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Carbon markets 101 introduces the market mechanisms under the Kyoto Protocol and related initiatives. It helps executives and managers understand emerging business issues around carbon trading, emission reduction projects and carbon monitoring.
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Carbon markets 101 introduces the market mechanisms under the Kyoto Protocol and related initiatives. It helps executives and managers understand emerging business issues around carbon trading, emission reduction projects and carbon monitoring.
July 2010 - Michigan Energy Forum - Robert H. GermanAnnArborSPARK
Bob German from DTE Energy presents: An overview of carbon markets including policy and the value chain - Types of carbon projects being developed - Typical carbon transaction structures - How can I get involved in the carbon space?
Emissions Trading Implementation ChallengesAdam M. Skafi
Introduction
Emissions Trading Systems
Main Objective
Kyoto Protocol 1990 - 2017
Mechanisms
How it works
Implementation challenges
Monitoring and controlling process
Political challenges
Market manipulation
Efficiency
Conclusion
The successful implementation of emissions schemes in the near future largely depends on domestic politics, climate policy enforcement, and commitment to combat climate change. The EU has continued with its agenda of environmental reforms and carbon markets clearly have the potential to experience dramatic growth, thereby providing significant opportunities for utilities and cleantech investments.Provides an overview of the global carbon market in terms of structure, trend, market size, and so on, while focusing on the European region.Highlights the European Union Emissions Trading Scheme (EU ETS) and its underlying compliance periods, including future outlook.Evaluates various countries in Europe in terms of climate change performance based on emissions trend, emissions level, and climate policy.Launched in 2005 with the aim of reducing emissions by 21% in 2020 compared to 2005 levels, the EU ETS largely dominates the global allowance market. It is the most important mechanism globally and serves as the foundation of the EU's policy for climate change, focusing on the mitigation of greenhouse gas emissions in a cost-effective manner.The EU ETS has been successful in reflecting the macro-economic trend, with EU ETS carbon prices following a trend similar to that of commodities like oil and natural gas over the last few years.Climate change performance varies widely across the European nations. Countries such as Sweden, Norway, Germany, France, and the UK exhibit strong performance and have achieved high rankings in 2011, in contrast to countries such as Poland and Italy that exhibited weaker performance.Understand the global carbon market and the role of the European Union Emissions Trading Scheme (EU ETS).Identify opportunities for energy utilities for investment in clean technology in the European market.
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Monitoring and controlling process
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4. Greenhouse
Gas
EMISSIONS
BROKERAGE
GROUP
MARKET
ANALYSIS
Natsource: At a Glance
Over-the-Counter commodities brokerage house
Global Reach
– Calgary, London, New York, Tokyo , Toronto, Oslo, Ottawa, Sydney ,
Washington D.C.
Large Energy and Environmental Broker
– Rated Top GHG Broker (Environmental Finance Magazine Survey, 2000 &
2001)
– Large Broker of SO2, NOX
– One of Highest Volume US Natural Gas Brokers
– Major US Electricity Broker
Greenhouse Gas (GHG) Advisory Services
Client base of over 600 major firms
– Utilities, Power marketers and Producers
– Large industrials
– Governments
5. Greenhouse
Gas
EMISSIONS
BROKERAGE
GROUP
MARKET
ANALYSIS
Organization in Japan
Natsource Japan was established in May 2001, as a unique firm to help
companies deal with and take advantage of drastic change in the energy and
environmental field.
Natsource Japan
Tokyo: Energy Products
Broker
Natsource LLC
New York: Energy Products
Broker
Tullett & Tokyo Liberty
London: Financial Products
Broker
The Tokyo Tanshi Co.,Ltd.
Tokyo:Financial Products
Broker
Capital Increase
Undertaking Companies
Cosmo Oil Co.,Ltd.
Geoscience&Petroleum
Consulting Corporation
Kansai Environment
Engineering Center Co.,Ltd.
Mizuho Securities Co.,Ltd.
Nippon
Petroleum Refining Co.,Ltd.
Osaka Gas Co.,Ltd.
Sumitomo Corp
Tokyo Gas Co.,Ltd.
Tokyo Sangyo Co.,Ltd.
Toyota Tsusho Corp
Tullett & Tokyo Liberty
Mitsubishi Corporation
Tokyo: Trading Company
Mitsubishi International
New York
7. Greenhouse
Gas
EMISSIONS
BROKERAGE
GROUP
MARKET
ANALYSIS
What Is Emissions Trading?
What options are most cost-effective?
