Emissions Trading Overview: Who are the Buyers and Sellers and What is Traded? Tetyana Budyakova...
Transcript of Emissions Trading Overview: Who are the Buyers and Sellers and What is Traded? Tetyana Budyakova...
Emissions Trading Overview: Emissions Trading Overview: Who are the Buyers and Sellers and Who are the Buyers and Sellers and What is Traded?What is Traded?
Tetyana Budyakova
Lawyer
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What is CMS Cameron McKenna?What is CMS Cameron McKenna?
CEE Magic Circle law firm (Chambers Global 2007) Moscow office client’s choice of the year (2007) Renowned in energy projects Founder of CMS alliance (9 major European law firms) 40 offices in 24 jurisdictions Kyiv office opened last fall
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Our Locations in EuropeOur Locations in Europe
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AgendaAgenda
What is emissions trading Market Players and legal frameworks that
create demand Main “carbon currencies” and trading platforms Position of Ukraine in carbon market What’s next?
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What is Emissions Trading What is Emissions Trading
market-based mechanism aimed to reduce emissions at lowest cost
gives companies the 1. flexibility in choosing cost-effective ways to meet
their reduction obligation: (1) reduce; (2) buy carbon units from others;(3) invest into offset projects;
2. financial incentive to invest into new technologies Based on success of U.S. Acid Rain Program
– cap and trade introduced within the1990 Clean Air Act Amendments
– SO2 emissions reduced by 22% or by 7.3 million tons below mandated levels
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Carbon market is a new but rapidly Carbon market is a new but rapidly growing marketgrowing market
329
1745
2983
0
500
1000
1500
2000
2500
3000
Mt C
O2e
2005 2006 2007
market volume
1031
64
118
150
020406080
100120140160
US
$ bi
llion
2005 2006 2007 2008 2009
market value
Source: World Bank, State and Trends of the Carbon Market 2008
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Cap-and-Trade elementsCap-and-Trade elements
Fixed cap in Mt CO2e Baseline Fixed reduction requirement (by 80% by 2050) Emittors covered, offset projects Carbon currency
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Legal framework: what creates buyers Legal framework: what creates buyers
International: Kyoto Protocol Regional cap and trade schemes: EU ETS National schemes: e.g. UK ETS, New Zealand ETS,
Australia (by 2010), potentially US & Japan Regional programs within country:
– RGGI in US– NSW GGAS in Australia
State schemes: California Assembly Bill 32; Voluntary schemes:
– CCX in US – Japan’s Keidanren Voluntary Action Plan (for
Japan’s Kyoto compliance)
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Kyoto ProtocolKyoto Protocol
Kyoto Protocol – Protocol to the United Nations Framework Convention on Climate
Change (UNFCCC) adopted on December 11, 1997, and entered into force on February 16, 2005
Reduction Target – The Parties included in Annex I shall, individually or jointly, ensure
that their aggregate anthropogenic CO2e emissions do not exceed their assigned amounts, inscribed in Annex B, with a view to reducing their overall emissions by at least 5% below 1990 levels in the commitment period 2008 to 2012.
Parties– 183 countries + EU (deposited instruments of ratification,
accession, approval or acceptance) as of 14 January 2009– 2 signed but not ratified – US and Kazakhstan– Annex I countries
– 40 industrialized countries + EU listed in Annex I to UNFCCC
– Annex B countries – 39 countries + EU listed in Annex B to Kyoto Protocol with
their specific reduction targets
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Kyoto Protocol PartiesKyoto Protocol Parties
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Kyoto Protocol Annex B countries targetsKyoto Protocol Annex B countries targets
Country Target (1990** -
2008/2012)
EU-15*, Bulgaria**, Czech Republic, Estonia, Latvia, Liechtenstein, Lithuania, Monaco, Romania**, Slovakia, Slovenia, Switzerland, Belarus*** -8%
US -7%
Canada, Hungary**, Japan, Poland** -6%
Croatia -5%
New Zealand, Russian Federation, Ukraine 0
Norway 1%
Australia 8%
Iceland 10%
* * the EU redistribute the -8% target among its members, using the provision of Article 24 of the the EU redistribute the -8% target among its members, using the provision of Article 24 of the Protocol (the “bubble”): countries have different individual targets with combined overall target for that Protocol (the “bubble”): countries have different individual targets with combined overall target for that group of countries. group of countries. ** have a baseline other than 1990.** have a baseline other than 1990.*** Belarus was added to Annex B in 2006 by Decision 10/CMP.2 *** Belarus was added to Annex B in 2006 by Decision 10/CMP.2 Turkey has a special status and is not Annex B country, Decision 26/CP.7.Turkey has a special status and is not Annex B country, Decision 26/CP.7.
