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The Carbon Market - Martin Hession, UK DECC, CDM Executive Board - EPA June 2010


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The Carbon Market - Martin Hession, UK DECC, CDM Executive Board - EPA June 2010

  1. 1. The Carbon Market <ul><li>Martin Hession UK DECC and CDM Executive Board </li></ul>
  2. 2. Why? <ul><li>Reduces costs of given emission reductions and enables tougher targets - Up to 50% (Stern) </li></ul><ul><li>Engages Private Sector and Leverages Private Finance </li></ul><ul><li>Greater certainty on outcome over tax - fixes emission levels not costs </li></ul>
  3. 3. History <ul><li>Kyoto Protocol 1997 - establishes principle of emissions trading and project offsets at international level </li></ul><ul><li>Marrakech Accords 2002 - Detailed Rules, and CDM Prompt Start </li></ul><ul><li>EU ETS 2005 - First Multinational Trading </li></ul><ul><li>EU ETS Link to CDM 2005 - Breathing life ito the protocol </li></ul>
  4. 4. EU ETS <ul><li>Pilot Phase 2005-2008 - Allocation and MRV of emissions </li></ul><ul><li>2nd Phase (KP Commitment Period 2008-2012) - consistency with KP targets </li></ul><ul><li>3rd Phase (Post 2012 - part of the 20/20 package)- unilateral commitment </li></ul>
  5. 5. Clean Development Mechanism Mechanism <ul><li>Emission Reduction Projects in Developing Countries </li></ul><ul><li>Projects Registered and Credits Issued Under the Authority of a Executive Board </li></ul><ul><li>Methodologies Established for Emissions Calculations </li></ul><ul><li>Independent Third Party Auditors </li></ul>
  6. 6. Achievements <ul><li>Billion € markets </li></ul><ul><li>EU ETS and CDM predominate </li></ul><ul><li>Impact on Investment Record on Emissions Reductions 2-5% reduction 1st phase (WB) </li></ul><ul><li>Ratcheting up effort over time </li></ul><ul><li>The EU Emissions Trading Program - 6 billion tonnes traded - worth US$119 billion (€89 billion) allowances and derivatives. </li></ul><ul><li>CDM - 3.7 billion tonnes trade - worth $21 billion. </li></ul><ul><li>US: RGGI Volume 805 mt $2.2bn (up from 62 mt and $198 million) </li></ul><ul><li>Voluntary Market - 46 mt and $338 million </li></ul>
  7. 7. Turning Point? <ul><li>Montreal 2005 - Convention Dialogue </li></ul><ul><li>Nairobi 2006 - Review of the Protocol </li></ul><ul><li>Bali 2007- Road Map -Twin Tracks KP and Convention </li></ul><ul><li>Poznan 2008 - Failure of KP Review </li></ul><ul><li>Copenhagen 2009 - Political Accord - ongoing negotiation </li></ul><ul><li>Cancun 2010 and Johannesburg 2011 </li></ul>
  8. 8. Copenhagen Accord Accord <ul><li>2 degrees + IPCCC reference to 1.5 </li></ul><ul><li>Peaking in emissions </li></ul><ul><li>Pledge’s of action </li></ul><ul><li>Economy wide quantified emission targets for Annex I parties </li></ul><ul><li>Developing Country action with MRV </li></ul><ul><li>Endorsement of REDD and Markets </li></ul><ul><li>Fast Track Funding of €30bn - High-level body, and 100bn by 2020 </li></ul><ul><li>Green Fund - Technology Mechanism </li></ul><ul><li>Assessment by 2015 </li></ul>
  9. 9. Issues <ul><li>Framework and Legal Form - KP plus or New Framework </li></ul><ul><li>Overall Ambition on mitigation - 2 degrees and 450ppm </li></ul><ul><li>Lack of targets post 2012 - KP and Convention (US) </li></ul><ul><li>Conditions for US participation - ongoing no to kyoto style commitments </li></ul><ul><li>Reflecting Actions of Advanced Developing Countries - Moving beyond CDM </li></ul><ul><li>MRV of Emissions and Actions - Monitor, Report and Verify </li></ul><ul><li>Balance of Public and Private Finance - upscaling and the limits of the market </li></ul>
  10. 10. Future <ul><li>Multilateral Framework - Top Down </li></ul><ul><ul><li>Building on the KP </li></ul></ul><ul><ul><li>Commitments of US and Actions of Developing Countries </li></ul></ul><ul><li>More Variable Geometry - Bottom Up </li></ul><ul><ul><li>Multilateral </li></ul></ul><ul><ul><li>Bilateral </li></ul></ul>
  11. 11. Proposals <ul><li>CDM Reform - Interim Instrument </li></ul><ul><ul><li>Effectiveness </li></ul></ul><ul><ul><li>Efficiency </li></ul></ul><ul><ul><li>Equity </li></ul></ul><ul><li>New Mechanisms - Options for Transition </li></ul><ul><ul><li>Upscaled Action </li></ul></ul><ul><ul><li>Reflecting Developing country contributions </li></ul></ul>
  12. 12. Vital Signs? <ul><li>EU </li></ul><ul><ul><li>EU ETS </li></ul></ul><ul><ul><li>Decision of 20-30 and KP </li></ul></ul><ul><li>US </li></ul><ul><ul><li>Trading Proposals </li></ul></ul><ul><ul><li>17% </li></ul></ul><ul><li>Japan </li></ul><ul><ul><li>Trading Proposals </li></ul></ul><ul><ul><li>25% </li></ul></ul><ul><li>China </li></ul><ul><li>Pledged to reduce its carbon dioxide emission per unit of GDP by 40-45% by 2020 compared to 2005 levels, raise the level of non-fossil fuels in primary energy consumption to 15% and increase forest coverage by 40 million hectares with a rise in forest stock volume of 1.3 billion cubic metres by 2020 from 2005 levels. </li></ul><ul><li>India </li></ul><ul><li>India will endeavour to reduce the emission intensity of its GDP by 20-25% by 2020 in comparison to the 2005 level through domestic mitigation actions. </li></ul><ul><li>Brazil </li></ul><ul><li>Brazil announced at the summit a “voluntary commitment” to reduce CO2 emissions by between 36.1 and 38.9 percent in the next 10 years. </li></ul><ul><li>Mexico </li></ul><ul><li>South Korea </li></ul>
  13. 13. Further Reading <ul><li>Stern Review - The Economics of Climate Change </li></ul><ul><li>Lazarowitz - Global Carbon Trading; A framework for reducing emissions </li></ul><ul><li>State of the Carbon Market 2010 - World Bank </li></ul><ul><li>10 Years Experience in Carbon Finance - World Bank </li></ul>