Negociaciones Internacionales y Mercados Emergentes, Niclas Svenningsen, UNFCCC


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Negociaciones Internacionales y Mercados Emergentes, Niclas Svenningsen, UNFCCC

  1. 1. Emerging Marketsand International NegotiationsChile-CO2 SeminarSantiago, Chile, 17 January 2012 Niclas Svenningsen Manager Strategy & Policy, UNFCCC
  2. 2. Content 1. Snapshot of Carbon markets today 2. COP 17 Durban Decisions 3. Emerging Markets 4. What‟s next? 5. Conclusion 2
  3. 3. Snapshot: Basic Principles for Carbon Markets1. Creation & trade of offset units2. Allows investment in emission reductions where it is financially most beneficial (“most bang for the buck”)3. Engages private sector investments in climate mitigationOptionalA. Verification of offsetsB. Types of offset (type of activities, gases, sectors, countries…)C. Contribution to other objectives (e.g. sustainable development)D. Design of market based mechanism (allowances, carry-over, reduction targets, penalties…) 3
  4. 4. Snapshot: Carbon Market Value 2010 Value (million US$) 119,800 120000 100000 80000 60000 40000 19,800 20000 1,100 1,200 0 EU-ETS CDM Other markets1,1 Voluntary Source: World Bank 2011 4
  5. 5. Snapshot: CDM development Source: UNFCCC 2011 5
  6. 6. Snapshot: registered CDM project 2011 Source: UNFCCC 2011 6
  7. 7. Snapshot: No of CER issued by host country 7
  8. 8. Snapshot: % CER issued by project type Wind Biomass Biomass Cement CO2 usage Coal bed methane N2O Energy distribution EE Households EE Industry EE own generation EE service EE supply side Fossil fuel switch Fugitive Geothermal HFC HFC Hydro Hydro Landfill gas methane avoidance Source: UNFEP 2011 N2O PFC & SF6 8
  9. 9. Euros/t CO2 eqv Se 0 5 10 15 20 25 30 p- 0 8 N ov - 08 Ja n- 0 9 M ar -0 M 9 ay -0 9 Ju l-0 Se 9 p- 0 N 9 ov -0 Ja 9 CER n- 1 M 0 ar -1 M 0 ay -1 0 Ju Time l-1 Se 0 p- 1 EUA N 0 ov -1 Ja 0 n- 1 M 1 ar -1 M 1 ay -1 1 Ju l-1 Se 1 Snapshot: Offset prices: EUA & CER p- 1 N 1 ov -1 Ja 1 n- 129
  10. 10. Snapshot: Factors affecting carbon prices • Demand & supply • Mitigation targets • Auctioning of allocations • Carry-over of AAU • Hedging for future demand • Issuance under CDM • Macro-economic conditions • Euro-zone economic problems • Overall economic outlook (GDP) at demand side • Weather (cold winters increase demand) • Overall economic performance of commodities • Real or expected policy developments • Everything else… 10
  11. 11. Snapshot: Basic QuestionsCan mitigation targets (scientific or political) be reached without the active participation of the private sector? Are market based instruments likely to remain central components of the future climate regime? 11
  12. 12. Snapshot: Issues with CDM• Basic idea of offsetting – is it only moving mitigation from one country to another?• Additionality: How can we know that a project would not have happened without CDM?• Governance: CDM Executive Board Members appointed from regional groupings and in addition to other work (Conflict of interest)• Carbon leakage: Do companies “flee” countries with carbon markets?• Contribution to sustainable development: is it real?• Regional distribution: Why so many projects in so few countries?• Impact on mitigation: Is scale of mitigation sufficient? 12
  13. 13. COP 17: The Durban Platform• Decided to establish the Durban Platform for Enhanced Action• An agreement with legal force under the Convention applicable to all parties.• The ad-how working group on the Durban Platform shall start its work in 2012 and complete it by COP21 (2015)• The Durban Platform is to be implemented from 2020 13
  14. 14. COP 17: The Durban Decisions: CDM, JI & ET• The Kyoto Mechanisms will continue in a second commitment period • Duration of second commitment period 31 Dec 2017 or 2020, to be decided at CMP 8 / COP 18 (Nov/Dec 2012) • Economy-wide emission targets to be converted into QELRO‟s by 1 May 2012. • Carry over of AAU‟s to CP2 to be decided at CMP 8 • Carbon Capture & Storage included • NF3 added to Kyoto gases • Continued work on baselines, efficiency, suppressed demand… 14
  15. 15. COP 17: Decisions on New Mechanisms• A New Market Based Mechanism was “defined” (established) • Modalities and Procedures to be developed in 2012 • A core requirement for the EU to agree to a second commitment period• A work program to consider a Framework for Various Approaches was decided to be conducted in 2012. • Responds to Cancun mandate to consider various approaches for market based and non-market based mechanisms. • Seen by many parties as the “glue” to connect and recognize future national & regional mechanisms under UNFCCC. 15
