3. Snapshot: Basic Principles for Carbon Markets
1. Creation & trade of offset units
2. Allows investment in emission
reductions where it is financially most
beneficial (“most bang for the buck”)
3. Engages private sector investments
in climate mitigation
Optional
A. Verification of offsets
B. Types of offset (type of activities, gases, sectors, countries…)
C. Contribution to other objectives (e.g. sustainable development)
D. Design of market based mechanism (allowances, carry-over,
reduction targets, penalties…)
3
4. Snapshot: Carbon Market Value 2010
Value (million US$)
119,800
120000
100000
80000
60000
40000 19,800
20000 1,100 1,200
0
EU-ETS CDM Other markets1,1 Voluntary
Source: World Bank 2011
4
8. Snapshot: % CER issued by project type
Wind Biomass
Biomass Cement
CO2 usage
Coal bed methane
N2O
Energy distribution
EE Households
EE Industry
EE own generation
EE service
EE supply side
Fossil fuel switch
Fugitive
Geothermal
HFC
HFC Hydro
Hydro Landfill gas
methane avoidance
Source: UNFEP 2011 N2O
PFC & SF6
8
9. Euros/t CO2 eqv
Se
0
5
10
15
20
25
30
p-
0 8
N
ov
- 08
Ja
n-
0 9
M
ar
-0
M 9
ay
-0
9
Ju
l-0
Se 9
p-
0
N 9
ov
-0
Ja 9
CER
n-
1
M 0
ar
-1
M 0
ay
-1
0
Ju
Time
l-1
Se 0
p-
1
EUA
N 0
ov
-1
Ja 0
n-
1
M 1
ar
-1
M 1
ay
-1
1
Ju
l-1
Se 1
Snapshot: Offset prices: EUA & CER
p-
1
N 1
ov
-1
Ja 1
n-
12
9
10. Snapshot: Factors affecting carbon prices
• Demand & supply
• Mitigation targets
• Auctioning of allocations
• Carry-over of AAU
• Hedging for future demand
• Issuance under CDM
• Macro-economic conditions
• Euro-zone economic problems
• Overall economic outlook
(GDP) at demand side
• Weather (cold winters increase
demand)
• Overall economic performance of
commodities
• Real or expected policy
developments
• Everything else…
10
11. Snapshot: Basic Questions
Can mitigation targets (scientific or political)
be reached without the active
participation of the private sector?
Are market based instruments likely to
remain central components
of the future climate regime?
11
12. Snapshot: Issues with CDM
• Basic idea of offsetting – is it only
moving mitigation from one country to
another?
• Additionality: How can we know that a project would not have
happened without CDM?
• Governance: CDM Executive Board Members appointed from
regional groupings and in addition to other work (Conflict of interest)
• Carbon leakage: Do companies “flee” countries with carbon
markets?
• Contribution to sustainable development: is it real?
• Regional distribution: Why so many projects in so few countries?
• Impact on mitigation: Is scale of mitigation sufficient?
12
13. COP 17: The Durban Platform
• Decided to establish the Durban
Platform for Enhanced Action
• An agreement with legal force under the
Convention applicable to all parties.
• The ad-how working group on the
Durban Platform shall start its work in
2012 and complete it by COP21 (2015)
• The Durban Platform is to be
implemented from 2020
13
14. COP 17: The Durban Decisions: CDM, JI & ET
• The Kyoto Mechanisms will continue in a second
commitment period
• Duration of second commitment period 31 Dec 2017 or 2020,
to be decided at CMP 8 / COP 18 (Nov/Dec 2012)
• Economy-wide emission targets to be converted into QELRO‟s
by 1 May 2012.
• Carry over of AAU‟s to CP2 to be decided at CMP 8
• Carbon Capture & Storage included
• NF3 added to Kyoto gases
• Continued work on baselines,
efficiency, suppressed demand…
14
15. COP 17: Decisions on New Mechanisms
• A New Market Based Mechanism was “defined”
(established)
• Modalities and Procedures to be developed in 2012
• A core requirement for the EU to agree to a second
commitment period
• A work program to consider a Framework for Various
Approaches was decided to be conducted in 2012.
• Responds to Cancun mandate to consider various
approaches for market based and non-market based
mechanisms.
• Seen by many parties as the “glue” to connect and recognize
future national & regional mechanisms under UNFCCC.
