Future of Carbon in China - Beijing Energy Network

The Future of Carbon in China Beijing Energy Network John Romankiewicz © Bloomberg New Energy Finance, 2004-2010 April 21, 2010

Copyright and disclaimer • This publication is the copyright of Bloomberg New Energy Finance. No portion of this document may be photocopied, reproduced, scanned into an electronic system or transmitted, forwarded or distributed in any way without prior consent of Bloomberg New Energy Finance. • The information contained in this publication is derived from carefully selected public sources we believe are reasonable. We do not guarantee its accuracy or completeness and nothing in this document shall be construed to be a representation of such a guarantee. Any opinions expressed reflect the current judgment of the author of the relevant article or features, and does not necessarily reflect the opinion of Bloomberg New Energy Finance. The opinions presented are subject to change without notice. Bloomberg New Energy Finance accepts no responsibility for any liability arising from use of this document or its contents. Bloomberg New Energy Finance does not consider itself to undertake Regulated Activities as defined in Section 22 of the Financial Services and Markets Act 2000 and is not registered with the Financial Services Authority of the UK. 2 Beijing Energy Network presents BEER April 21, 2010

Bloomberg New Energy Finance 150 staff in 9 offices worldwide Clean energy, energy smart technologies, carbon markets Data and analysis covering policy, finance, technology, markets, and supply chain 3 Beijing Energy Network presents BEER April 21, 2010

Agenda Carbon: where do we stand? EU ETS/Kyoto Market Summary Price Scenarios CDM uncertainty China’s domestic market 4 Beijing Energy Network presents BEER April 21, 2010

Under BAU, global emissions increase 33% by 2020 70,000 60,000 Global emissions (MtCO2e) 50,000 Oceania Asia 40,000 Africa Europe 30,000 Latin America North America 20,000 GE2M 2010 Peak Scenario IEA WEO 2009 Reference Scenario 10,000 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Carbon market value is created when caps are put in place… 6 Beijing Energy Network presents BEER April 21, 2010

So…where are the carbon caps? 20-30% 1990 17% 40-45% 25% - 2005 intensity 1990 30% from BAU 36% from 25% BAU intensity 5-25% 2000 34% from BAU Copenhagen pledges fail the 2°C test 7 Beijing Energy Network presents BEER April 21, 2010

Market prices trading flat Spread remains narrow AAU trading activity picking up Price (€/t) Spread Volume (MtCO2e) 35 80% 200 70% 180 30 160 60% 25 140 50% 20 120 40% 100 15 30% 80 10 60 20% 40 5 10% 20 0 0% 0 Feb-10 Sep-08 Nov-08 Aug-09 Dec-09 Oct-09 Jul-08 Mar-09 Jul-09 May-08 Jan-09 May-09 Jan-09 Nov-08 Jul-09 Nov-09 Sep-08 Sep-09 Mar-09 May-09 CER discount EUA CER AAUs CERs Source: Bloomberg, ECX 9 Beijing Energy Network presents BEER April 21, 2010

Large range of potential demand given ETS possibilities Offset demand (MtCO2e) Price (€/t) 1,200 20 1,000 15 800 600 10 400 5 200 - 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Economy-wide US ETS Power-sector US ETS Australia Japan EU Price (Power-sector US ETS) Price (Economy-wide US ETS) Source: Bloomberg New Energy Finance 11 Beijing Energy Network presents BEER April 21, 2010

The future of CDM in China? ? CERs EU: 1.7 GtCO2e to 2020 Australia: 299 MtCO2e to 2020 Japan: 880 MtCO2e to 2020 US: Don’t count on it, legislation indicates sectoral, forestry, LDC preferences 13 Beijing Energy Network presents BEER April 21, 2010

The anatomy of an EB additionality crisis Meeting Rejections Corr. requests Review Main developments Beginning of reviews regarding tariff EB46 0 0 7 issue EB47 0 7 1 First Chinese wind project rejected* EB notices certain reductions over EB48 0 5 10 time EB49 0 11 4 E+/E- policy discussion begins EB50 0 6 7 “ Application of highest tariff ” EB51 8** 7 20*** 10 rejections ahead of COP15 Clifford Mahlung replaces Lex de EB52 6 27 6 Longe; decision on E+/E- policy guidance postponed Further evidence expected from EB53 0 6 0 DOEs Of 14 Chinese wind projects rejected to date, 8 were in Heilongjiang Highest historic tariff was 18–30% higher than RMB 0.61/kWh. Note: Table data points only include instances where tariff was main issue; *1st rejection not because of tariff issue; **2 unrejected; ***including 6 for 2nd review 14 Beijing Energy Network presents BEER April 21, 2010

Post-2012 uncertainty and wind controversy dampening new project activity Number of projects Reductions (MtCO2e/yr) 200 40 150 30 100 20 50 10 0 0 2005 2006 2007 2008 2009 2010 Projects Reductions Source: UNFCCC 15 Beijing Energy Network presents BEER April 21, 2010

Will NAMA targets be met with market mechanisms? Historic and projected carbon intensity Historic and projected grid capacity (GW) ($GDP/tCO2e [1990 prices]) 793GW 1520 GW (estimate) 0.9 1,600 0.8 0.7 32% 46% 1,200 0.6 reduction % renewables 0.5 800 0.4 45% target 24% 0.3 for 2020 400 0.2 0.1 0 0.0 2008 2020 1990 1995 2000 2005 2010 2015 2020 Thermal Nuclear Historic EIA scenario Large Hydro Small Hydro Wind Biomass and Waste Solar Source: Bloomberg, NDRC, EIA, NBS 17 Beijing Energy Network presents BEER April 21, 2010

The future of carbon in China? ? Traded markets Regulation 18 Beijing Energy Network presents BEER April 21, 2010

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Future of Carbon in China - Beijing Energy Network

by John Romankiewicz

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