0.5-0.8oC increase)
550ppm likely by 2035 with
77-99% chance of 2oC increase
50% chance of 5oC increase
Greenhouse Gases
Global Warming Potential
•
Carbon Dioxide (CO2)
Volume of GHGs
01
•
Methane (CH4)
21
•
Nitrous Oxide (N2O)
310
Methane
16%
High GWP
1%
N2O
9%
CO2 (F&C)
55%
•
•
•
Perflurocarbons (PFC)
Hydroflurocarbons (HFC)
Sulfur Fluoride (SF6)
6500
11700
23900
CO2 (LULUCF)
19%
Distribution of GHG Emissions
GHG Emissions by Sector
Buildings
8%
Forestry
17%
Industry
19%
Agriculture
14%
GHG Emmisions by Country
Transport
13%
Waste
3%
Energy Supply
26%
30
25
24.09
22.2
20
18.4
15
14.7
10
10.74
12.91
9.65
5.6
4.9
5
4.6
3.05
1.34
0
USA
China
EU
Russia
India
Japan
Red -- % contribution (2004); Blue – tCO2/capita (2000)
Potential Impacts
UN Framework Convention on Climate Change
• Ultimate objective of stabilizing global greenhouse gas
concentrations in the atmosphere
• Developed countries (Annex I countries) aim to restore G
HG emissions to 1990 levels
• Support capacity building in, and facilitate technology
transfer to developing countries to mitigate, and to adapt
to climate change
• Meet as a “Conference of Parties” annually, to monitor
progress
Kyoto Protocol
GHG Emissions ton/ year
38 Developed Countries and Economies in Transition (Annex I
countries) took on reduction commitments in 1997
The Demand:
• Kyoto Projects
• EU ETS Allowances
1990:
Base Year
2012
2008
AVG: 1990 - 5.2%
First Commitment
Period: 2008-2012
Carbon Market Components
Market
Regulatory
Transaction
Type
Allowancebased
Credit type
Regime
AAU
(Assigned Amount Units)
International
Emissions Trading
EUA
(EU Allowance)
EU-Emissions
Trading Scheme
Project-based ERU
Joint Implementation
(Emission Reduction Unit)
CER
(Certified Emission Reduction)
Voluntary
VER
Mainly
project-based (Verified Emission Reduction)
Clean Development
Mechanism
Voluntary projects
Clean Development Mechanism
CDM, Art. 12 KP:
Defined: credit for emission reduction (CERs) from investments in developing
(non-Annex I) countries
Objectives:
•
To promote sustainable development in developing countries
•
To assist Annex I countries in meeting their emission reduction targets in
cost-effective manner
Certified Emission Reductions (CERs) must:
•
Create real, measurable, and long-term benefits related to the mitigation
of climate change. (Art. 12.5b)
•
Be additional to any that would occur in the absence of the certified
project activity. (Art. 12.5c)
Emission Reductions must: be verified by designated operational entity (DOE)
Clean Development Mechanism
Annex I
Non-Annex I Country
Funding
Country
Technology
Projects to reduce GHG
emissions
Emission reduction compared
to an existing baseline
Certified Emission
Reduction (CER)
Key Market Drivers
• For Buyers (Annex I countries)
– Compliance targets
– Sustainable development
• For Sellers (Non-Annex I Countries)
– Contribute to sustainable development
– Facilitate technology transfer
– Improve financial returns
CDM Status (02/04/09)
Registered
Requested
Pipeline
Projects
1550
49
>2600
Total CERs
1520m
30m
>1350m
Annual CERs 280m
8.8m
A fast-growing market,
dominated by EU ETS as primary CDM stalls.
Carbon Market Growth
120
annual value of transactions
(US$ billion)
80
7,4 US$B: CDM
in 07
40
2002
EU ETS
2003
2004
2005
other allowance markets
2006
Primary CDM
2007
2008*
other project markets
Spot EUA and sCER (€ per tCO2e)
Price sCERs
Price EUAs
00
9
9/
2
2/
20
09
26
/
1/
20
09
20
08
9/
20
08
5/
12
/
1/
12
/2
12
/1
/2
00
8
20
08
7/
12
/1
11
/1
/2
00
8
20
08
/2
00
8
0/
11
/3
10
/2
10
/6
00
8
20
08
22
/
9/
8/
2
9/
20
08
25
/
8/
20
08
11
/
8/
20
08
28
/
7/
20
08
14
/
7/
20
08
30
/
6/
20
08
16
/
6/
00
8
2/
2
6/
Carbon Price during Economic Crisis
€ 30.00
€ 25.00
€ 20.00
€ 15.00
€ 10.00
€ 5.00
Sources: ECX & Bluenext
Dramatic Reduction Needed by 2050
Effort required to stabilize emissions by 2050 (GtCO2e)
• Dramatic emission reductions required.