15
16. COP 17: The New Market Based Mechanism
• The New Market Based Mechanism
• Can be seen as a new top-down (UNFCCC) common market
based mechanism
• Parties are still to agree on the features of this mechanism
• EU has in earlier submission proposed a Sectoral Crediting
Mechanism
• To improve impact of
market based mitigation
• To move from projects
towards mitigation in sectors,
regions/cities, economies
• To improve governance and
efficiency
• Other parties may have other views
16
17. COP 17: Framework for Various Approaches
• Framework for Various Approaches
• May allow offsets generated by national/
regional mechanisms to be recognized
under UNFCCC.
• Widely supported THAT a framework is needed to be
established.
• Diverging views about WHAT the Framework will be:
• On one end Japan, USA, Canada: Wish to have a
Framework with no prescriptions for what is accepted as
mechanisms/offsets under UNFCCC.
• On the other end, EU, EIG, AOSIS and most of G77:
Wish to have clear rules governing requirements for
mechanisms/offsets to be recognized under UNFCCC.
17
18. COP 17: Existing vs. New Mechanisms
• New Mechanisms are expected to maintain and build
existing KP mechanisms.
• CDM, JI, ET to continue at least until end of second commitment
period (2017 or 2020)
• Procedures and modalities for the New Market Mechanism, as
well as the Framework, to be considered at COP 18 (Nov/Dec
2012)
• New Mechanisms are not intended to replace CDM/JI
(not at first instance at least) but to complement them.
• Clear move towards an expanded market with room for
more mechanisms.
• Role of UNFCCC support function for mechanisms may
change considerably.
18
19. Emerging Markets: EU-ETS
• Four key developments:
• Cap: 20% by 2020…or 30%?
• Inclusion of aviation from 1 January 2012 (183 Mt CO2-e/year)
• Quantitative restrictions: ~2,4 billion t CO2-e from 2008 to
2020. To be reached by mid-2013?
• Qualitative restrictions:
• No industrial gas projects
• Only projects from LDCs registered after 2012
• No large dam projects not complying with World
Commission on Dams guidelines
Over supply internally and restricted demand for
external offset credits
19
20. Emerging Markets: Australia & New Zealand
Australia
• Carbon mechanisms law passed (Nov 2011)
• Tax to take effect mid-2012 before moving to a carbon-trading
scheme in mid 2015
• KP units fungible as of 2015
• Price initially set at A$23 per tonne (until 2015)
• Aims to cut carbon pollution by 159 million tonnes by 2020 or by
5 percent based on year 2000 levels
New Zealand
• NZ-ETS set to reach full coverage by 2015 (incl. agriculture),
• Trading at 14 NZ$ (8 Eur) per tonne
• NZ-ETS seeking to link with Aust-ETS by 2015
20
21. Emerging Markets: North America
California
• Carbon caps from 2013, covering 600 oil refineries
and factories (more than 25.000 tonnes CO2-e/year)
• Target: 22% reduction by 2020 compared to 1990:
Covering 85% of emissions from 2015 (incl. transport),
• 8% of reductions eligible for offsetting = ~221 million tonnes CO2
eqv 2012-2020. Possible linking with external markets.
Quebec
• Cap & Trade scheme with first compliance period 2013-2014. Cover
industry and power sectors with more than 25.000 t CO2-e /year.
• Allowances based on unit of production. Reduced by 1-2% per year
• Developed as part of Western Climate Initiative and
intend to link with other schemes, incl California.
21
22. Emerging Markets: China & India
China
• Seven regional pilot schemes to be launched in 2013,
possibly being replaced by a national market in 2015.
• Linked to national 5-year targets for energy carbon and
energy intensity. Covers power sector + potentially cement,
steel & buildings.
• May cover up to 40% of energy related GHG emissions
• National registry under development
India:
• Perform & Trade Scheme covers 9 industrial sectors (25% of GDP,
45% of commercial energy use). First 3-year period to start in 2012(?)
• Users are provided with energy consumption target. Users
exceeding targets receives tradable energy saving certificates
• Design still in early phases and no experience gained so far.
22
23. Emerging Markets: Japan
Japan:
• 50-60% emission reduction target by 2050 but Japan
does not intend to sign on to second KP commitment period.
• Several domestic markets, including:
• Japan Voluntary Emission Trading Scheme
• Tokyo ETS: 300+ projects covering 220.000 t CO2 eqv at average
price of US$ 198/t CO2 eqv
• Keidaren (Japan business federation) Voluntary Action Plan
• 320 million credits purchased in CP1. Expected to increase in CP2
even without formal CP2 commitment.
• Pursuing bilateral offset schemes with Asia and African countries; 90
Bilateral Offset Credit Mechanism projects under consideration.