  16. 16. COP 17: The New Market Based Mechanism• The New Market Based Mechanism • Can be seen as a new top-down (UNFCCC) common market based mechanism • Parties are still to agree on the features of this mechanism • EU has in earlier submission proposed a Sectoral Crediting Mechanism • To improve impact of market based mitigation • To move from projects towards mitigation in sectors, regions/cities, economies • To improve governance and efficiency • Other parties may have other views 16
  17. 17. COP 17: Framework for Various Approaches• Framework for Various Approaches • May allow offsets generated by national/ regional mechanisms to be recognized under UNFCCC. • Widely supported THAT a framework is needed to be established. • Diverging views about WHAT the Framework will be: • On one end Japan, USA, Canada: Wish to have a Framework with no prescriptions for what is accepted as mechanisms/offsets under UNFCCC. • On the other end, EU, EIG, AOSIS and most of G77: Wish to have clear rules governing requirements for mechanisms/offsets to be recognized under UNFCCC. 17
  18. 18. COP 17: Existing vs. New Mechanisms• New Mechanisms are expected to maintain and build existing KP mechanisms. • CDM, JI, ET to continue at least until end of second commitment period (2017 or 2020) • Procedures and modalities for the New Market Mechanism, as well as the Framework, to be considered at COP 18 (Nov/Dec 2012)• New Mechanisms are not intended to replace CDM/JI (not at first instance at least) but to complement them.• Clear move towards an expanded market with room for more mechanisms. • Role of UNFCCC support function for mechanisms may change considerably. 18
  19. 19. Emerging Markets: EU-ETS• Four key developments: • Cap: 20% by 2020…or 30%? • Inclusion of aviation from 1 January 2012 (183 Mt CO2-e/year) • Quantitative restrictions: ~2,4 billion t CO2-e from 2008 to 2020. To be reached by mid-2013? • Qualitative restrictions: • No industrial gas projects • Only projects from LDCs registered after 2012 • No large dam projects not complying with World Commission on Dams guidelines Over supply internally and restricted demand for external offset credits 19
  20. 20. Emerging Markets: Australia & New ZealandAustralia• Carbon mechanisms law passed (Nov 2011)• Tax to take effect mid-2012 before moving to a carbon-trading scheme in mid 2015• KP units fungible as of 2015• Price initially set at A$23 per tonne (until 2015)• Aims to cut carbon pollution by 159 million tonnes by 2020 or by 5 percent based on year 2000 levelsNew Zealand• NZ-ETS set to reach full coverage by 2015 (incl. agriculture),• Trading at 14 NZ$ (8 Eur) per tonne• NZ-ETS seeking to link with Aust-ETS by 2015 20
  21. 21. Emerging Markets: North AmericaCalifornia• Carbon caps from 2013, covering 600 oil refineries and factories (more than 25.000 tonnes CO2-e/year)• Target: 22% reduction by 2020 compared to 1990: Covering 85% of emissions from 2015 (incl. transport),• 8% of reductions eligible for offsetting = ~221 million tonnes CO2 eqv 2012-2020. Possible linking with external markets.Quebec• Cap & Trade scheme with first compliance period 2013-2014. Cover industry and power sectors with more than 25.000 t CO2-e /year.• Allowances based on unit of production. Reduced by 1-2% per year• Developed as part of Western Climate Initiative and intend to link with other schemes, incl California. 21
  22. 22. Emerging Markets: China & IndiaChina• Seven regional pilot schemes to be launched in 2013, possibly being replaced by a national market in 2015.• Linked to national 5-year targets for energy carbon and energy intensity. Covers power sector + potentially cement, steel & buildings.• May cover up to 40% of energy related GHG emissions• National registry under developmentIndia:• Perform & Trade Scheme covers 9 industrial sectors (25% of GDP, 45% of commercial energy use). First 3-year period to start in 2012(?)• Users are provided with energy consumption target. Users exceeding targets receives tradable energy saving certificates• Design still in early phases and no experience gained so far. 22
  23. 23. Emerging Markets: JapanJapan:• 50-60% emission reduction target by 2050 but Japan does not intend to sign on to second KP commitment period.• Several domestic markets, including: • Japan Voluntary Emission Trading Scheme • Tokyo ETS: 300+ projects covering 220.000 t CO2 eqv at average price of US$ 198/t CO2 eqv • Keidaren (Japan business federation) Voluntary Action Plan• 320 million credits purchased in CP1. Expected to increase in CP2 even without formal CP2 commitment.• Pursuing bilateral offset schemes with Asia and African countries; 90 Bilateral Offset Credit Mechanism projects under consideration. 23
