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Climate change and climate policies


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Climate change: a summary
Climate Policies in a nutshell
Introduction to carbon markets

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Climate change and climate policies

  1. 1. Climate Change and Climate Policies Arnaud Brohé (CO2logic/ULB) 1
  2. 2. Agenda1) Climate Change: greenhouse gas effect, causes and consequences2) Political response3) Zoom on carbon markets4) CO2logic: case studies 2
  3. 3. What changes climate?• • Changes in: Changes in: – Sun’s output – Sun’s output – Earth’s orbit – Earth’s orbit – Drifting continents – Drifting continents – Volcanic eruptions – Volcanic eruptions – Greenhouse gases – Greenhouse gases 3 © The COMET Program
  4. 4. “Greenhouse effect”• Changes in: – Sun’s output – Earth’s orbit – Drifting continents – Volcanic eruptions – Greenhouse gases 4 © The COMET Program
  5. 5. Increasing greenhouse gases trap more heat• Changes in: – Sun’s output – Earth’s orbit – Drifting continents – Volcanic eruptions – Greenhouse gases 5 © The COMET Program
  6. 6. Greenhouse gases Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 6 © The COMET Program
  7. 7. Could the warming be natural? Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 7
  8. 8. Trends in atmospheric CO2 concentration Carbon dioxide Nitrous oxide Methane Water Sulfur hexafluoride 8
  9. 9. Is it real? Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 9
  10. 10. Hottest Years Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 10
  11. 11. Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 11
  12. 12. IPCC FAR (2007)• Warming of the climate system is unequivocal• Very high confidence that global average net effect of human activities since 1750 one of warming• Human-caused warming over last 30 years has likely had a visible influence on many dioxide and biological Carbon physical Nitrous oxide systems Methane• Continued GHG emissions at or above current rates would cause further warming and induce many changes in the global climate system during the 21st century that would very likely be larger than those observed during the 20th century.” Water Sulfur hexafluoride 12
  13. 13. What the future holds for our climate? Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 13
  14. 14. What the future holds for our climate? Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 14
  15. 15. Where do GHGs emissions come from? Carbon dioxide Nitrous oxide Methane Water Sulfur hexafluoride 15
  16. 16. Another look at GHG emissions Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 16 WRI
  17. 17. Another look at GHG emissions Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 17 WRI
  18. 18. CO2 emissions by source Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 18
  19. 19. GHG emissions by source Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 19 IPCC 2007
  20. 20. GHG emissions by sourceNitrous oxide Methane Water 20 WRI
  21. 21. Trends Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 21
  22. 22. Energy challengeEcofys, energy scenarion, Dec. 2010 22
  23. 23. Energy challengeEcofys, energy scenarion, Dec. 2010 23
  24. 24. Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 24
  25. 25. Natural consequences
  26. 26. Carbon dioxideNitrous oxide Methane Water Sulfur hexafluoride 26
  27. 27. 27
  28. 28. Socio-economic consequences
  29. 29. August 3-14 2003
  30. 30. Political response 30
  31. 31. 31
  32. 32. Political Context• 1972: Stockholm (first UN conference on the Human Environment). Establishment of UNEPPrinciple 1Man has the fundamental right to freedom, equality and adequate conditions of life, in an environment ofa quality that permits a life of dignity and well-being, and he bears a solemn responsibility to protect andimprove the environment for present and future generations. d.Principle 2The natural resources of the earth, including the air, water, land, flora and fauna and especiallyrepresentative samples of natural ecosystems, must be safeguarded for the benefit of present and futuregenerations through careful planning or management, as appropriate.Principle 3The capacity of the earth to produce vital renewable resources must be maintained and, whereverpracticable, restored or improved.Principle 5The non-renewable resources of the earth must be employed in such a way as to guard against thedanger of their future exhaustion and to ensure that benefits from such employment are shared by allmankind.Principle 8Economic and social development is essential for ensuring a favorable living and working environment forman and for creating conditions on earth that are necessary for the improvement of the quality of life. 32
