CARBON POLICY
Opportunities and Risks in Carbon Markets


         By Murray Ward
   for ABENGOA ZEROEMISSIONS

   CARBON ...
OK, it’s easy to feel a bit glum
  about the carbon market
Copenhagen Accord ….(what accord?)
  Weak and non-binding targe...
BUT STEP BACK!

  THE ULTIMATE DRIVER FOR
 CARBON MARKETS ISN’T WHAT
  GOVERNMENTS DO (OR NOT)

IT’S CLIMATE CHANGE … AND ...
“BIG PICTURE” CONTEXT
…which key Heads of State do seem to
  agree on (the 2oC version, anyway)
 To avoid the worst effect...
Investment is critical to 2oC
      In the coming decade we need to shift trillions of
      dollars of investment from a ...
Energy “green path” versus “brown”
World energy‐related CO2 emissions




Source: IEA WEO2009
Trillions of dollars of investments
Total global investment for power generation in the 450 Scenario




 Source: IEA WEO2...
Supply side and demand side
World energy‐related CO2 emission savings by policy measure 
in the 450 Scenario
             ...
In China, for example
Energy‐related CO2 emission savings by policy measure in the 
450 Scenario
                         ...
...and in power generation in China
Power generation capacity in the 450 Scenario, GW




Source: IEA WEO2009
What does a 1 GW increase mean?
Noting increase from 2007 in “wind and other renewables ”:
• in China, ~ 170 GW by 2020, 3...
The 2T per person challenge
THE POINT OF THESE “CHALLENGE”
SLIDES IN THE CONTEXT OF A TALK
    ON CARBON MARKETS … IS

   HOW CAN CARBON MARKETS
  INF...
HOW FAR HAVE WE COME?


  FIRST, SOME HISTORY
 AND FOUNDING THEORY
Carbon trading started with the
 Kyoto Protocol mechanisms
Article 17: International Emissions Trading
Article 6: Joint Im...
Why was Emissions Trading
        needed?
Trading….put simply
LULUCF and the CDM add ‘credits’
The mechanics of emissions trading
What are ‘allowances’ and how do they relate to the cap?
The mechanics of emissions trading
Emission Unit Registries and “Retiring” Units to Comply
Domestic implementation of
international emissions trading
     ……in principle anyway
The importance and role of Domestic
Emissions Trading Schemes (DETS)
It is firms and individuals who know their mitigation...
THAT WAS THE THEORY ANYWAY
DETS as intended and in practice
The “architects” of Kyoto expected relatively
open links between DETS and IET…and a
fungi...
DETS “walled cities”
CDM bridge between different DETS
An open international carbon market
Carbon trading in a post-2012 agreement
                        QUANTITATIVE ELEMENTS                                     ...
LOOMING RISKS FOR ETS
   COMPLIANCE DRIVEN
    CARBON MARKETS !


MOSTLY ON THE DEMAND SIDE
GAINS cost curves for pre- and post-crisis projections
Annex I, 2020 (excl. LULUCF)


                                    ...
CAN’T BASE INSIGHTS AND POLICY
DIRECTIONS ON JUST ONE SET OF
     MODEL RESULTS… BUT

  WEAK TARGETS AND SLOWER
ECONOMIES ...
MOREOVER, APART FROM THE EU
  ETS (WHICH MAY HAVE LIMITED
 DEMAND AND WHERE THERE WILL
  BE NEW CONSTRAINTS ON THE
SUPPLY ...
WHERE TO NOW?

  HOW CAN CARBON MARKETS
INFLUENCE THE CHANGE FROM
BUSINESS AS USUAL NEEDED …
    BETTER THAN OTHER
      I...
NEED “EVERY SECTOR” AND “EVERY
  TOOL IN THE POLICY TOOLKIT”

