Transcript CCX - FBDS

Update on Worldwide Greenhouse Gas
Market Developments
Michael J. Walsh, Ph.D.
Senior Vice President
+1.312.554.3350
www.chicagoclimateexchange.com
CHICAGO CLIMATE EXCHANGE, INC.
©2004
Summary: Carbon Market Status Worldwide
• Now live: CCX, UK (pre-EU)
• Regulatory: Kyoto and before
• being implemented (e.g. EU)
• under discussion (Canada, NZ)
• unclear (Japan)
• State-level regulatory:
• active: New South Wales
• under discussion: Northeast U.S.
• Russia, Ukraine: will they be trade-eligible at 2008?
• Developing Countries: sellers from mitigation projects
CHICAGO CLIMATE EXCHANGE, INC.
©2004
Global Carbon Market Size: Potentially Huge!
Source
Projection of Size of Greenhouse Gas
Emissions Trading Market
World Bank
$10 billion by 2005
US Council on Foreign Relations
$2.3 trillion of trades completed by 2012
Energy Policy Journal
$24-37 billion of trades completed
annually during the period 2008-2012
Resource and Energy Economics
$46.6 billion of trades annually
(unspecified time frame)
The Economist
$60 billion - $1 trillion of trades
annually (unspecified time frame)
Lockwood Consulting
$1.2 trillion market by 2008 – estimated
$30 billion/year worth of global reductions
Sources:” Value at Risk: Climate Change and the Future of Governance – CERES
Sustainable Governance Project Report”, April 2002; Reuters, April 7, 2000
CHICAGO CLIMATE EXCHANGE, INC.
©2004
U.S. Situation
• Total emissions:
6.9 billion mt CO2 (2002) (11% >1990)
• President Bush: reduce emissions intensity (CO2/GDP)
18% by 2012; fund R&D
• “Crediting” under revised 1605b program legally unclear
• McCain/Lieberman bill:
• return U.S. emissions to 2000 levels by 2010
• trading upstream and downstream; sequestration
• latest Senate vote: 43 yes, 55 no
• Chicago Climate Exchange is live and growing
CHICAGO CLIMATE EXCHANGE, INC.
©2004
Chicago Climate Exchange
Chicago Climate Exchange® is a
voluntary, legally binding pilot
greenhouse gas trading program for
emission sources and offset projects in
North America and
offset projects in Brazil.
CHICAGO CLIMATE EXCHANGE, INC.
©2004
CCX® Reduction Timetable
•
2003-2006: reduce emissions to 1%, 2%, 3%, 4% below 1998-2001
baseline
•
Includes major direct emissions; sources small sources (e.g. fleets)
and electricity purchases can be opted-in
CCX Emission Reduction Schedule
100%
99%
98%
97%
96%
95%
94%
93%
92%
1998-2001
2003
2004
2005
2006
CHICAGO CLIMATE EXCHANGE, INC.
©2004
CCX® Members (1 of 2)
Aerospace
Rolls Royce
Automotive
Ford Motor Co.
Chemicals
Dow Corning
DuPont
Electric Power Generation
American Electric Power
Green Mountain Power
Manitoba Hydro
TECO Energy
Energy Services
Sieben Energy Associates
Environmental Services
Waste Management
Consulting
Domani LLC
Global Change Assocs.
Food Processing
Natural Capitalism, Inc. Premium Standard Farms
Rocky Mountain Institute
Legal Services
Foley & Lardner
Diversified
Manufacturing
Bayer Corporation
Forest Products
International Paper
MeadWestvaco Corp.
Stora Enso NA
Electronics
Motorola, Inc
Temple-Inland, Inc.
Information Technology
IBM
Open Finance LLC
Liquidity Providers
Amerex Energy Ltd.
Calyon Financial Inc.
Eagle Market Makers, Inc
Evolution Markets
First New York Securities
Goldenberg, Hehmeyer.
ICAP Energy LLC
Christopher J. Johnson
Kingstree Trading
Kottke Associates LLC
Marquette Partners LP
Douglas M. Monieson
Natsource LLC
CHICAGO CLIMATE EXCHANGE, INC.