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Distribution of EU target of -8%Distribution of EU target of -8%Austria -13.0 %*
Belgium -7.5 %*
Denmark -21.0 %*
Finland, France 0.0 %*
Germany -21.0 %*
Greece +25.0 %*
Ireland +13.0 %*
Italy -6.5 %*
Luxembourg -28.0 %*
Netherlands -6.0 %*
Portugal +27.0 %*
Spain +15.0 %*
Sweden +4.0 %*
United Kingdom -12.5 %*
Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Romania, Slovakia, Slovenia -8%**
Hungary, Poland -6%**
Cyprus, Malta No target
* Decision 2002/358/EC (Burden Sharing Agreement), Annex II. Source: Carbon Trust * Decision 2002/358/EC (Burden Sharing Agreement), Annex II. Source: Carbon Trust ** Kyoto Protocol, Annex B ** Kyoto Protocol, Annex B
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Kyoto Flexible MechanismsKyoto Flexible Mechanisms
International Emissions trading (AAUs) (Art.17 of KP) – Annex B countries may trade their Assigned Amount Units (AAUs) with
each other to meet their targets
CDM (CERs) – Clean Development Mechanism (Art. 12 of KP)– projects hosted in non-Annex I country– generate Certified Emissions Reduction (CERs)– project aim: assist non-Annex I countries in achieving sustainable
development and in contributing to the ultimate objective of the Convention
– CERs Issued and registered by UN CDM Executive Board JI (ERUs) - Joint Implementation mechanism (Art. 6 of KP)
– projects hosted in another Annex I country – generate Emission Reduction Units (ERUs)– project aim: reducing anthropogenic emissions by sources or enhancing
anthropogenic removals by sinks of GHG in any sector of the economy– ERUs issued by hosting country government
– Track 2 – registered by JI Supervisory Committee (JISC)– Track 1 – National registration
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Regional cap and trade schemes: Regional cap and trade schemes: EU ETSEU ETS Trade: EUAs – EU Allowance = 1 Mt CO2e (last price €12.05) Operates since 2005 under Directive 2003/87/EC (EU ETS Directive) 27 EU countries + Iceland, Norway, Liechtenstein
– joined in 2007 within the framework of the European Economic Area (EEA) agreement, applicable since 1.1.2008
Joined target: -8% by 2012 redistributed among the Member States Covered emitters:
– over 10,000 big industrial installations in the energy and industrial sectors (collectively ½ of the EU's CO2 emissions and 40% of its total GHG emissions)
– aviation since 2012 Implemented in phases: Phase I (2005-2007); Phase II (2008-2012);
Phase III (2013-2020) National caps during Phase I and II
– National Allocation Plans (NAPs) reviewed by Commission– 6.5% below 2005 levels for Phase II
EU-wide cap for Phase III – 21% reduction below 2005 level through annual phase-out from 2012
Use of offsets: CDM and JI on if additional to own actions More info:
http://ec.europa.eu/environment/climat/emission/index_en.htm
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Facilities covered by EU ETSFacilities covered by EU ETS Energy activities
– Combustion installations with a rated thermal input exceeding 20 MW (except hazardous or municipal waste installations)
– Mineral oil refineries – Coke ovens
Production and processing of ferrous metals– Metal ore (including sulphide ore) roasting or sintering installations– Installations for the production of pig iron or steel (primary or secondary
fusion) including continuous casting, with a capacity exceeding 2,5 tonnes per hour
Mineral industry– Installations for the production of cement clinker in rotary kilns with a
production capacity exceeding 500 tonnes per day or lime in rotary kilns with a production capacity exceeding 50 tonnes per day or in other furnaces with a production capacity exceeding 50 tonnes per day
– Installations for the manufacture of glass including glass fibre with a melting capacity exceeding 20 tonnes per day
– Installations for the manufacture of ceramic products by firing, in particular roofing tiles, bricks, refractory bricks, tiles, stoneware or porcelain, with a production capacity exceeding 75 tonnes per day, and/or with a kiln capacity exceeding 4 m3 and with a setting density per kiln exceeding 300 kg/m3
Other activities: Industrial plants for the production of – (a) pulp from timber or other fibrous materials – (b) paper and board with a production capacity exceeding 20 tonnes
per day
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Regional programs within country: Regional Regional programs within country: Regional Greenhouse Gas Initiative (RGGI) in U.S.Greenhouse Gas Initiative (RGGI) in U.S.