Company A can reduce
1000 tons CO2E at
$2/ton = $2000
Company B can reduce
1000 tons CO2E at
$6/ton = $6000
Company A - Seller Company B - Buyer
1000 tons CO2E at $4/ton
= $4000
SELL BUY
$2000 Profit $2000 Savings
12. Greenhouse
Gas
EMISSIONS
BROKERAGE
GROUP
MARKET
ANALYSIS
Early Market:
Defining the Terms of Trade
With government rules still in formation,
participants define temporary rules
– Nature of tradable commodity
– Pricing structure
– Liability for non-performance
– Definition of baseline
– Monitoring & verification plan
As government rules are set, market will
conform
13. Greenhouse
Gas
EMISSIONS
BROKERAGE
GROUP
MARKET
ANALYSIS
Key Issues for International
GHG Market
Domestic system compatibility
– Lack of international policy framework led to
development of incompatible systems
– Loss of economic and environmental benefits
from fragmented market
Party and non-Party trading linkages
15. Greenhouse
Gas
EMISSIONS
BROKERAGE
GROUP
MARKET
ANALYSIS
Early Market: Attributes of
Transactions
Early market began to emerge after 1997
agreement in Kyoto
Transactions involved:
– Early stage “emission reduction” units
– These evolved into “verified emissions
reductions” (3rd party review, higher credibility)
– In 2001, “candidate” CERs, ERUs and AAUs
emerged in market terminology
– In 2001, actual GHG compliance instruments
began trading in UK & Denmark
Higher quality commands higher price
16. Greenhouse
Gas
EMISSIONS
BROKERAGE
GROUP
MARKET
ANALYSIS
Recent Market Activity
1997 to June 2002 Estimated 200 mmt GHG Traded
Last 12 months most active in GHG market (compliance
tools, VERS); 30 to 50 mmt CO2e traded in last year
UK GHG trading program
– DuPont - Mieco executed first GHG transaction of government-sanctioned
instrument
– Auction held to provide companies with funds to reduce emissions below a
baseline; $305 million allocated, 4 mmt of reductions committed
– Approximately 20 trades have occurred and 100,000 to 200,000 allowances
traded
Danish power sector cap & trade program
– Initial cap on CO2 of 23 million tons in 2000 is reduced 1 million tons per year
through 2003
– Approximately 10 trades have occurred and 300,000 to 500,000 allowances
traded
First swap of UK and Danish allowances brokered in 2002
Swaps of Danish allowances for VERs have occurred
17. Greenhouse
Gas
EMISSIONS
BROKERAGE
GROUP
MARKET
ANALYSIS
GHG Market Is Evolving
Australia:
US$208 million in
government
tenders for GHG
reductions
Kyoto Protocol:
Drives Demand and
System
Development
United Kingdom:
Began April 2002;
Tax discount in
exchange for
reduction target
Denmark:
GHG cap in power
sector, 2001-2003;
Danish and UK
allowances
swapped
European Union:
Ratified Kyoto
Protocol; GHG
trading system
operational 2005
Netherlands:
Purchased $31
million in GHG
reductions; 2 more
tenders issued for
JI and CDM-like
reductions
Other EU
Countries:
Planning to
implement
domestic trading
programs in 2005 in
line with EU plan
Japan:
Ratified Kyoto
Protocol; GHG
trading simulations
in 2002;
implementation of
domestic measures
18. Greenhouse
Gas
EMISSIONS
BROKERAGE
GROUP
MARKET
ANALYSIS
Recent Market Pricing
GHG Prices by Commodity and Vintage (US$ per ton CO2E)
Source: Natsource, September 2002
NOTE: Prices of GHG commodities are difficult to estimate. Prices are particularly difficult to estimate beyond
2012 because the international community will likely negotiate a new target for the Kyoto Protocol 2nd
commitment period and because U.S. action is still uncertain.
Commodity Type Vintage Year Price per ton CO2E(US$)
Annex B VERs 1991-2007 $0.30-$2.00
Annex B VERs 2008-2012 $1.50-$3.00
CDMVERs 2000-2012 $3.00-$6.00
Dutch ERUs 2008-2012 $4.40-$7.99
UK allow ances 2002 $16.39-$17.17
UK allow ances 2003 $11.71-$12.49
UK allow ances 2004 $11.71-$12.49
Danish allow ances - bid 2002 $1.14-$2.60
Verified Emission Reductions ("VERs")
Compliance Tools
20. Greenhouse
Gas
EMISSIONS
BROKERAGE
GROUP
MARKET
ANALYSIS
GHG Price Expectations
Pre-Kyoto (2005):
– Most companies expect GHG prices from $3-5 *
– Range: $2-10; median $5; mean $5.33
– Over 60% predict $5 or less
Mid-Kyoto (2010):
– Most expect prices to be around $10.
– Range: $1.74 to $30; median $10; mean $10.96.
– 70% expect $10 or less.
In these prices, most firms presume:
– Kyoto has entered into force by end 2002.
– U.S. does not join Kyoto, but adopts separate policies that
create modest market demand for international reductions
* US$ per tonne CO2e
21. Greenhouse
Gas
EMISSIONS
BROKERAGE
GROUP
MARKET
ANALYSIS
Future GHG Price Expectations
Future GHG Price Expectations
Observed Market Prices
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Price
per
metric
ton
CO2e
(US$)
Private Sector Study Group Estimates, 2005 and 2010
Natsource Estimates, 2005 and 2010
Model Estimates: Without U.S. Participation, With Sinks, 2010
Model Estimates: Without U.S. Participation, With Sinks and Sales Limits, 2010
Median
Mean
23. Greenhouse
Gas
EMISSIONS
BROKERAGE
GROUP
MARKET
ANALYSIS
Natsource Views:
Market Characteristics 2002-2007
National-level and EU trading schemes will
continue to emerge
Voluntary corporate initiatives intensify
Market influenced by a few large buyers (e.g.,
Dutch CDM & JI programs)
Likely to see continued interest within Canada,
Japan, the U.S. for VERs
Gradually demand for VERs will shift to permits, as
superior risk-hedging tool
25. Greenhouse
Gas
EMISSIONS
BROKERAGE
GROUP
MARKET
ANALYSIS
Natsource Views:
Market Characteristics 2008-12
Kyoto rules should eliminate most regulatory
discrepancies between systems
– Increased opportunity to seek low-cost reductions
– Russian/FSU permits will keep prices low
– Russia should meet most minimum GHG inventory
criteria
– Global competition will limit Russia’s ability to employ
strategic anti-competitive behavior
– Increased regulatory certainty and demand will stimulate
increased supply, limiting price rises
Separate U.S. policy is likely to appear, creating
some international demand