©2004
CCX® Members (cont’d.)
Liquidity Providers
(cont’d.)
Refco LLC
Serrino Trading Co.
C. Richard Stark, Jr
Jeffrey B. Stern
Lee B. Stern
Tradelink LLC
Tradition Financial
Transmarket Group
Municipalities
City of Chicago
Offset Aggregator
Iowa Farm Bureau
Offset Provider
Klabin S.A.
Semiconductors
STMicroelectronics
Non-Governmental
Organization
World Resources Institute
Steel
Roanoke Electric
Steel
Pharmaceuticals
Baxter Healthcare
Technology
Ecoenergetics srl
Millennium Cell
Private University
Tufts University
Transportation
Amtrak
Public University
University of Oklahoma
CCX total emission baseline of ~250 million mtons CO2 would
make CCX the second largest “country” in EU CO2 market
CHICAGO CLIMATE EXCHANGE, INC.
©2004
Initial list of CCX® eligible offset projects
•
Landfill and agricultural methane destruction
•
Sequestration: reforestation and agricultural soil projects
•
Brazil: energy, methane, forestry (reforestation + conservation)
•
CCX® protocols: eligibility, quantification, verification
•
Early Action Credits
CHICAGO CLIMATE EXCHANGE, INC.
©2004
CCX® Market Screen
bids and
offers
completed
trades
(each
contract
is 100mt
CO2)
CHICAGO CLIMATE EXCHANGE, INC.
©2004
Market Data: CCX Weekly Trade Volume and Prices
1.60
400,000
1.50
350,000
1.30
250,000
1.20
200,000
1.10
150,000
1.00
100,000
0.90
50,000
0.80
0
0.70
Weekly Volume
Weekly price
CHICAGO CLIMATE EXCHANGE, INC.
©2004
Weekly Price ($/metric ton)
300,000
50
51
52
2
3
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6
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8
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12
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25
26
27
28
29
30
31
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35
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Weekly Volume (metric tons)
1.40
Canada
• Total emissions ~743 million mt CO2
• 2012 Kyoto Goal: -6% by 2012 (currently ~20%>1990)
• Planned GHG trading system (2008): Large Final Emitters
• 600 sites ~46% of Canada’s total emissions (342 mt):
• Feds promising per-ton net cost cap of C$15/mtCO2
• National government to be active (CDM) purchaser?
CHICAGO CLIMATE EXCHANGE, INC.
©2004
European Union
European Council Directives
• Establish EU ETS for 2005 through 2007
Instructions to each EU-25 Member State
Allocate tradable CO2 emission
allowances to affected installations
Establish uniform, linked registries
Require monitoring, verification,
true-up and penalty systems
CHICAGO CLIMATE EXCHANGE, INC.
©2004
EU ETS (2005 – 2007)
• Covers CO2 emissions from 12,000 installations
• combustion devices >20mw (electricity, heat, steam)
• oil refineries, metals, cement, glass, ceramics
• pulp and paper
• Covers ~46% of total emissions (total~ 4.9 bil mt CO2)
• Annual true-up by April 30, independent verification
• Encourages Linkages (e.g. Japan, Canada, Norway)
• Allows UN-approved CDM credits
CHICAGO CLIMATE EXCHANGE, INC.
©2004
EU ETS 2005-2007 CO2 Reduction Schedule
EU ETS Baseline and Reduction Schedule (billion tons CO2)
2.40
2.30
2.20
-2.7%
2.10
2.00
1.90
recent baseline
2005
2006
2007
CHICAGO CLIMATE EXCHANGE, INC.
©2004
EU Market Activity to Date, Prices
• Total allowance trading volume >3 million tons (forwards)
• CCX founds European Climate Exchange at IPE
€ 14
Euros per metric ton of CO2
€ 13
€ 12
€ 11
€ 10
€9
€8
€7
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CHICAGO CLIMATE EXCHANGE, INC.
©2004
European Union: Market Issues
• Largest: Germany (barely short) and UK (very short)
• Natural longs (e.g. Poland) but may not over-allocate
• Natural shorts (e.g. Ireland, Portugal): growth allocations
•No allowance banking after 2007: price spike or crash?
