Carbon Market Developments


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Presentation by Matt Walsh, Managing Director of New Zealand Carbon Farming, to the Private Forest Landowners Association (PFLA) at their AGM in Nanaimo, BC, June 20th, 2013. The presentation includes info about: climate change impacts; global trends; carbon 101; latest developments in Canada and California; Who buys credits? How much for?; trends to watch.

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Carbon Market Developments

  1. 1. PRESENTATION TO COVER  Climate Change Impacts  Global Trends  Carbon 101  Latest Developments  Canada  California  Who Buys Credits?  How Much For?  Trends to Watch….. Confidential – Property of NZ Carbon Farming 2
  2. 2. The World Mean Temperature is Increasing (Degrees C) Page 3. 13 13.5 14 14.5 15 1960 1970 1980 1990 2000 2010 Source Economist Confidential – Property of NZ Carbon Farming
  3. 3. 4 Climate Change Prediction* o “By 2100 average global temperatures will be 2°F to 11.5°F higher than now” o “These higher temperatures will:  Raise sea levels ;  produce more-frequent, extreme and damaging weather events, such as wildfires, heat waves, storms, and droughts;  disrupt ecosystems and crop production;  increase heat-related deaths;  require costly adaptation;  produce many other monetary and non monetary consequences” *(Source US National Academy of Sciences 2012). Confidential – Property of NZ Carbon Farming
  4. 4. Climate Policy Momentum 1990 5
  5. 5. Climate Policy Momentum 2010 6
  6. 6. Climate Policy Momentum 2012 7
  7. 7. Climate Policy Momentum 2013 8
  8. 8. Climate Policy Momentum 2015 9
  9. 9. Climate Policy Momentum 2020 10
  10. 10. 11 Climate Policy Momentum What is Driving This Growth? Key: Momentum has continued during the GFC Why?: 1. Voters worldwide are aware of weather change; 2. Voters worldwide care about saving the planet; 3. Consumers prefer products made by carbon neutral businesses; and 4. Carbon trading is a hidden tax that increases a government’s domestic tax take
  11. 11. DIRTY LITTLE SECRET….. Confidential – Property of NZ Carbon Farming FOREST OWNER FOREST OWNER GOVERNMENTGOVERNMENT ENERGY & OIL COMPANIES ENERGY & OIL COMPANIES Mapping, certification, credit sale commissions etc Carbon Credits Pass on cost Carbon Credits CONSULTANTSCONSULTANTS CUSTOMERSCUSTOMERS Sell credits
  12. 12. Carbon Market Growth During GFC Page 13. Source: Bloomberg Carbon Market Update October 2012
  13. 13. 63 81 86 96 61 83 96 330 405 333 404 499 578 0 100 200 300 400 500 600 700 2008 2010 2012 2014 2016 2018 2020 Australia California CDM/JI EUA Projected Growth in the Carbon Market (€bn/year) Source: Bloomberg New Energy Finance 14
  14. 14. CARBON 101 o Most developed countries have signed a treaty to reduce pollution – “Kyoto Protocol” o Obligation to reduce “emissions” o One way for companies that pollute the air to ‘offset’ their pollution is to buy carbon credits o Trees absorb & store CO2 (in trunk & roots) and carbon credits are earned as a result o But CO2 is deemed to be “released” from forest on harvest (but this rule is changing) o Climate change concerns have created significant commercial opportunities Confidential – Property of NZ Carbon Farming 15
  15. 15. CARBON 101 A “carbon credit” represents 1 tonne of CO2 Confidential – Property of NZ Carbon Farming 16
  16. 16. LATEST DEVELOPMENTS - CHINA o China is the world leader in climate change policy development. Why? o Domestic imperatives: 1. feed their people; and 2. avoid civil unrest o China is driving climate change policy worldwide through its trade agreements o Countries who want to trade with China will need climate change policy o China is driving for global treaty from 2015 o 7 carbon trading pilots starting in China this year o National coverage from 2015 Confidential – Property of NZ Carbon Farming 17
  17. 17. LATEST DEVELOPMENTS - US o Obama pledged Federal climate change policy in his acceptance speech: “Climate change is the threat of our time” o Announcement could be as early as next week o No legislation or congress funding required o Likely to take the form of EPA type initiative against power stations but could enable purchase of carbon credits by those stations o Canada will be under pressure to conform to a Federal climate change policy in the US* o This will likely re-ignite the Federal debate on climate change policy in Canada *Financial Post Confidential – Property of NZ Carbon Farming 18