  33. 33. Principle 11The environmental policies of all States should enhance and not adversely affect the present or futuredevelopment potential of developing countries, nor should they hamper the attainmentof better living conditions for all, and appropriate steps should be taken by States and internationalorganizations with a view to reaching agreement on meeting the possible national and internationaleconomic consequences resulting from the application of environmental measures.Principle 14Rational planning constitutes an essential tool for reconciling any conflict between the needs ofdevelopment and the need to protect and improve the environment.Principle 18Science and technology, as part of their contribution to economic and social development, must be appliedto the identification, avoidance and control of environmental risks and the solution of environmentalproblems and for the common good of mankind.Principle 19Education in environmental matters, for the younger generation as well as adults, giving due considerationto the underprivileged, is essential in order to broaden the basis for an enlightened opinion and responsibleconduct by individuals, enterprises and communities in protecting and improving the environment in its fullhuman dimension.Principle 20Scientific research and development in the context of environmental problems, both national andmultinational, must be promoted in all countries, especially the developing countries.Principle 22States shall cooperate to develop further the international law regarding liability and compensation for thevictims of pollution and other environmental damage caused by activities within the jurisdiction or controlof such States to areas beyond their jurisdiction. 33
  34. 34. Political Context• 1980s: several intergovernmental conferences on CC are organized• 1987: Brundtland report• 1988: IPCC is established (by WMO and UNEP)• 1990: First Assessment Report by IPCC• 1992: Earth Summit (Rio) • Agenda 21 • Conventions on Climate, biodiversity and desertification 34
  35. 35. UNFCCCIntroduced in 1992 in Rio at the ‘Earth Summit’. It commits governmentsto a voluntary “non-binding aim” to reduce atmospheric concentrationsof greenhouse gases to prevent man-made interference with Earth’sclimate system.The Convention entered into force on the 21st of March 1994 and hasbeen ratified by 196 countries.The Convention divides countries (referred to as parties) into three main groupsaccording to differing commitments:Annex I: Include the industrialized countries.Non-Annex I: This group is comprised of mostly developing countries. The 49countries classified as least developed countries (LDCs) by the United Nations aregiven special consideration under the Convention on account of their limitedcapacity to respond to climate change and adapt to its adverse effects. 35
  36. 36. Political Context 36
  37. 37. The Kyoto Protocol• Protocol to the UNFCCC• Inspired by (US) The Clean Air Act (market based instruments)• First Draft of a Global Emissions Trading System• Cap and Trade system • Target emission level: 5.2% below 1990 emissions on average during “First Commitment period” 2008 – 2012• Two categories of countries: Capped countries (developed countries) a/o all EU members, Russia, Ukraine, Japan, Canada, New Zealand, Australia: • Targets to reduce emissions Non-capped countries (a/o Brazil, China, India): • No obligation to reduce, but incentive to do so through the “Clean Development Mechanism”....• Complex rules to define the baseline 37
  38. 38. The Kyoto Protocol 38
  39. 39. What is in the Copenhagen Accord?The Copenhagen Accord is a short single document of just over two pages.• On the politics: acknowledgement of the seriousness of the problem and need for urgent collective action in line with existing principles• On the science: endorsement of the IPCC’s recommendation that global temperature increase be kept below 2 deg C• On adaptation: agreement that developed countries will provide adequate and predictable financial, technical and capacity-building support to developing countries.• On developed country mitigation: agreement that Annex 1 parties will commit to quantified economy–wide emission reduction by 2020 (although with no individual or aggregate targets given).These targets as well as financing to support developing country climate action, are to be monitored, reported and verified.• On finance levels: commitment by developed countries to provide US$30 billion in short- term financing between 2010 and 2012 and to mobilize US$100 billion per annum by 2020. This will be from public, private, multilateral and alternative sources. Funding will be used for mitigation, adaptation, technology transfer and capacity-building in developing countries. 39
