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Introduction to Carbon Markets  Financing sustainable development
Agenda ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The case for sustainability: Global Warming ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
What causes Global Warming? Visible light (solar radiation) enters the atmosphere and makes contact with earth’s surface.  Atmosphere 1. 2. 3. The surface heats and emits infrared radiation into atmosphere. Some radiation stays in the  atmosphere and some is lost to space. Greenhouse gases trap and remit some of the infra red  radiation back to the surface.  This causes the temperature of earth to be about 30 deg C greater than it would have been otherwise. What are the green houses gases? Mainly water vapor, but also CO 2 ,  methane and ozone.  Increasing industrialization is increasing the concentration of greenhouse gases thus increasing this warming effect  Sun
Global reaction to a global challenge? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Kyoto Protocol: Broad Objectives  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Create incentives for developed countries to invest into emission reduction projects in developing  countries
Kyoto Protocol: Greenhouse gases targeted These are groups of gases Used as alternative to ozone-depleting CFCs in refrigeration systems  Hydroflurocarbons (HFCs) and  Perfluorocarbons   (PFCs)   Used in the electrical insulator, freezing agent, heat conductor. Sulfur hexafluoride (SF6)  Emitted from the use of nitrogen fertilizers, from burning fossil fuels and from some industrial and waste management processes  Nitrous oxide (N20)  Comes from landfills, coal mines, oil and natural gas operations, and agriculture.  Methane ( CH4)  By far the most important GHG . Generated from burning fossil fuels and deforestation.  Over 80% of US GHG emissions comes from  CO2 generated from burning fossil fuels   Carbon Dioxide ( CO2)  Description  Green House Gas (GHG)
Global Warming Potential (GWP) of GHGs ,[object Object],[object Object],[object Object],[object Object],[object Object],* There are other gases in these families. Representative only  9800 11700 9100 264 HFC 23* 10000 6500 4400 50000 Perfluoromethane* 34900 23900 16300 3200 Sulfur hexafluoride Nitrous oxide Methane Carbon dioxide GHG* 170 310 280 120 6.5 21 56 12±3  1 1 1 Variable 500 years 100 years 20 years GWP over Time horizon Lifetime
Kyoto Protocol: Status of global ratification  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Industrialized countries with binding emission reduction targets are also called Annex B countries ,[object Object],[object Object],[object Object],[object Object]
Carbon Markets  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Emission reduction Units ( ERUs ) Developed countries buy credits from emissions reduced in projects in  other developed  countries Joint Implementation  Certified Emission Reductions ( CERs ) Developed countries buy credits from emissions reduced in projects in  developing  countries Clean Development Mechanism (CDM) Tradeable Units Description  Market Mechanism
CDM Process  Project Design Document  National Approval Validation Certification/CER issuance Registration  Verification  Project Developer  Designated National Authority Designated Operational  Entity Executive Board Designated Operational  Entity  Designated Operational  Entity Activity Responsible Authority The Executive Board (EB) is the core organization responsible for the CDM mechanism  All countries must have a Designated National Authority (DNA) which approves CDM project activities Designated Operational Entity (DOE) are independent private organizations  accredited to act as external controllers The key CDM principle is Additionality : a project should only be able to earn credits if the greenhouse emission reductions would not have occurred without the expectation of revenue carbon credit sales.  CER (Certified Emission Reductions), are carbon credits with each  CER  representing the abatement of one tonne of carbon dioxide equivalent
CDM Project Statistics China and India are the major CDM project hosts 4733 CDM projects are in the works out of which 1596 have been registered Source: UNFCC site Source: http://www.cdmpipeline.org Renewable energy forms the major chunk of projects   HFCs,PFCs and N20 reductions consititute only 2% of projects but 25% of CERs by 2012
Joint Implementation  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
JI Projects Statistics  203 JI projects are in the works out of 176 are Track 2 projects  Russia and Ukraine dominate the JI market.  Methane reductions (mainly loss in natural gas pipelines) forms major chunck of projects as well as ERUs
Emissions Trading ,[object Object],[object Object],GHG emission cap (set by authorities) Cap is lowered over time Businesses that don’t reduce emissions enough must buy credits Businesses that reduce emissions more than required can sell credits Credits Money The European Union Emission Trading Scheme is the largest under Kyoto
Advantages of Cap and Trade ,[object Object],[object Object],[object Object],[object Object],Other alternatives to cap and trade are command and control and carbon tax
European Union Emission Trading scheme ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