  CARBON MARKETS CAN PLAY A
      FUNDAMENTAL ROLE

Carbon M...
MARKETS EXIST WHERE SOMEBODY
 NEEDS A PRODUCT (OR SERVICE),
   SOMEBODY CAN CREATE THIS
    PRODUCT (OR SERVICE) AND
  INT...
WHO MIGHT SOME OF THE MARKET
 DEMAND SIDE SOMEBODIES BE?
SUB-NATIONAL LEVELS OF GOVERNMENT
 States and provinces may enact...
YES THERE CAN BE POTENTIAL
 OVERLAPS AND CONFLICTS ….WHICH
  NEED TO BE ADDRESSED WITHOUT
“MISSING THE FOREST FOR THE TREE...
THANK YOU
   Further Information:

murray.ward@gtriplec.co.nz


   www.GtripleC.co.nz




                             Gtr...
Oportunidades y riesgos en los mercados de Carbono
Oportunidades y riesgos en los mercados de Carbono
Oportunidades y riesgos en los mercados de Carbono
Oportunidades y riesgos en los mercados de Carbono
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Oportunidades y riesgos en los mercados de Carbono

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lo largo de estas jornadas, expertos nacionales e internacionales en el tema analizan la situación actual, tendencias futuras y principales retos que plantean los esquemas de reducción de emisiones y los mercados de carbono como herramientas en la lucha contra el calentamiento global, especialmente después de la cumbre de Copenhague. Murray Ward participa a esas jornadas con la ponencia "Oportunidades y riesgos en los mercados de Carbono".

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Oportunidades y riesgos en los mercados de Carbono