  40. 40. Durban conference agreement on a second commitment period for the Kyoto Protocol (under which developed countries would take on legally-binding commitments post-2012); progress on a broader, comprehensive agreement that includes all major emitters progress in operationalizing new institutions such as the Technology Mechanism and Green Climate Fund Japan, Canada and the Russian Federation have all recently declared that they will not join in a second commitment period under the Protocol. With the US never ratifying, only a diminished group —the EU, Norway, Switzerland and a few others— now appear willing to sign on the dotted line 40
  41. 41. EU Climate Policies – 20/20/20In 2007 EU leaders made a unilateral commitment that Europe would cut its emissionsby at least 20% of 1990 levels by 2020. This commitment is being implemented througha package of binding legislation.The EU has also offered to increase its emissions reduction to 30% by 2020, oncondition that other major emitting countries in the developed and developing worldscommit to do their fair share under a future global climate agreement. This agreementshould take effect at the start of 2013 when the Kyoto Protocols first commitmentperiod will have expired. 41
  42. 42. Zoom on carbon markets 42
  43. 43. Internalize externalities3 main approaches- Standards and regulations- Pigouvian Tax/subsidies- Define property rights and establish a market (Coase, 1960)(e.g. SO2 and NOx allowances in the US, CO2 market in the EU…) Brohé et al., 2009, Carbon Markets
  44. 44. Internalize externalitiesPrice Pigou tax Supply Demand Q optimum Q market Quantity
  45. 45. A new market mechanism A B A+B Abatement Cost Gain A MACA Gain BPermit price = MACAB MACB QA QB QA+QB Purchased Sold permits Emission permits reductions
  46. 46. Abatement Cost Curve McKinsey 46
  47. 47. Carbon trading in one minute Company/country A Company/country B - 10t + 10t Evolution from a “free and universal right to pollute” Emissions from every company/country are capped One can reduce further than its cap at a lower cost The other one does not meet its target and pay for the extra reduction made by the first Globally GHG emissions are reduced at a lower costs
  48. 48. Carbon trading in one minute Brohé et al., 2009, Carbon Markets
  49. 49. The Characteristics of Kyoto’s market• Ceiling and Period • Allowances and credits (AAU, CER, ERU, RMU) • General Principles • Allocation (grandfathering) • European Bubble • Monitoring and reporting • Exclusion of Forestry • National Registry and ITL • Inclusion of all Greenhouse Gases • Flexibility in setting the year of • Sanctions reference • Exclusion of international aerial and maritime transportation 49
  50. 50. The Kyoto Protocol: ObjectivesCountries (Appendix I) ObjectivesEU-15, New Member States, and Switzerland 8% decreaseCanada, Japan 6% decreaseNew-Zealand, Russia, Ukraine 0% constant emissionsUSA 7% decreaseNorway 1% increaseAustralia 8% increase 50
  51. 51. Brohé et al., 2009, Carbon Markets 51
  52. 52. Clean Development Mechanism (CDM) Brohé et al., 2009, Carbon Markets 52
  53. 53. Clean Development Mechanism (CDM) Developed by the United Nations under the Kyoto Protocol, completed with the Marrakesh Accords Historical Pollution Responsibility of Developed Countries Developing Countries will be most affected by Climate Change Lower Cost Emission Reductions Advantages from moving quickly Transfer of Technology to LDCs CDM EB, DOE, DNA, etc. PIN, PDD and additionality test 53
  54. 54. Clean Development Mechanism (CDM) Brohé et al., 2009, Carbon Markets 54
  55. 55. Issues with the CDM Transaction costs Geographical distribution of projects Industrial projects (HFCs, dam, etc.) Insufficient capital flows Social equity and sustainable development goals are far from achieved Overall climate impact and additionality 55
  56. 56. Geographical distribution UNEP RISØ OCTOBER 2011 56
  57. 57. Geographical distributionUNEP RISØ OCTOBER 2011 57
