Objective of UNFCCC<br />Stabilizationof greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interferencewith the climate system<br />Such a level should be achieved within a time-frame sufficient :<br /><ul><li> to allow ecosystems to adapt </li></ul> naturally to climate change<br /><ul><li> to ensure that food production is </li></ul> not threatened and <br /><ul><li> to enable economic development
to proceed in a sustainable </li></ul> manner<br />Principles<br />The Parties should protect the climate systems on the basis of:<br /><ul><li> Equity
Common but differentiated </li></ul> responsibility<br /><ul><li> Respective capabilities</li></li></ul><li>The Kyoto Protocol<br />Adopted at 1997 UNFCCC’s Conference of Parties 3 (COP3) in Kyoto, Japan, the Protocol<br />defines quantified GHG emission reductions for Annex 1 countries as a reduction from their CO2 emission level by at least by 5.2% over 1990 base level, by the end of first commitment period (2008 – 2012)<br />Introduces three flexible market mechanisms which can be used by parties and private firms to fulfill their reduction obligations <br />Joint Implementation, or JI (Article 6)<br />Clean Development Mechanism, or CDM (Article 12)<br />International Emissions Trading (Article 17)<br />Entered into force in February 16, 2005 (after the ratification of Russia)<br />
Kyoto Mechanisms<br />Overall target - at least 5.2% reduction below 1990 levels in net anthropogenic emissions* of Annex I countries by 2008-2012.<br />No targets for developing countries<br />Joint implementation<br />
Emissions Trading: Article 17<br />Allowances<br />Annex I countries<br />Annex I countries<br />Allowances<br />Allowances allocated by Annex I Govts. to Emission Intensive Industries<br />Allowances allocated by Annex I Govts. to Emission Intensive Industries<br />Within an Annex I country and between Annex I countries<br />Allowance based mechanism <br />
Joint Implementation: Article 6<br />ERUs<br />Annex I countries<br />Annex I countries<br />Investment<br />Implement projects or carbon sequestration<br />ERUs removed from the national budget<br />Project based mechanism <br />
Clean Development Mechanism: Article 12<br />CERs<br />Developed countries<br />Developing countries<br />Resources <br />High cost of domestic emission reduction<br />Low cost of emission reduction<br />Guiding principles<br />Achieve SD, TT, Investment<br />Meet ER targets in a cost effective way<br />Project based mechanism <br />
Carbon Credits<br />Emissions trading (among Annex I countries)<br />Assigned Amount Units (AAUs)<br />Joint Implementation (between Annex I countries)<br />Emission Reduction Units (ERUs)<br />Clean Development Mechanism – CDM (between Annex 1 and non-Annex 1 countries)<br />Certified Emission Reductions (CERs) <br />
How to Indentify a CDM Project<br />CDM Project Requirements<br />Project implemented in developing nations – Non-Annex 1 countries<br />Project should result in net CO2 Emission Reduction (real, Measureable, Verifiable)<br />Contribute towards sustainable development of the nation<br />Annex I public funding for CDM to be additional to ODA and financial obligations <br />No nuclear projects in CDM<br />
CDM Project Requirements….<br />Establishment of a credible emissions baseline<br />Project should establish Additionality<br />Contribute towards Sustainable Developmentof the Host Country<br />Concept of CDM, Emission reductions and Carbon revenue should be incorporated in the Planningstage of the project<br />
CDM Prior Consideration<br />Within 6 month from the project start the DNA and UNFCCC must be informed<br />EB49 annex 22: The project participant must inform the Host Party DNA and the UNFCCC secretariat in writing of the commencement of the project activity and of their intention to seek CDM status. Such notification must be made within six months of the project activity start date and shall contain the precise geographical location and a brief description of the proposed project activity, using the standardized form F-CDM-Prior Consideration. <br />
Emissions<br />Baseline emissions (most Plausible scenario/existing project)<br /> Emissions from a green / new project<br />Time<br />Baseline<br />
Additionality<br />STEP 0: Claiming credits for project with start date prior <br />to date of registration – if not applicable go to step 1 directly<br />CDM consideration proved: Pass<br />STEP 1: Identification of alternatives consistent with current laws and regulations<br />- If proposed CDM project only alternative left: NON-ADDITIONAL (NA)<br />More than one alternative: Pass<br />STEP 3: Barrier Analysis<br />No barriers: NA <br />STEP 2: Investment Analysis<br />CDM financially attractive<br />CDM financially not attractive<br />CDM faces Barriers<br />STEP 4: Common Practice Analysis – credibility check<br />- If similar activity observed with no essential difference: Project NA<br />No similar activity or similar activities present but difference in circumstances<br />STEP 5: Impact of CDM registration <br />- If CDM benefits have no impact: Project NA<br />
Project Scale<br />Small-Scale CDM (SSC) project categories<br />RE projects up to 15 MW<br />Energy efficiency projects reducing energy consumption by up to 60 GWh/yr<br />Other project activities that reduce emissions less than 60 ktCO2eq<br />
Global Carbon Market at a Glance<br /><ul><li>Transaction Volumes and Values, Global Carbon Market, 2008 and 2009</li></ul>Source: World Bank, and Bloomberg New Energy Finance and Ecosystem Marketplace for data on the voluntary market<br />
Another illustration for ETS<br />Company A can reduce 1000 tons CO2e at $2/ton = $2000<br />Company B can reduce 1000 tons CO2e at $6/ton = $6000<br />BUY<br />SELL<br />1000 tons CO2e at $4/ton = $4000<br />$2000 Profit<br />$2000 Savings<br />Company B - Buyer<br />Company A - Seller<br />
The Way of Emission Trading <br />Make or Buy decision<br />Developing countries<br />Carbon market<br />Company<br />CO2 €<br />Carbon Credit<br />€<br />Invest in energy efficiency<br />Fuel switching<br />Modification of operation procedure<br />Emission trading<br />Sustainable Development<br />
Cap-and-Trade<br />Cap-and-Trade <br /><ul><li>A government establishes a cap that limits the total amount of emission allowed,
and then distributes permits for a “right to emit” the global atmosphere, which can be traded as private property.
Comparison of proposed vs. approved caps for 2008 to 2012</li></li></ul><li>Registered CDM Projects <br />Source : UNFCCC Interactive map of CDM project locations <br /><ul><li>Registered CDM activities (2nd March 2011) : 2871 projects all over the world…. </li></li></ul><li>CDM Projects<br />Source: cd4cdm.org (Feb 2011) <br />
Payment upon CER issuance into pending account</li></li></ul><li>CER Price<br />Reasons observations on the CER Price <br /><ul><li>There has been a fluctuation in the demand for CERs due to lower emission on account of lower demand and temporary shutdown of companies due to economic slowdown.
CER prices are likely to shoot up due to increase in crude prices. CER rates and crude prices are inextricably linked.
Some buyers have postponed their purchases due to financial constraints.
Some sellers have also made distress sales of CERs since they needed immediate cash to get over the current credit crunch</li></ul>Source: GTZ Newsletters<br />