  1. 1. CARBON POLICY Opportunities and Risks in Carbon Markets By Murray Ward for ABENGOA ZEROEMISSIONS CARBON TRAINING Madrid, Spain 3 February 2010 GtripleC www.GtripleC.co.nz
  2. 2. OK, it’s easy to feel a bit glum about the carbon market Copenhagen Accord ….(what accord?) Weak and non-binding targets by developed countries – and unclear legal status of the Accord Two years of technical effort on REDD, CDM reform, enhanced mechanisms, treatment of CP1 surplus buried in [ …] in “L documents”, with unclear process ahead Domestic ETS schemes faltering US cap and trade bill may not go ahead in 2010 High politics in Australia Compliance demand weakened by recession
  3. 3. BUT STEP BACK! THE ULTIMATE DRIVER FOR CARBON MARKETS ISN’T WHAT GOVERNMENTS DO (OR NOT) IT’S CLIMATE CHANGE … AND HOW CARBON MARKETS CAN INFLUENCE THE INVESTMENTS NEEDED TO DEAL WITH IT
  4. 4. “BIG PICTURE” CONTEXT …which key Heads of State do seem to agree on (the 2oC version, anyway) To avoid the worst effects of climate change Global emissions need to peak within 2 decades And be halved by 2050 Means average global per capita of 2T CO2e “A matter of simple arithmetic” (Lord Stern) Massive global reductions needed in just four decades
  5. 5. Investment is critical to 2oC In the coming decade we need to shift trillions of dollars of investment from a (6oC) business-as-usual path to a 450 path. IEA call this “a revolution” ....but say it is possible. Source: IEA WEO2009
  6. 6. Energy “green path” versus “brown” World energy‐related CO2 emissions Source: IEA WEO2009
  7. 7. Trillions of dollars of investments Total global investment for power generation in the 450 Scenario Source: IEA WEO2009
  8. 8. Supply side and demand side World energy‐related CO2 emission savings by policy measure  in the 450 Scenario Incremental  cf Reference Source: IEA WEO2009
  9. 9. In China, for example Energy‐related CO2 emission savings by policy measure in the  450 Scenario Incremental  cf Reference Source: IEA WEO2009
  10. 10. ...and in power generation in China Power generation capacity in the 450 Scenario, GW Source: IEA WEO2009
  11. 11. What does a 1 GW increase mean? Noting increase from 2007 in “wind and other renewables ”: • in China, ~ 170 GW by 2020, 375 GW by 2030 • In India, ~ 30 GW by 2020, 55 GW by 2030 Size, MW # Plants for 1 GW Coal 1000 1 Gas 500 2 Nuclear 1000 1 Hydro - Small scale 10 100 Wind - on shore 50 20 Wind - off shore 300 3 Biomass-large 200 5 Biomass-small 10 100 Solar without thermal storage 50 20 Solar with thermal storage 15 67
  12. 12. The 2T per person challenge
  13. 13. THE POINT OF THESE “CHALLENGE” SLIDES IN THE CONTEXT OF A TALK ON CARBON MARKETS … IS HOW CAN CARBON MARKETS INFLUENCE THE CHANGE FROM BUSINESS AS USUAL INVESTMENTS NEEDED … BETTER THAN OTHER INTERVENTIONS TO CHANGE BAU? HOW ARE WE DOING?
  14. 14. HOW FAR HAVE WE COME? FIRST, SOME HISTORY AND FOUNDING THEORY
  15. 15. Carbon trading started with the Kyoto Protocol mechanisms Article 17: International Emissions Trading Article 6: Joint Implementation Article 12: The Clean Development Mechanism But US SO2 Trading Scheme was the model JI and CDM were innovations (and offsets), but relied on demand created in IET (initially)
  16. 16. Why was Emissions Trading needed?
  17. 17. Trading….put simply
  18. 18. LULUCF and the CDM add ‘credits’
  19. 19. The mechanics of emissions trading What are ‘allowances’ and how do they relate to the cap?
  20. 20. The mechanics of emissions trading Emission Unit Registries and “Retiring” Units to Comply
  21. 21. Domestic implementation of international emissions trading ……in principle anyway
  22. 22. The importance and role of Domestic Emissions Trading Schemes (DETS) It is firms and individuals who know their mitigation opportunities and costs
  23. 23. THAT WAS THE THEORY ANYWAY
  24. 24. DETS as intended and in practice The “architects” of Kyoto expected relatively open links between DETS and IET…and a fungible carbon commodity It mostly hasn’t worked out that way Instead different countries are developing their own units ….and are building carbon currency “walls” around their DETS jurisdictions EU ETS is a key example But walls were necessary when US pulled out of Kyoto and fundamentally disturbed the demand- supply balance in the Kyoto first period
  25. 25. DETS “walled cities”
  26. 26. CDM bridge between different DETS
  27. 27. An open international carbon market