23
24. Emerging Markets: Korea & PMR
Republic of Korea
• Low Carbon Green Growth Act (2010) sets 30% mitigation
target by 2020 = ~400 million tons/year
• Plans to expand existing voluntary Korea Emission Trading scheme (KET)
to it make mandatory for 300 largest companies by 2015 to cover 60% of
national GHG emissions.
• Intended to be linked with KP (UNFCCC markets).
World Bank Partnership for Market Readiness (PMR)
• Provides up to US$ 100 million grant funding for testing of new
market instruments for both domestic and international markets.
• Confirmed participating countries include Brazil, Chile, China,
Colombia, Costa Rica, India, Jordan, Mexico, Morocco, South
Africa, Indonesia, Thailand, Turkey, Ukraine and Vietnam
24
25. Emerging Markets: Big Picture
• Significant and increasing
attention to carbon markets.
• Markets developed as domestic
schemes but with scope to link
with other markets
• More mature markets (e.g.
EU-ETS) is looking for
reforming existing mechanisms
to increase efficiency
• Market developers are not
waiting for UNFCCC
25
26. What‟s next? - Linking Markets?
• On one side: KP mechanisms + new market mechanism
+ framework.
• On the other side: large number of emerging national
market based mechanisms.
• The Framework for Various Approaches could serve to
link mechanisms, with some obvious benefits:
• Recognition of offsets under UNFCCC (e.g internationally
tradable)
• Increased access to supply & demand options
• Reduced exposure to national/regional economic cycles (but
global ones)
26
27. „What‟s next? - Linking Markets?
• But linking requires common minimum
requirements, such as:
• Type and scope of schemes
• Transparency & verification
• Methodologies / baseline calculations
• Comparable (linkable) policies for allocation and auctioning
• Mechanism operating purely inside a country are not concerned.
• Likewise, international mechanisms can be established outside a
UNFCCC Framework IF participating countries do not count offsets
towards national UNFCCC mitigation targets OR IF all participating
countries supply national inventories according to UNFCCC
process (similar to the case of EU-ETS).
27
28. What is next? – Supply-Demand equation
Anticipated changes in supply-demand
Approx. 3,0 Bt CO2-e in CDM 2,3-3,0 Bt CO2-e in EU-
pipeline until 2020. KP markets ETS, Japan, Switzerland
Supply Demand
Other markets
+ New markets: Australia,
+ JI (100-150 Mt by 2020)
NZ, Korea (530 Mt CO2-e)
+ CCS (100-300 Mt/year by 2020)
New markets: California,
+ Non-KP (bilateral agreements) Quebec..
- China domestic (60% of global supply) + New markets: Brazil,
Chile, India (PMR)
? Carry over and possible use of AAU
(7,9 Bt CO2-e) - EU limits: type and amount
(2,4 Bt)
28
29. What„s next? - Other items in the news
China to up CO2 targets for heaviest emitters
Deutsche books 310 mln euro charge for CO2 fraud
GDP growth biggest threat to China CO2 targets: report
CDM clean coal projects at risk after Meth Panel thumbs-down
Spain approves 3.4 million euros for World Bank fund
Ukraine gets cash to ready CO2 market
EU steel output rises 4.3 pct in Jan-Sep
World has 5 years to avoid dangerous climate change: IEA
Broker exodus from primary CDM market continues
CEZ coal-based power output down 0.7 pct
Barcap slashes CO2 outlook, market in “dark place”
WCI creates body to oversee carbon market
Poland to give away fewer EUAs in 2012
Japan backs more studies on alternative CO2 offsets
Ireland's greenhouse gas emissions fall 1.1 pct in 2010
EEX to sell Lithuania's surplus EUAs
China sees first voluntary forest carbon trade
UN chief says it's time to cough up climate cash
29
30. Conclusion
1. Markets mechanisms are highly likely to
remain key components of the international
climate cooperation architecture.
2. Domestic markets are proven as means to engage
private sector financing, and to redistribute investments
to where they have the most impact.
3. CDM shows that international carbon markets work,
but is also a huge learning-by-doing project.
4. Future international carbon markets will at least include
CDM, JI, and a New Market Mechanism.
30
31. Conclusion
5. Future carbon markets will include an expanding
number of domestic markets.
6. Future domestic markets may be linked, either under
UNFCCC, or under bilateral agreements.
7. “Interesting times” ahead! Keep eyes on negotiations
and on domestic-regional developments up to 2015.
8. Carbon prices remain subject to short-term
expectations and vague long-term speculation. Don‟t
get too jumpy even if the market does.
31
32. Thank You!
For more information and access to reports,
please refer to:
www.UNFCCC.int
32