  58. 58. Project type (% of expected credits until 2012) UNEP RISØ OCTOBER 2011 58
  59. 59. Programmatic CDM E.g.: soft loans programs to promote energy efficiency measures or renewable energy (solar cookers, efficient cookstoves, insulation programs, motor replacement, biofuel, etc.) The program is the project Pro: broaden the scope, reach the household, transportation and SME sectors in particular in LDC and poor communities Program can be a private sector initiative or a government measure Program can be voluntary or mandatory Type, size and timing of the actions may not be known at the point of registration 59
  60. 60. Programmatic CDMUNEP RISØ OCTOBER 2011 60
  61. 61. Programmatic CDMUNEP RISØ OCTOBER 2011 61
  62. 62. EU Emission Trading System political context • Kyoto Protocol Ratification • Incertitude over the Entry Into Force of the Protocol • Failure of a Carbon Tax • Development of Different National Initiatives (UK, Denmark) 62
  63. 63. CharacteristicsThe principal response from the EU to achieve Kyoto targets in EU MS• EU has passed through its obligations and imposed limits for greenhouse gas emissions on site level.• The EU ETS is therefore a sub-market of the Kyoto market.  +10,000 installations in the EU (main emitters)  Cap and Trade system:  Installations are entitled EU Allowances (EUA)  At the end of each year, companies have to surrender an EUA for each ton of emissions (CO2) they emit  High penalty for non compliance - EUR 100/ton CO2  3 phases/ periods: 2005 - 2007 / 2008 - 2012 / 2012 – 2020, more to follow 63
  64. 64. Characteristics• Directive 2003/87/EC• National Allocation Plan (over-allocation, favoritism, complexity)• Linking Directive (EUA=CER=ERU)• Monitoring and reporting (calculate or measure)•Registry and CITL• Penalties (no price cap!) 64
  65. 65. Company A (in EU) Company B (in EU) Company CAllowance: 100 tCO2 Allowance: 100 tCO2 (OUTSIDE ANNEX I)Real Emissions: 110 tCO2 Real Emission: 90 tCO2 Allowance: NAShortage: 10 tCO2 Surplus: 10 tCO2 Emissions before: 100 tCO2 Project reduces emissions:Option 1: -10 tCO2Company A reduces its own emissions by 10 t Emissions after: 90 tCO2 CERs: 10 tonne CO2Option 2:Company A buys 10 tonnes of Allowances from company BOption 3:Company A buys 10 Certified Emission Reductions (CER’s) from company C 65
  66. 66. Price evolution 66
  67. 67. Brohé et al., 2009, Carbon Markets 67
  68. 68. Brohé et al., 2009, Carbon Markets 68
  69. 69. Impact of CO2 Prices on Energy• Influences the order of preference (natural gas precedes coal)• Windfall profits (if allowances are allocated at no cost) Clean darkspread and clean sparkspread in the UK in 2005 69
  70. 70. Developments of the EU ETS• Enlargment to other countries (EEA)• Inclusion of the aviation sector•Expansion to other gases (NOx, PFCs)•Exclusion for smaller installations•EU wide cap•New project mechanism•Flexibility with a future international agreement 70
  71. 71. Limitation of GHG emissions in non – EU ETS sectors in 2020 with regards to 2005(% of emissions with regards to year of reference) Germany 86 France 86 Netherlands 84 Austria 84 Greece 96 Poland 114 Belgium 85 Hungary 110 Portugal 101 Bulgaria 120 Ireland 80 Czech Republic 109 Cyprus 95 Italia 87 Romania 119 Denmark 80 Latvia 117 United Kingdom 84 Spain 90 Lithuania 115 Slovakia 113 Estonia 111 Luxembourg 80 Slovenia 103 Finland 84 Malta 105 Sweden 83 71
  72. 72. Criticisms of markets: use of discount rates 72 Brohé et al., 2009, Carbon Markets
  73. 73. Criticisms of carbon markets: use of discount rates • High uncertainties even in accounting (several gases, uncertain GWP, deforestation and LULUCF accounting rules) • High complexity ( not democratic, a few experts and groups with vested interests control the market) + risk of fraud • Irrationality • Do not work for diffuse sources 73
  74. 74. A fragmented carbon world 74
  75. 75. A fragmented carbon world 75
  76. 76. CO2logic 76
  77. 77. 77
  78. 78. Dolfin: LCA of a chocolate bar
  79. 79. CO2 reductions strategy
  80. 80. Reduce1. Change a light: Change regular light bulbs for compact fluorescent light bulbs.2. Drive less: Walk, bike, carpool, or take public transport more often.3. Recycle more4. Use less hot water: It takes a lot of energy to heat water.5. Avoid products with a lot of packaging6. Adjust your thermostat7. Eat less meat8. Turn off electronic devices9. Flight less
  81. 81. CO2 audit of the elections
  82. 82. Communication experience
  83. 83. Want to know more 83
  84. 84. Act Now! Contact: Arnaud Brohé +32 (0)488 58 77 68 84