  28. 28. Carbon trading in a post-2012 agreement QUANTITATIVE ELEMENTS  ‘THE BIGGER PICTURE’ ELEMENTS  that manage emissions and set the basis for a  GLOBAL CARBON MARKET  EXAMPLES OF POSSIBLE ELEMENTS 1) Sectoral ‘policy’ agreements, e.g.  Legend:  Unconstrained • IBFCs (if not under main quantitative ‘deal’)  FBTs in ICs  OR  • Electricity sector (e.g. % renewables,  Fixed and Binding Targets  IBFCs   ?  IBFCs     % CCS‐ready coal power plants, etc)   in Industrialised Countries  • Vehicles sector (e.g. vehicle emissions         intensity standards)  IBFCs  • Performance agreements in key emissions  International Bunker  FBTs in ICs  SNLTs  intensive commodity sectors   Fuel commitments  for DCs  • Commitment to SD‐PAMS in DCs (with    technology and financial support from ICs)  SNLTs in DCs  REDD  REDD  • Sustainable Forestry measures , e.g.  some Sector No‐Lose Targets  REDD, with financial support from ICs (if not  in some Developing Countries  OR ?  under main quantitative ‘deal’)  – example sectors:   • Technology R&D cooperation agreements  • Electricity Generation  Enhanced CDM‐ • Cooperative technology diffusion agreements  • Electricity Transmission & Distribution  type mechanism  acts in balance of  2) Measures to facilitate adaptation planning and  • Emissions intensive commodities:  ‘unconstrained’       implementation, especially for the most vulnerable  (cement, iron and steel, aluminium)  space       populations and ecosystems  • Oil and gas production (gas flaring)  • Other?  3) Financial mechanisms to provide support for         adaptation, capacity building and technology  REDD       deployment  Reducing Emissions from Deforestation and 4) Enabling environments  forest Degradation  • Creating conditions that attract investment  • Advancing ‘helpful’ measures in bilateral and  multilateral trade agreements  Source: “Architecture of a Global Climate Change Agreement” ( A Briefing Paper of the Breaking the Climate Deadlock initiative)
  29. 29. LOOMING RISKS FOR ETS COMPLIANCE DRIVEN CARBON MARKETS ! MOSTLY ON THE DEMAND SIDE
  30. 30. GAINS cost curves for pre- and post-crisis projections Annex I, 2020 (excl. LULUCF) Marginal abatement costs Total abatement costs (Carbon price) 120 0.5% WEO 2009 100 WEO 2008 WEO 2008 Annual mitgation costs [% of 2020 GDP] 0.4% Marginal abatement costs [€/tCO2eq] WEO 2009 80 0.3% Current pledges Current pledges 60 0.2% 40 0.1% 20 0 0.0% -20 -0.1% 5% 0% -5% -10 -15 -20 -25 -30 -35 5% 0% -5% -10% -15% -20% -25% -30% -35% % % % % % % GHG emissions in 2020 relative to 1990 GHG emissions in 2020 relative to 1990 (excl. LULUCF) (excl. LULUCF)
  31. 31. CAN’T BASE INSIGHTS AND POLICY DIRECTIONS ON JUST ONE SET OF MODEL RESULTS… BUT WEAK TARGETS AND SLOWER ECONOMIES (AND CARRIED OVER SURPLUSES FROM CP1) MEANS VERY LITTLE DEMAND, AND NEED FOR CONSTRAINTS ON SUPPLY TO MAINTAIN A PRICE FOR CARBON
  32. 32. MOREOVER, APART FROM THE EU ETS (WHICH MAY HAVE LIMITED DEMAND AND WHERE THERE WILL BE NEW CONSTRAINTS ON THE SUPPLY OF OFFSETS) WHAT OTHER COMPLIANCE DEMAND WILL EXIST? WILL AN IET MECHANISM SURVIVE? So sovereign demand, not just entity demand in DETS WILL DETS HAPPEN IN THE US, CANADA, JAPAN, AUSTRALIA … AND CREATE DEMAND?
  33. 33. WHERE TO NOW? HOW CAN CARBON MARKETS INFLUENCE THE CHANGE FROM BUSINESS AS USUAL NEEDED … BETTER THAN OTHER INTERVENTIONS AN OPPORTUNITY FOR INNOVATION …. SO OPTIMISM
  34. 34. NEED “EVERY SECTOR” AND “EVERY TOOL IN THE POLICY TOOLKIT” CARBON MARKETS CAN PLAY A FUNDAMENTAL ROLE Carbon Markets can be created by different policy tools: – Cap and Trade emissions trading schemes – Carbon ‘Offsets’ – Contestable Carbon Funds
  35. 35. MARKETS EXIST WHERE SOMEBODY NEEDS A PRODUCT (OR SERVICE), SOMEBODY CAN CREATE THIS PRODUCT (OR SERVICE) AND INTERMEDIARIES EXIST TO HELP CONNECT THE TWO PARTIES. THERE CAN BE MANY CARBON MARKETS, EACH DEPENDING ON PROGRAMS OF DEMAND AND SUPPLY. THEY MAY CONNECT, OR NOT.
  36. 36. WHO MIGHT SOME OF THE MARKET DEMAND SIDE SOMEBODIES BE? SUB-NATIONAL LEVELS OF GOVERNMENT States and provinces may enact DETS in their regions, and perhaps connect these with others CARBON NEUTRAL OR LOW CARBON FOOTPRINT PROGRAMS … WITH TRADING/OFFSET MECHANISMS Local governments and community groups Corporates, citizens groups, individuals A “BUNKERS CARBON FUND” FOR THE INTERNATIONAL AVIATION AND MARINE SECTORS
  37. 37. YES THERE CAN BE POTENTIAL OVERLAPS AND CONFLICTS ….WHICH NEED TO BE ADDRESSED WITHOUT “MISSING THE FOREST FOR THE TREES” ADDRESSING CLIMATE CHANGE IS NO LONGER AN INCREMENTAL OR EVOLUTIONARY GAME. THE IEA CHOSE THE WORD “REVOLUTION”. WHAT ROLE FOR CARBON MARKETS IN THE REVOLUTION?
  38. 38. THANK YOU Further Information: murray.ward@gtriplec.co.nz www.GtripleC.co.nz GtripleC

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