Otherwise emissions and temperature will
rise to unacceptable levels.
• Stabilization at 550 ppm CO2e by 2050 needs
emissions to go down 60% from business-asusual.
• Mitigation efforts over the next two to three
decades will be critical.
Source: Stern, 2007
Volume of carbon transacted (GtCO2e)
• 50 GtCO2e per year needed by 2050.
4.50
4.00
G tCO2e transacted
3.50
3.00
Other
2.50
JI
2.00
CDM
• Current carbon trading is 4 GtCO2e but actual
volume of reduction barely half of that
amount as the market includes large trade in
permits (quotas repeatedly changing hands).
EU ETS
1.50
• Enormous gap between effort needed and
current volumes.
1.00
0.50
0.00
2004
2005
2006
2007
2008 (forecast)
Brazil
16
India
17
5
9
18
13
59
Significant Potential Yet to Tapped in CDM
46
37
China
2005
1. Location of CDM projects
(percentage of volume, 2007)
2006
2007*
2. Many countries are under-penetrated even
Many countriesrelative
are under-penetrated
relative to emissions
to their emissions
CDM activity by country, mid-2007
.
Mt CO2e/year
18
16
South Korea
14
12
Mexico
10
8
Malaysia
Chile
6
4
Qatar Algeria
Egypt
2
0
0
50
100
150
Venezuela
Argentina
South Africa
Thailand
Indonesia
Pakistan
Saudi Arabia
Iran
200
250
300
350
400
450
500
550
GHG emissions, 2000 (Mt CO2 e p.a.)
Source: UNEP, WRI, team analysis
•Uneven regional focus; China, India and Brazil = 85% of CDM market share;
•Just 16 projects in ECA = 4 Armenia, 1 Goergia, 3 Cyprus, 4 Moldova, 4 Uzbekistan
•Reductions from reforestation and avoided deforestation largely absent.
•Many countries with high emissions have relatively low presence in carbon markets.
Opportunities for Scale-up and Extension
Forestry is barely visible in CDM
64% of 2007 contracts for clean energy
other
renew ables
0%
20.0%
18.0%
17.4%
16.0%
N20
9%
Biomass
5%
14.0%
LFG
5%
Wind
7%
12.0%
CMM
5%
10.0%
8.0%
Waste
management
4%
Fugitive
Hydro
12%
6.0%
HFC
8%
4.0%
3%
2.0%
0.7%
Other
2%
0.0%
Land use, Land-use change and Forestry
Sources of GHG emissions
Share of CDM projects
EE+Fuel sw itch
40%
Agreement reached at Bali to move forward on Reduced
Emissions from Deforestation and Degradation (REDD),
providing opportunity for countries with tropical forests to
join the carbon markets.
Required now: build capacity to measure and verify
emissions associated with forests and bring these assets to
market as soon as international regulatory framework is in
place.
Building on success to scale up
Programmatic approaches will enable scaling
up/extending to interventions in key development
sectors (energy, appliances, waste management,
transport, and newer technologies). Approaches
compatible with financing provided by domestic FIs
need special attention.
Need for CDM Reform
DOE at validation or req. reg.
180 days
registered
348 days
issuance
328 days
2,645 projects
1,170 projects
403 projects
1,451 MCERs
1,342 MCERs
195 MCERs
2-year
delay
6%
EE
RE
Methane
Industrial
74% to high yield
projects (ind. gas)
Other
RE and EE (70%)
stuck somewhere
in the pipeline
70% of all projects (half
of volumes) have not
reached registration
Need for Strong Decisions
i
To provide long-term carbon price s Define a global goal for 2050 supported by
ignals and certainty to the private s ntermediate targets, to be agreed by the UNFCCC
process
ector
Build a truly global carbon market by linking
To facilitate access to new carbon m
regional carbon schemes and markets to each o
arkets and sources of capital and lo
ther through increased access, converging prices a
wer costs of abatement
nd harmonized products
To accelerate low-carbon growth
n developing countries
To scale up and deepen access to
arbon markets and finance
Reform the existing market-based mechanisms
i and explore new policy instruments – reduced
transaction costs, streamlined process, simplified
methodologies
c
Facilitate the transfer of low-carbon technologies
and establish sector-based programs to enable
larger scale investments in cleaner development
Key Messages on Carbon Market
1.
Market can play an important role in Greenhouse gas (GHG) emissions
reduction
2.
Technologies are available now that enable substantial reductions at a
cceptable marginal abatement costs
3.
A variety of policies can lead to reductions of GHG emissions; carbon
markets are needed to implement cap-and-trade and can interconnect
policy measures
4.
A deep, liquid and global carbon market has the potential to deliver
significant benefits to all participants, including for development
5.
But countries will need to take decisions to establish long-term price
ignals and gain the full benefits of carbon markets
s