Post on 30-Dec-2015
Overview of Carbon Markets
Voluntary & Compliance Markets: Existing Carbon Reduction Units
Vladimir LitvakRBEC Energy and Environment Practice Leader
UNDP/GEF Regional Coordinator
RBEC Energy and Environment Practice MeetingWednesday 27th September, 2006
Bratislava, Slovakia
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6 Main Greenhouses Gases
addressed in UNFCCC:
• Carbon Dioxide: CO2
• Methane: CH4
• Nitrous oxide: N2O
• Hydrofluorocarbons: HFCs
• Perfluorocarbons: PFCs
• Sulphur hexafluoride: SF6
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RBEC Energy and Environment Practice Meeting: Carbon Finance
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Greenhouse Gases are generated by the
following sectors:
• Energy: – Fossil Fuel Combustion &
– Fugitive emissions from fuels
• Industrial processes
• Solvent & other product use
• Agriculture
• Waste
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The Kyoto Map
Ratification date: February 16, 2005Ratified by 160 countries (up to April 12, 2006)Not ratified by Australia and USA that together represent 33% of world total emission
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3 Kyoto Mechanisms
The Kyoto Protocol broke new ground by defining three innovative “flexibility mechanisms” to lower the overall costs of achieving its emissions targets:
• Clean Development Mechanism (Art. 12)• Joint Implementation (Art.6)• Emissions Trading (Art.17)
These mechanisms enable Parties to access cost-effective opportunities to reduce emissions or to remove carbon from the atmosphere in other countries.
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Each Kyoto Mechanism has its own Emission Credits:
• CDM (Art.12): Certified Emission Reductions (CERs)
• Joint Implementation (Art. 6): Emission Reduction Units
(ERUs):
• Emission Trading (Art.17): Asigned Amount Units (AAUs):
One period of 10 years or 3 x 7 years
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Different Carbon Markets
Allowance-based Transactions The buyer purchases emissions allowances created and allocated
by regulators under cap-and-trade regimes such as Assigned Amount Units (AAU’s) under the Kyoto Protocol or EU Allowances (EAU’s) under the EU Emission Trading Scheme.
Project-based Transactions The buyer purchases emission credits (CERs, ERUs, VERs) from a
project that reduces GHG emissions. Some project-based transactions are conducted to meet voluntary targets, but most are intended to for compliance with the Kyoto Protocol or other regulatory regimes.
No difference in quality between emission allowances and project-based credits, once the latter are issued !
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There are 45 Different Carbon Markets, but 2 main regimes
Project-based Markets: The Kyoto Protocol (CDM and JI) – MANDATORY REGIME
Marrakech Accords Executive Board (CDM and JI) Methodology Panel National mitigation plans (e.g. Canada, Japan, EU countries)
Non-Kyoto Regimes – MANDATORY REGIME USA (individual States; Oregon, California, East Coast) Australia (individual States; New South Wales)
Voluntary Regimes Chicago Climate Exchange Retail market
Allowance-based Market EU Emissions Trading Scheme (as of Jan. 2004)
Linking directive EU-ETS & Kyoto Protocol
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Structure of Carbon Markets
Allowance Markets
UK ETS
EU Emission Trading Scheme
Chicago Climate Exchange
New South Wales Certificates
Project-Based Transactions
JI and CDM
Voluntary
RetailOther
Compliance
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CDM Projects (3 September 2006)
Source: www.unfccc.org
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Project-based Transactions – Annual volume of project-based emission reductions and average price is US$/tCO2eq
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Project-based Transactions – Location of CDM & JI Projects
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Project-based Transactions – Who is buying?
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Type of technology in emission reduction projects (as a share of volume contracted)
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Project-based Transactions – Who is buying @ what price level…..?
Price levels vary according to (assumed) risk levels:(current – September 2006 – price levels for CERs: €7-8 ($8-10)
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Allowance-based Transactions – Who is buying @ what price level > €28 !?
Total of 6.57 billion CO2 allowances for 25 EU countriesTrading volume Jan 2006: 35-40 million CO2 allowances/week
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Carbon Market outlook to 2012
The countries with shortfalls in their Kyoto emission allowances are likely to need 4.0-5.0 billion Kyoto compliant units by 2012 to meet their commitments.
Based on current trends the CDM is probably capable of supplying an average of 100-200 million CERs per year during the commitment period or, in aggregate, around 800 million CERs by 2012.
JI is estimated to be able to supply an additional 40-50 million ERUs per year during 2008-2012, or in total 200-250 million by 2012.
Combined CER and ERU supply to 2012 could be around 1,000 million units, which would meet about 15-25% of Kyoto market demand for compliance units.
Source: UNDP-EEG, March 2006
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Kyoto Protocol ends in 2012: What’s next?
• There exist many uncertainties about the post-Kyoto Regime
• Which target?
• Will all countries participate?
• Mandatory regime for all?
• It is an ongoing & learning process high dynamic, high
uncertainty
• Possible Future of CDM: by Project; by Sector; by Programme?
•First COP/MOP: Montreal (2005)
• The creation of a market for a Public Good such as GHG is a hard
and complex task
• Climate Change is here What about adaptation, more a priority?
• Non Annex I Countries are still asking for poverty alleviation and
economic development
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Thank you!