• CDM CERs are bankable – premium commodity??
• Viability of registries/transaction log; tax, accounting
issues; capacity of verifiers
CHICAGO CLIMATE EXCHANGE, INC.
©2004
Norway, Switzerland
• Norway: emissions 56 million mt CO2 (1999)
• National goal: +1% vs. 1990 by 2012 (now 8% >1990)
• Long experience with carbon taxes (from $10-51/tCO2)
• Switzerland: emissions 45 million mt CO2
• National goal: -8% vs. 1990 by 2012 (now = 1990)
• Now imposing carbon taxes on fuels
Both countries are natural candidates for linkage with EU.
CHICAGO CLIMATE EXCHANGE, INC.
©2004
Russia, Ukraine
• Russia emissions: 1.88 billion mt CO2 (38% < 2012 target)
• Over 1 billion mt/yr surplus if this persists (now growing?)
• IETA survey finds buyers in west are willing, especially if
purchases linked to reduction initiatives
• Ukraine emissions: 704 mil mt CO2 (23% < 2012 target)
• Over 200 mt/yr surplus if this persists
• Both countries may have trouble achieving GHG
inventory quality required to trade under Kyoto
CHICAGO CLIMATE EXCHANGE, INC.
©2004
Japan
• Emissions: 1.3 billion mt CO2
• 2012 goal: -6% vs. 1990 (currently +9%)
• Industry: emissions flat, opposes caps and taxes
• Government may be big buyer on behalf of industry
• Corporates, government active with CDM (forwards)
• No specific implementation plan for trading system
CHICAGO CLIMATE EXCHANGE, INC.
©2004
Developing Countries
• Clean Development Mechanism (CDM) under Kyoto
• Certified Emission Reductions from mitigation projects
• Predominant project types to date:
• HFCs:
31% of tons
•
•
•
Landfill gas: 18%
biomass energy:
small hydro: 11%
14%
• CERs usable in ETS, bankable past 2007: still discounted
• Prices:
non-Kyoto:
buyer takes CDM risk:
seller takes CDM risk:
$0.30-$3.00
$3.00-$4.25
$3.00 - $6.50
CHICAGO CLIMATE EXCHANGE, INC.
©2004
Developing Countries
• 65 countries now have Designated National Authorities
• Includes Brazil, Mexico, China, India
• Four approved verification firms (“Designated Operational
Entities”)
• Japan Quality Assurance, DNV, SGS, TUV
• CDM Executive Board has approved 11 projects, 5 more
on “B” list (good candidates), 14 incomplete, 2 withdrawn
• Forest projects yield temporary CERs
CHICAGO CLIMATE EXCHANGE, INC.
©2004
Developing Countries: Volume Growth
Carbon Market Growing
Volume traded in project-based transactions, million tCO2e
80
60
40
20
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
(Jan-May)
(All vintages, subject to Term Sheets or contracts, delivery subject to CDM, other risks)
• Biggest buyers: Japanese Firms, Netherlands, World Bank
• Biggest sellers: Asia (51%), Latin America (27%)
Source: World Bank Prototype Carbon Fund
CHICAGO CLIMATE EXCHANGE, INC.
©2004
How to Raise Opportunities for Brazil(1)?
• Near-term: grow ability to profit from global market
• Long-term:
Brazil must bring superior knowledge, built through
hands-on MARKET experience, in order to effectively
influence Kyoto Phase II and beyond
• Aggressive education/support for CDM projects
• DNA, other bodies
• Natural CER customers – global corporates with
Brazil operations
CHICAGO CLIMATE EXCHANGE, INC.
©2004
How to Raise Opportunities for Brazil (2)?
• Industrials - adopt offset purchase commitments
• Provide additional market for Brazil offsets
• Stimulate knowledge base
• Preparation for international policy evolution
• Participate in existing/emerging markets
• Take emission reduction commitments in CCX (North
America and Brazil operations?)
•
Pure trader: EU, Chicago
•
Submit alternative projects into CCX
CHICAGO CLIMATE EXCHANGE, INC.
©2004