Transcript Carbon in China

The State and Trends in the
Voluntary Carbon Market
Dan Barry, Arreon Carbon
November 19, 2007
[email protected]
Voluntary Market
The voluntary market is the trading of
carbon credits outside of compliance
schemes (i.e. Kyoto’s CDM, EU ETS etc.)
Desire to participate in the
absence of a formal framework
Voluntary Market at A Glance
• Demand generally fueled by;
– CSR,
– voluntarily reducing carbon footprints, or
– preemption of a compliance market
• Based almost exclusively on project-based credits
• No umbrella regulator
– Many standards
– Higher quality standard = higher price
• In comparison with compliance markets,
voluntary markets are less mature and trade in
lower volumes
Key Market Statistics
• By end of Q3 2007, traded approx. 55
million tonnes of CO2e
– More than double the volume traded in all of
2006
• U.S. markets represents approx. 60% of
all traded volumes
• Prices range from 2-16 USD per tonne of
CO2
tonnes of CO2 (millions)
Historically Traded Volumes
80
70
60
50
40
30
20
10
0
Pre 2002
2002
2003
2004
Source: New Energy Finance/Point Carbon
2005
2006
2007
(expect)
Voluntary Transactions
by Project Type
Methane Mixed/Other
Energy 3%
3%
Efficiency
5%
Industrial
Gas 20%
Forestry
33%
Renewables
33%
Source: New Carbon Finance
The Traded Commodity
• More flexible than Kyoto-based markets
– Demand for credits, not regulatory policy, creates the commodity
• Most commonly traded voluntary credit is the “Verified
Emission Reduction” or VER
– Credit that has already been generated
– Verified by a third party standards body
– Similar to CER, but does not require UN certification
• Other types
– UN certified CERs
– Prospective Emission Reductions (PERs)
• Transaction settled before ERs are delivered (not in forward contracts)
• Typically used for forestry projects
– Emission Reductions (ERs)
• Credits that have been generated but have not been verified
VER vs. CER
• CER is CER, VER is not a VER
– There is one type of CER, assessed and
certified by the UN
– There are many types of VERs, assessed and
verified by different bodies
• VER requires marketing and packaging
– a CER is generally used for Kyoto compliance,
VERs are used for other reasons
The Link Between Quality & Price
• Wide price range: $2-16 USD
• Credits that are assessed according to more stringent
standards are sold for higher prices
• Credits that are better marketed are sold for higher
prices
• What determines quality of projects?
–
–
–
–
–
–
–
Project Type
Project Location
Additionality
Transparency
Environmental co-benefits
Social co-benefits
Reputation of Seller
Prices By Project Type
• The Chicago Climate Exchange, the largest voluntary climate exchange
– Historical price range $1.50 - $ 4.00
– Nov 15 price: $2.05
Registries and Standards
• Under CDM, UN acts as standard and registry
• Role of a standard
– Sets assessment guidelines/regulations
• Role of a registry
– Manages the movement of credits
– Assures that one credit is not sold to two owners
• For VERs, without UN regulation, different
standards and registries have been created to fill
this role
– Each has different regulations
Creating the Commodity:
Key Market Standards
Standard
Name
Sponsor
Volume
Certified
Project
Types
Additionality Registry
Requirement
Gold Standard
Gold Standard
Organiz.
350,000
Renewable
energy,
Energy efficiency
Same as UN
Gold Standard
database
VER+
TUV SUD
383,932
Any except
nuclear and large
hydro
Same as UN
Blue Registry
Voluntary Carbon
Standard (VCS)
IETA, Climate
Group, World
Economic Forum
1,860,000
15 specific
categories
Includes
performance
standards, barrier
analysis
TBD
Voluntary 0ffset
Standard (VOS)
Int’l Carbon
Investor Services
Not available
Any except
nuclear, HFC-23,
large hydro
Same as UN
n/a
Community
Climate
Biodiversity
(CCBA)
CARE, Nature
Conservatory,
Rainforest
Alliance, others
45,695
Land use, land
use change,
forestry
Various, financial,
political barriers,
common practice,
etc
CCBA database
Carbon Financial
Instrument
Chicago Climate
Exchange (CCX)
15,000,000
Methane, soil,
forestry,
renewables
Performance
standards, barrier
analysis
CCX
Source: Point Carbon
Gold Standard
• Markets itself has most stringent VER standard
• Similar to EB CDM guidance
• Requires additional environmental and
stakeholder assessment screens
• Explicitly bans certain project types (i.e.
forestry)
• Most projects cannot meet these standards
VER+
• Sponsored by TÜV SÜD
• Additionality/baseline requirements set
according to CDM methodologies
• Projects after 2000 qualify
• Credits are recorded in TÜV SÜD’s Blue
Registry
Voluntary Carbon Standard (VCS)
• Sponsored by the Climate Group, IETA, World
Economic Forum
• Version 1+2 guidelines have been released
(final version expected to be published this week)
• Credits must be “real, quantifiable, additional
and permanent project-based emission
reductions”
• Credits are placed into VCS registry
The Chicago Climate Exchange
• Based in Chicago, Illinois, U.S.A.
• Voluntary, legally binding cap and trade system
– Members pledge to reduce emissions
– Trades “CFI”
• Allocated to members
• Project based projects can become CFIs
• Current Price around $2 USD
• End of Q2 07, CCX traded 26.3 million tonnes of
CO2e
Preferred Standards/ Certification Procedures
Source: Ecosystem Marketplace and NCF Survey
Voluntary Market:
Opportunities for Project Owners
• Provides alternative revenue source for
emissions reducing projects when…
– CDM projects start generating electricity
before they are registered
– Projects do not have an approved CDM
methodology
– Projects are otherwise not eligible for CDM
Voluntary Market:
Opportunities for Project Owners
Source: Ecosystem Marketplace and NCF Survey
Voluntary Market:
Opportunities for Project Owners
• Increase awareness and understanding;
– When VERs are relevant to their project
– How to maximise the value of their VERs
• Early stage development
• Price expectations
• Project packaging
– How the voluntary market differs from the
Kyoto market
• What drives the voluntary market?
Voluntary Market:
Interaction with the Aggregators
• More so than CDM, need aggregators to access
the tailored transaction market
– Forward purchasing contracts
– Brokerage agreements
Source: Ecosystem Marketplace and NCF Survey
Benefits of Voluntary Markets?
Source: Ecosystem Marketplace and NCF Survey
Desire to participate in the
absence of a formal framework
Benefits of Voluntary Markets
• Sectors which practically can’t be capped
– Services sectors, individuals etc.
• Prior to an obligatory scheme
– Experience / capacity building
– Early action credit
– Hybrid markets (e.g. Japan)
(Gov. and industry)
Arreon Carbon
• Specialises in the origination and
delivery of Chinese VERs and CERs
• Over one hundred emission reduction
projects in a variety of technology
areas
• Financially backed by Credit Suisse
International and Mandra Group
Thank You
[email protected]