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Carbon Markets: A US Perspective


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Presentation by Dr. Sascha Lafeld at TBLI CONFERENCE EUROPE 2008.

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Carbon Markets: A US Perspective

  1. 1. Carbon Markets: A US Perspective Dr. Sascha Lafeld, Executive Board Member Amsterdam,13.11.2008
  2. 2. Main Questions <ul><li>What are the latest developments in the potentially largest carbon market worldwide? </li></ul><ul><li>How can investments in US carbon reduction projects be stimulated? </li></ul>
  3. 3. First Climate Carbon Investment Advisory Carbon Asset Development Sales & Trading Climate Neutral Services Project Finance Integrated Carbon Asset Management
  4. 4. Global Player: 13 Offices on 4 Continents Washington, D.C. Santiago de Chile Paris Kolkata Hanoi Frankfurt Zurich Beijing San Francisco London Berlin Luxembourg Singapore Partnerships Offices
  5. 5. Regional and State Initiatives in the US <ul><li>Regional Greenhouse Gas Initiative (RGGI)‏ </li></ul><ul><ul><ul><ul><li>Cap-and-trade program which limits carbon emissions from fossil fuel-fired power plants larger that 25 MW </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Start in 01/09, includes 10 northeastern US states </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Domestic carbon offsets can be used to meet 3.3% of emissions obligations during each three-year trading phase </li></ul></ul></ul></ul><ul><li>Western Climate Initiative (WCI)‏ </li></ul><ul><ul><ul><ul><li>7 western US states and 4 Canadian provinces </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Multi-sector cap-and-trade scheme by 01/12 with overall goal of reducing regional GHG emissions 15% below 2005 levels by 2020 </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Domestic & international offsets shall be used to cover approx. 1% of overall cap in 2013 and up to 7.35% by 2020 </li></ul></ul></ul></ul><ul><li>Midwest Regional GHG Reduction Accord (MRP)‏ </li></ul><ul><ul><ul><ul><li>Signed in November 2007, newest regional initiative, includes 6 mid-western US states and 1 Canadian province </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Market design anticipated to be released in March 2009 </li></ul></ul></ul></ul>
  6. 6. California: Assembly Bill 32 (AB 32)‏ <ul><ul><ul><ul><li>Signed in 2006, GHG reduction measures implemented by 2012 </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Reduce CA emissions to 1990 levels by 2020, approx. a 30% reduction from “business-as-usual” </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Key Components </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Energy efficiency </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Renewable energy </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Cap-and-trade linked to WCI </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Aggressive targets for transport related emissions </li></ul></ul></ul></ul><ul><li>Pending Decisions </li></ul><ul><ul><ul><ul><li>Role of offsets </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Proposed scoping plan released in 10/08, vote in 12/08 </li></ul></ul></ul></ul>
  7. 7. <ul><li>The District of Columbia is a RGGI observer, but does not appear on this map. </li></ul><ul><li>Source: Pew Center on Global Climate Change. </li></ul>US States Participating in GHG Programs RGGI Observer Midwestern Regional GHG Reduction Accord MRGHGRA Observer Regional Greenhouse Gas Initiative RGGI Western Climate Initiative Observer Western Climate Initiative
  8. 8. Federal Level: Lieberman/Warner - Dingell-Boucher <ul><li>Climate Security Act (Lieberman-Warner) </li></ul><ul><ul><li>Introduced to Senate in 10/07 </li></ul></ul><ul><ul><ul><li>Latest version calls for 19% GHG reductions below 2005 levels by 2020 and 71% below 2005 levels by 2050 </li></ul></ul></ul><ul><ul><ul><li>Stalled in Senate June 2008 </li></ul></ul></ul><ul><li>Dingell-Boucher proposal </li></ul><ul><li>Introduced in the House of Representatives 10/08 </li></ul><ul><ul><ul><li>Draft has not yet been formally introduced for a vote but will guide federal climate policy discussions in 2009 </li></ul></ul></ul><ul><ul><ul><li>Weak short-term target: 6% reduction from 2005 by 2020 </li></ul></ul></ul><ul><li>Strong long-term target: 80% by 2050 </li></ul><ul><li>Significant use of domestic/international offsets allowed, increasing over time </li></ul>
  9. 9. The Obama Administration <ul><li>Proposed Policies: </li></ul><ul><li>Implement Economy Wide Cap-and-Trade Program </li></ul><ul><ul><ul><li>GHG Emissions reduction goal of 80% below 1990 levels by 2050 </li></ul></ul></ul><ul><ul><ul><li>Require 100% auction of pollution credits </li></ul></ul></ul><ul><ul><ul><li>Portion of revenue generated from cap-and-trade to be used to accelerate development of low-carbon technologies </li></ul></ul></ul><ul><ul><ul><li>Obama’s stance on the role of offsets under federal cap and trade still to be determined </li></ul></ul></ul><ul><li>International Efforts </li></ul><ul><ul><ul><li>Re-engage UNFCCC </li></ul></ul></ul><ul><ul><ul><li>Create new Global Energy Forum based on the G8 plus Brazil, China, India, Mexico and South Africa </li></ul></ul></ul>
  10. 10. Potential size of the US Carbon Market source: Goldman Sachs: Global Climate Change Policy, October 2008
  11. 11. Role of offset credits
  12. 12. How offset credits influence price (Lieberman-Warner)‏ <ul><ul><ul><ul><li>Current draft: Domestic offsets & International offsets = 15% of compliance obligation </li></ul></ul></ul></ul><ul><ul><ul><ul><li>US carbon prices of $35-40/t by 2015 & $45/t by 2020 (New Carbon Finance)‏ </li></ul></ul></ul></ul><ul><li>EPA analysis: </li></ul><ul><ul><ul><ul><li>If the use of domestic offsets and international credits is unlimited, then allowance prices fall by 71% compared to the bill as written </li></ul></ul></ul></ul><ul><ul><ul><ul><li>If domestic offsets and international credits are not allowed, the allowance price increases by 93% compared to the bill as written </li></ul></ul></ul></ul>
  13. 13. Conclusions <ul><li>Climate change is likely to remain high on the Obama Admin agenda. </li></ul><ul><li>The existence of various regional GHG reduction schemes will expedite the development of a federal scheme due to the concerns about effectiveness of a “patchwork” of programs. </li></ul><ul><li>Investment in carbon reduction projects stimulated by: </li></ul><ul><ul><ul><li>Clear market signals related to use of offsets within federal/regional schemes </li></ul></ul></ul><ul><ul><ul><li>Innovative financing approaches to provide equity investment i.e public funding with lower cost of capital </li></ul></ul></ul><ul><ul><ul><li>Money from allowance auctions to fund technology research </li></ul></ul></ul>
  14. 14. Obama <ul><ul><ul><li>“ Today we begin in earnest the work of making sure that the world we leave our children is a just a little bit better than the one we inhabit today” </li></ul></ul></ul><ul><ul><ul><li>-President-Elect Barack Obama </li></ul></ul></ul>