  24. 24. Emerging Markets: Korea & PMRRepublic of Korea• Low Carbon Green Growth Act (2010) sets 30% mitigation target by 2020 = ~400 million tons/year• Plans to expand existing voluntary Korea Emission Trading scheme (KET) to it make mandatory for 300 largest companies by 2015 to cover 60% of national GHG emissions.• Intended to be linked with KP (UNFCCC markets).World Bank Partnership for Market Readiness (PMR)• Provides up to US$ 100 million grant funding for testing of new market instruments for both domestic and international markets.• Confirmed participating countries include Brazil, Chile, China, Colombia, Costa Rica, India, Jordan, Mexico, Morocco, South Africa, Indonesia, Thailand, Turkey, Ukraine and Vietnam 24
  25. 25. Emerging Markets: Big Picture • Significant and increasing attention to carbon markets. • Markets developed as domestic schemes but with scope to link with other markets • More mature markets (e.g. EU-ETS) is looking for reforming existing mechanisms to increase efficiency • Market developers are not waiting for UNFCCC 25
  26. 26. What‟s next? - Linking Markets?• On one side: KP mechanisms + new market mechanism + framework.• On the other side: large number of emerging national market based mechanisms.• The Framework for Various Approaches could serve to link mechanisms, with some obvious benefits: • Recognition of offsets under UNFCCC (e.g internationally tradable) • Increased access to supply & demand options • Reduced exposure to national/regional economic cycles (but global ones) 26
  27. 27. „What‟s next? - Linking Markets?• But linking requires common minimum requirements, such as: • Type and scope of schemes • Transparency & verification • Methodologies / baseline calculations • Comparable (linkable) policies for allocation and auctioning• Mechanism operating purely inside a country are not concerned.• Likewise, international mechanisms can be established outside a UNFCCC Framework IF participating countries do not count offsets towards national UNFCCC mitigation targets OR IF all participating countries supply national inventories according to UNFCCC process (similar to the case of EU-ETS). 27
  28. 28. What is next? – Supply-Demand equation Anticipated changes in supply-demandApprox. 3,0 Bt CO2-e in CDM 2,3-3,0 Bt CO2-e in EU-pipeline until 2020. KP markets ETS, Japan, Switzerland Supply Demand Other markets + New markets: Australia,+ JI (100-150 Mt by 2020) NZ, Korea (530 Mt CO2-e)+ CCS (100-300 Mt/year by 2020) New markets: California,+ Non-KP (bilateral agreements) Quebec..- China domestic (60% of global supply) + New markets: Brazil, Chile, India (PMR)? Carry over and possible use of AAU (7,9 Bt CO2-e) - EU limits: type and amount (2,4 Bt) 28
  29. 29. What„s next? - Other items in the news China to up CO2 targets for heaviest emitters Deutsche books 310 mln euro charge for CO2 fraud GDP growth biggest threat to China CO2 targets: report CDM clean coal projects at risk after Meth Panel thumbs-down Spain approves 3.4 million euros for World Bank fund Ukraine gets cash to ready CO2 marketEU steel output rises 4.3 pct in Jan-Sep World has 5 years to avoid dangerous climate change: IEA Broker exodus from primary CDM market continues CEZ coal-based power output down 0.7 pct Barcap slashes CO2 outlook, market in “dark place” WCI creates body to oversee carbon market Poland to give away fewer EUAs in 2012 Japan backs more studies on alternative CO2 offsets Irelands greenhouse gas emissions fall 1.1 pct in 2010EEX to sell Lithuanias surplus EUAs China sees first voluntary forest carbon trade UN chief says its time to cough up climate cash 29
  30. 30. Conclusion1. Markets mechanisms are highly likely to remain key components of the international climate cooperation architecture.2. Domestic markets are proven as means to engage private sector financing, and to redistribute investments to where they have the most impact.3. CDM shows that international carbon markets work, but is also a huge learning-by-doing project.4. Future international carbon markets will at least include CDM, JI, and a New Market Mechanism. 30
  31. 31. Conclusion5. Future carbon markets will include an expanding number of domestic markets.6. Future domestic markets may be linked, either under UNFCCC, or under bilateral agreements.7. “Interesting times” ahead! Keep eyes on negotiations and on domestic-regional developments up to 2015.8. Carbon prices remain subject to short-term expectations and vague long-term speculation. Don‟t get too jumpy even if the market does. 31
  32. 32. Thank You!For more information and access to reports,please refer 32