  18. 18. CARBON MARKET - CANADA o Canada withdrew from Kyoto treaty in December o Canada emissions up 30% since Kyoto to about 700 million tonnes pa – this is the key reason for Canada’s exit o Canada voted worst OECD country on climate change policy & 4TH worst globally o Govt purchased credits from Darkwoods project to make Olympics “carbon neutral” o Support for climate change policy is likely to be province by province until US has Federal policy or China pushes trade policy o 4 provinces are part of the “Western Climate Initiative” (including BC) Confidential – Property of NZ Carbon Farming 19
  19. 19. CARBON MARKET - CALIFORNIA o Leader of the “Western Climate Initiative” o Carbon market opened for biz in 2011 o Recently linked with Quebec to form world’s second largest carbon market o Energy emitters have compliance obligations now – oil from 2015 o 400 million+ credits will be required to 2020 o Significant proportion will come from forestry:  Standards will be published over the summer but is likely to include rotational forestry;  Heavy lobbying by US forestry sector; Key opportunity for BC forest owners Confidential – Property of NZ Carbon Farming 20
  20. 20. WHO BUYS CREDITS? 1. Compliance Buyers (emitters) o By far the biggest segment o Buying for today’s obligations & and locking in future positions o Energy, Oil & manufacturing o ‘Value added’ credits attractive 2. Voluntary Market o Buying for ‘carbon neutral’ branding o Strongly growing market segment o Forest credits seen as “green” Confidential – Property of NZ Carbon Farming 21
  21. 21. MARKETS FOR CANADIAN FORESTRY CREDITS 1. BC is part of the “Western Climate Initiative”  Credits generated by members ‘should’ be tradable across borders  You ‘should’ be able to sell credits locally & to the other members e.g. California  But political intervention risk here  Carefully watch California forestry standards 2. Global voluntary market 3. Pacific Carbon Trust 4. Emerging markets e.g. Europe, South Korea & Australia Confidential – Property of NZ Carbon Farming 22
  22. 22. CALIFORNIA CARBON BUYERS o There are 3 major energy utilities who need large scale credits: 1. Pacific Gas & Electric 2. Southern California Edison 3. San Diego Gas & Electric o These emitters have the power to buy ‘forward’ o Long term ‘offtake’ agreements are now being negotiated o Emitters are starting to buy heavily o “Right now” opportunities to presell credits Confidential – Property of NZ Carbon Farming 23
  23. 23. HOW MUCH DO I GET? o Depending on the certification standard you select, you will have access to global markets: Voluntary = US$2-3 per credit Compliance = US$15+ per credit o Price forecast to hit US$70-100 by 2020 o A carbon price of US$50+ is required to create meaningful emitter behaviour change o Scale players will be able deal direct with emitters and secure long term deals – 15+ yrs o Smaller players will need a broker Confidential – Property of NZ Carbon Farming 24
  24. 24. CAN I HAVE IT ALL? Confidential – Property of NZ Carbon Farming OR 25
  25. 25. Confidential – Property of NZ Carbon Farming 31 26
  26. 26. KEY TRENDS TO WATCH 1. US Federal policy – next few weeks 2. California carbon market standards:  Rotational forestry is likely to be included in some form  Eligibility of BC forestry in California 3. “Harvested Wood Products” rules  Harvested forests retain carbon  Likely to be introduced globally  Will enable rotational forests to be included Confidential – Property of NZ Carbon Farming 27
  27. 27. STRATEGIC POSITIONING o Carbon is here to stay o Foresters who move first will harvest biggest returns from carbon o BUT the market is still emerging and will take 1-2 more years to settle down o Your focus should be on:  California as a market;  ‘Compliance’ credits are where the money is…..not voluntary credits; and  Partnering with an expert – avoid cowboys Confidential – Property of NZ Carbon Farming 28
  28. 28. SUMMARY Confidential – Property of NZ Carbon Farming 29