Transcript Slide 1

Carbon Markets and the Economic Impact of
the CDM
Crans Montana, CH
September 19, 2008
Henry Derwent
President and CEO
International Emissions Trading Association
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
What is IETA?
• IETA is the business organisation promoting emissions
trading as the most economically efficient and businessfriendly approach to the reduction of greenhouse gas
emissions worldwide.
• Membership: 182 companies
• IETA members are emitters, project developers,
intermediaries, financial institutions, brokers, verifiers,
and/or legal firms
• IETA offices
• Geneva, Brussels, Washington DC
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
Spreading across the World – Kyoto or not
Canada –
Wide variety
UK – first
UK
– pushing
economyfurther
wide
EU –in
operation,
refining and
expanding
Norway and
Switzerland
too
California –
rapid
progress
Japan – now
beyond
voluntary
CCX – in
operation
REGGI –
nearly there
Korea committed
China – local
experiments
Taiwan too
US – now a
certainty
NSW – in
operation
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
Australia –
on the way
New Zealand
– rapid
progress
First or second stage after 2012...?
Europe staying much
as it is?
What will
Russia’s terms
be?
China and India
partial domestic
schemes?
Japan teams up
with Korea?
A full
North
American
system?
Brazil and South
Africa still
resistant?
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
Australia finds
a way of
bringing in
Indonesia and
PNG?
Truly massive
potential –
programmatic,
policy, forestry,
agriculture,
SD-PAMs – but
when and for
how long?
Elements of Design of an Emissions Trading System
Domestic offset
projects
Supply injections
International offset
Projects eg CDM
Governing
Body
Trading Entity A
Supply injections
Trading Entity B
Regulation
and support
Foreign
Scheme
Trading
Emissions
Trading
Emissions
Foreign
Scheme
Compliance Periods
1
2
3
1
2
3
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
Value of world carbon market increased by
120% in 2007
• Mostly driven by increased volume and price of EUAs
80,000
3500
$67bn
3000
70,000
70%
Traded volume ($ million)
Traded volume (Mt CO2e)
3000
2500
2000
1800
1500
150%
1000
700
60,000
120%
50,000
40,000
$30bn
30,000
180%
20,000
$10bn
500
10,000
0
2005
2006
2007
2005
Allowance - EUAs (1)
Allowance - CCX
CDM - Secondary
Other compliance
Allowance - NSW
CDM - Primary
JI
Allowance - EUAs (1)
CDM - Primary
Other compliance
Source: New Carbon Finance estimates
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
2006
Allowance - NSW
CDM - Secondary
2007
Allowance - CCX
JI
Consequences in terms of
GDP cost
IPCC 4AR: majority of lower-cost opportunities are in non-OECD countries
Source: 4AR
To achieve Stern’s low GDP costs, transfers to developing countries of
between $50 and $100bn a year are required
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
CDM general overview | International mandate
• Legal basis in the Kyoto Protocol
– Run by Executive Board (EB) answerable to KP
Parties
– EB back-stopped by UNFCCC secretariat with
support for:
• Registration and issuance
• Accreditation of certification companies
• Methodologies for emissions baseline setting and
monitoring
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
CDM general overview | International challenge
Additionality
Defines operationally what would happen in the
absence of a CDM emission reduction project
• Two experts – two views
• Agreement how best to do it
A challenge for any offset mechanism/market
outside an inventory target-based system
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
Annual value of CDM/JI - Emission Reductions Transactions (billion USD)
(up to 2012 vintages)
9
8
7
6
5
4
3
2
1
2003
2004
2005
2006
2007
Source: State and Trends of the Carbon Market 2008. Karan Kapoor and Philippe Ambrosi, World Bank, May 2008
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
Globally a success, but regionally the CDM has been mixed
• 4 countries (China, India, Brazil and South Korea) account for 70% of CDM projects and
80% of CERs through to 2012
• Sub-Saharan Africa accounts for 2% of registered projects and 5% of CERs through to 2012
• 88 non-Annex 1 countries have yet to benefit from any registered CDM project activity
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
CDM pipeline
•August 2008: 1200 CDM projects registered with UNFCCC’s CDM EB, and 2500
projects are in the pipeline.
CDM pipeline
2%
1%
1%
20%
76%
Latin America
Asia & Pacific
Europe and Central Asia
Africa
The Pipeline was produced by Jørgen Fenhann, UNEP Risø Centre 01-08-08
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
Middle-East
How the Carbon Price does affect clean
energy investment – CDM analysis
Source: World Bank
State of Carbon market 2007
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
Prices of CER also expected to increase
post 2012
%
60
Under Eur10
Eur 10 - 15
Eur 20 - 25
Over Eur 25
Eur 15-20
50
44
40
32
29
30
27
20
16
14
8
10
7
8
3
0
Between now and 2012
2012 - 2020
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
A few CDM benefits
• CDM has been made functional and is now
developing very dynamically despite being the first
mechanism of its kind at the international level with
all associated regulatory challenges.
• CDM has raised awareness of the climate change
issue.
• It has mobilized great quantities of investment in a
short time.
• CDM permits bottom -up initiatives, which help to
move away from the traditional donor transaction
approach.
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
Lessons learned from the CDM so far
• CDM generates real emission reductions
– Although average underperformance at around 11%
– More experience has to be gained in certain sectors, e.g. landfill
gas, agriculture
• Additionality remains one of the main rejection criterion
• Increasing number of reviews of registration and issuance requests
continues
• Transparency of decision making project process still to be
improved
• Enhanced interaction with project developers needed
Way forward
• Scale-up of CDM required
• Certainty on Post-2012 framework needed
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
CDM in Africa –
registered projects
Estimated
$3.9 billion
capital investment*
. . . in 27 projects
in 7 countries,
expected to generate
38 million CERs
to 2012
Registered CDM projects
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
* Based on average investment estimates per tonne CO2 equivalent reduction;
from: UNFCCC, Investment and Financial Flows to Address Climate Change
CDM in Africa –
registered and in validation stage
Estimated
$12-18 billion
capital investment*
Registered projects (27)
Projects seeking
registration (44)
INTERNATIONAL EMISSIONS TRADING
ASSOCIATION
* Range based
on $137.39 average investment/CER and $200 /CER alternate
estimate for project mix containing fewer industrial gases projects, from
UNFCCC, Investment and Financial Flows to Address Climate Change.
Focus CDM on technology transfer
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
CDM general overview | World’s largest CO2 offset system
Not an academic concept –
CDM is up and running!
 3 years of operational experience (in the context of
exponential growth!)
 More than US$ 1.5 billion worth of CERs issued (low
global administration cost below 1%)
 Large pool of learning opportunities
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
1: The State and Sentiment of the
Carbon Market
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
Significantly higher prices beyond 2012
%
60
Under Eur10
Eur 10 - 20
Eur 25 - 35
Over Eur 35
Eur 20 - 25
51
47
50
40
29
30
28
20
10
6
9
7
4
1
0
Between now and 2012
2012 - 2020
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
2: The Clean Development Mechanism
(CDM)
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
National Cap and Trade
going from strength to strength
• EU-ETS expanding in countries, sectors and gases
• Australia, Japan, Korea changing their minds
• Developing countries seeing trading as a possible emissions
reduction tool
• US national system looks a near certainty – timing less clear
(36 L-W Nays in the Senate)
INTERNATIONAL EMISSIONS TRADING ASSOCIATION