EU ETS …terminology  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],The biggest contribution of EU ETS has made a major contribution in setting the price of carbon. Companies have the incentive to reduce emissions.  Carbon prices have come down from € 30 in mid 2008 to about € 12(Q1 2009) in line with decreased economic activity but carbon prices are expected to rise with the lowering of the cap in subsequent years
European Climate Exchange (ECX) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Voluntary Carbon markets  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Other US Voluntary markets status  Source: Wikipedia 7  Northeastern and Mid-Atlantic states is the first mandatory U.S. cap-and-trade program for carbon dioxide. Targets  capping carbon dioxide emissions at current levels in 2009, and then reducing emissions 10% by 2019.  Allowances have been auctioned in 2008. Regional Greenhouse Gas Initiative (RGGI) 6  Midwestern states  1  Canadian province.  The design of the program is due to be completed in 2009.  Midwest Greenhouse Gas Reduction Accord (MGGRA) 7  US states and  4  Canadian provinces.  Target of 15 percent below 2005 levels by 2020. Cap and trade program will start by Jan 2012  Western Climate Initiative (WCI) Scope and Status  Initiative
Carbon Markets: Round Up data  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Source: EcoSecurities Investor presentation 1.0 5.2 EUA-CER spread 9.0 17.4 CER 10.0 22.6 EUA 2009 Q1-Q2 2008 Contract (€/tCO2)
Carbon Finance ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Carbon Funds under the WB ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Most of the above funds are public private partnerships
Carbon Funds: market classification FE Global Asia and Clean Energy Services Fund Private Energy Market Fund – 2 Asia Carbon Fund Russia Carbon Fund  EcoSecurities Camco  Ag Cert  Climate Change Capital Carbon Fund European Carbon Fund  KfW Carbon Fund Prototype Carbon Fund  Merzbach Carbon Finance  Austrian CDM Project facility Climate Cent Foundation  Danish Carbon fund Bio Carbon Fund Japan Carbon Facility Irish Carbon Fund  Spanish Carbon Fund … Invest directly in projects along with bringing know- how  Buy carbon credits from project developers for resale National governments or private companies to meet commitments Sell side – Project Development Buy Side- Intermediary Buy Side - Compliance
Carbon Software companies  There are about 40 cos in this pace including IBM and Cisco which overlaps with smart grid. Look out for our Smart Grid Overview soon! On demand software to Track energy usage and emissions across the enterprise Verisae Draper Fisher Jurvetson (DFJ)  Carbon modeling software to manage emission reduction strategies Planet Metrics  Novak Biddle Venture Partners and Kinetic Ventures: now being acquired by SAP  Measure and manage carbon emissions and other environmental impacts  Clear Standards  O’Reilly AlphaTech Ventures, Union Square Ventures,The Accelerator Group. Aggregation platform to measure and track carbon emissions. Allows developer to build their own applications  AMEE NGEN Partners and Swiftsure Capital Manage emission inventories and carbon projects  Carbonnetworks @Ventures, Clean Pacific Ventures, OVP Venture Partners and Meridian Energy  Manage CDM & Voluntary carbon projects CarbonFlow Investors  Software to…  Company
Carbon Consultants There are several small localized companies in this space. Services include: Helping businesses (and individuals) assess their emission status (carbon footprint) and helping them buy requisite credits. EcoSecurities is the only large listed player in this space   Australia Brokers Carbon Now part of the JP Morgan Environmental Markets group Cimatecare SFO, US 3Degrees US/UK Carbon Advice Group Montana, US HCS Carbon Netherlands Climate Focus US Climate Action Partners Helsinki/SFO,US /Shanghai Climate Wedge India/SE Asia  Emergent Ventures India  WW presence  EcoSecurities (listed In London)  Offices in Company/Firm
Authors  ,[object Object],[object Object],[object Object],[object Object],[object Object]
Sources  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

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Introduction to Carbon Markets

  • 1. Introduction to Carbon Markets Financing sustainable development
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  • 4. What causes Global Warming? Visible light (solar radiation) enters the atmosphere and makes contact with earth’s surface. Atmosphere 1. 2. 3. The surface heats and emits infrared radiation into atmosphere. Some radiation stays in the atmosphere and some is lost to space. Greenhouse gases trap and remit some of the infra red radiation back to the surface. This causes the temperature of earth to be about 30 deg C greater than it would have been otherwise. What are the green houses gases? Mainly water vapor, but also CO 2 , methane and ozone. Increasing industrialization is increasing the concentration of greenhouse gases thus increasing this warming effect Sun
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  • 7. Kyoto Protocol: Greenhouse gases targeted These are groups of gases Used as alternative to ozone-depleting CFCs in refrigeration systems Hydroflurocarbons (HFCs) and Perfluorocarbons (PFCs) Used in the electrical insulator, freezing agent, heat conductor. Sulfur hexafluoride (SF6) Emitted from the use of nitrogen fertilizers, from burning fossil fuels and from some industrial and waste management processes Nitrous oxide (N20) Comes from landfills, coal mines, oil and natural gas operations, and agriculture. Methane ( CH4) By far the most important GHG . Generated from burning fossil fuels and deforestation. Over 80% of US GHG emissions comes from CO2 generated from burning fossil fuels Carbon Dioxide ( CO2) Description Green House Gas (GHG)
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  • 11. CDM Process Project Design Document National Approval Validation Certification/CER issuance Registration Verification Project Developer Designated National Authority Designated Operational Entity Executive Board Designated Operational Entity Designated Operational Entity Activity Responsible Authority The Executive Board (EB) is the core organization responsible for the CDM mechanism All countries must have a Designated National Authority (DNA) which approves CDM project activities Designated Operational Entity (DOE) are independent private organizations accredited to act as external controllers The key CDM principle is Additionality : a project should only be able to earn credits if the greenhouse emission reductions would not have occurred without the expectation of revenue carbon credit sales. CER (Certified Emission Reductions), are carbon credits with each CER representing the abatement of one tonne of carbon dioxide equivalent
  • 12. CDM Project Statistics China and India are the major CDM project hosts 4733 CDM projects are in the works out of which 1596 have been registered Source: UNFCC site Source: http://www.cdmpipeline.org Renewable energy forms the major chunk of projects HFCs,PFCs and N20 reductions consititute only 2% of projects but 25% of CERs by 2012
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  • 14. JI Projects Statistics 203 JI projects are in the works out of 176 are Track 2 projects Russia and Ukraine dominate the JI market. Methane reductions (mainly loss in natural gas pipelines) forms major chunck of projects as well as ERUs
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  • 21. Other US Voluntary markets status Source: Wikipedia 7 Northeastern and Mid-Atlantic states is the first mandatory U.S. cap-and-trade program for carbon dioxide. Targets capping carbon dioxide emissions at current levels in 2009, and then reducing emissions 10% by 2019. Allowances have been auctioned in 2008. Regional Greenhouse Gas Initiative (RGGI) 6 Midwestern states 1 Canadian province. The design of the program is due to be completed in 2009. Midwest Greenhouse Gas Reduction Accord (MGGRA) 7 US states and 4 Canadian provinces. Target of 15 percent below 2005 levels by 2020. Cap and trade program will start by Jan 2012 Western Climate Initiative (WCI) Scope and Status Initiative
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  • 25. Carbon Funds: market classification FE Global Asia and Clean Energy Services Fund Private Energy Market Fund – 2 Asia Carbon Fund Russia Carbon Fund EcoSecurities Camco Ag Cert Climate Change Capital Carbon Fund European Carbon Fund KfW Carbon Fund Prototype Carbon Fund Merzbach Carbon Finance Austrian CDM Project facility Climate Cent Foundation Danish Carbon fund Bio Carbon Fund Japan Carbon Facility Irish Carbon Fund Spanish Carbon Fund … Invest directly in projects along with bringing know- how Buy carbon credits from project developers for resale National governments or private companies to meet commitments Sell side – Project Development Buy Side- Intermediary Buy Side - Compliance
  • 26. Carbon Software companies There are about 40 cos in this pace including IBM and Cisco which overlaps with smart grid. Look out for our Smart Grid Overview soon! On demand software to Track energy usage and emissions across the enterprise Verisae Draper Fisher Jurvetson (DFJ) Carbon modeling software to manage emission reduction strategies Planet Metrics Novak Biddle Venture Partners and Kinetic Ventures: now being acquired by SAP Measure and manage carbon emissions and other environmental impacts Clear Standards O’Reilly AlphaTech Ventures, Union Square Ventures,The Accelerator Group. Aggregation platform to measure and track carbon emissions. Allows developer to build their own applications AMEE NGEN Partners and Swiftsure Capital Manage emission inventories and carbon projects Carbonnetworks @Ventures, Clean Pacific Ventures, OVP Venture Partners and Meridian Energy Manage CDM & Voluntary carbon projects CarbonFlow Investors Software to… Company
  • 27. Carbon Consultants There are several small localized companies in this space. Services include: Helping businesses (and individuals) assess their emission status (carbon footprint) and helping them buy requisite credits. EcoSecurities is the only large listed player in this space Australia Brokers Carbon Now part of the JP Morgan Environmental Markets group Cimatecare SFO, US 3Degrees US/UK Carbon Advice Group Montana, US HCS Carbon Netherlands Climate Focus US Climate Action Partners Helsinki/SFO,US /Shanghai Climate Wedge India/SE Asia Emergent Ventures India WW presence EcoSecurities (listed In London) Offices in Company/Firm
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