Trade: RGGI CO2 allowance (last price $3.38) Operates since 2009 through state regulations,
– based on a RGGI Model Rule, and linked through CO2 allowance reciprocity (individual CO2 Budget Trading Programs in each state)
– States auction emission allowances and invest proceeds in low-carbon-intensity solutions projects (energy efficiency, renewable energy, other clean energy technologies)
– 2 auctions so far: Auction 2 cleared at $3.38; Auction 1 at $3.07 Cap: 10% CO2 emissions from the power sector by 2018:
– power sector CO2 emissions are capped at current levels through 2014. In 2015 - 2018 cap is reduced by 2.5 % in each year
Entity covered: power plants Territory covered: 10 Northeastern and Mid-Atlantic states of US
– Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont
Offsets: CO2 offset allowances – to satisfy only a limited portion of a source’s compliance obligation (initially
3.3 % of a power plant’s total obligation during a control period) More info: www.rggi.org
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Regional programs within country: Regional programs within country: New South Wales Green House Gas New South Wales Green House Gas Abatement Scheme (Abatement Scheme (GGAS) in GGAS) in AustraliaAustralia Trade: NGACs - NSW Greenhouse Gas Abatement Certificates
= 1 Mt CO2e (last price about $4) Operates since 2003
– through amendments to the Electricity Supply Act of 1995 and the Electricity Supply Regulation of 2001
Cap: 7.27 Mt CO2e in 2007 and till 2021– per-capita GHG emissions from the electricity consumption (vs. 8.65 tones
in 2003)– = 5% reduction below the 1990 level
Entity covered: electricity retailers and certain other parties Territory covered: New South Wales and Australian Capital
Territory only Abatement certificates provided through activities that abate GHG
– reduce the GHG intensity of electricity generation; generate low emission intensity electricity; demand side abatement (reducing/increasing efficiency of electricity consumption); carbon sequestration activities (managing forests to capture and retain carbon from the atmosphere
More info: www.greenhousegas.nsw.gov.au
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Voluntary schemes: Chicago Climate Voluntary schemes: Chicago Climate Exchange (CCX)Exchange (CCX) Trade: CFI - Carbon Financial Instrument = 100 Mt CO2e (last price
$2.05) Operates since 2003 through the membership agreements Members: over 200 including power, automotive, chemical, financial
corporations and municipalities (about 20% of US emissions), – Governed by the Committees of Members (Executive,
Environmental Compliance, Trading and Market Operations, Offsets, Membership and Forestry)
Cap: 6% below Baseline by 2010– Phase I (2003-2006) 1% per year, total reduction of 4% below Baseline – Phase II (2007-2010) reduction schedule, total reductions of 6% by 2010
Covers all six GHG Territory covered: US + global affiliates
– Currently - Chicago Climate Futures Exchange® (CCFE®), European Climate Exchange® (ECX®), Montréal Climate Exchange™ (MCeX™), Tianjin Climate Exchange (TCX);
– in development - California Climate Exchange™ (CaCX™), New York Climate Exchange™ (NYCX™), Northeast Climate Exchange™ (NECX™, India Climate Exchange™ (ICX™)
Offset projects: worldwide projects– Applicable technologies decided by Offsets Committee (e.g. Agricultural, Coal
mine or Landfill methane, Agricultural soil carbon, Rangeland soil carbon management, Forestry, Renewable energy, Ozone depleting substance destruction)
More info: http://chicagoclimateexchange.com/
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Market playersMarket players Buyers:
– For compliance: – Governments of Annex I countries (AAUs) for Kyoto compliance
– Estimated shortfall - 2.3-2.7 billion MtCO2e for Kyoto Parties (excluding Canada)
– European companies covered by EU ETS (EUAs, ERUs, CERs); – Japanese companies for compliance under the Japan’s Keidanren
Voluntary Action Plan (for Japan’s Kyoto compliance) (CERs, JIs, AAUs);
– U.S. multinationals operating in Europe or Japan or preparing for the RGGI or for California Assembly Bill 32;
– Entities covered by other schemes CCX (CFIs); RGGI (RGGI CO2 allowances), GGAS (NGACs)
– For income generation: – Intermediaries (aggregators, trading houses, compliance funds and
banks)– Asset managers (investors carbon funds, hedge funds)
Sellers:– Governments of Annex I countries that have surplus (AAUs)– Entities in Annex I countries that host JI projects (ERUs)– Entities in non-Annex I countries that host CDM projects (CERs)– Entities that received allowances under respective schemes or the offset
providers (EUAs, CFIs, RGGI allowances)– Intermediaries & asset managers
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KM – Kyoto KM – Kyoto Mechanism Mechanism (AAU, CER (AAU, CER & ERU)& ERU)
Mt CO2e = Mt CO2e = million t million t CO2eCO2e
Source: Source: World World Bank, State Bank, State and Trends and Trends of the of the Carbon Carbon Market Market 20082008
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Source: EEA Source: EEA EEA Signals 2009: Key Environmental EEA Signals 2009: Key Environmental Issues Facing EuropeIssues Facing Europe
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Source: World Bank, State and Trends of the Carbon Market 2008
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Source: World Bank, State and Trends of the Carbon Market 2008
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Relation between different carbon units
VER – reduction unit generated through CDM or JI what was verified but not issued as ERU or CER
Source: World Bank, State and Trends of the Carbon Market 2008
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Main trading platforms:Main trading platforms: EUAs
– Over-the-counter (OTC) - 80% of transactions– about 54% at London EnergyBrokers Association (LEBA)– 38% at European Climate Exchange (ECX)
– Exchange-traded– 84% traded at ECX– the rest at Nordpool, Bluenext and European Energy Exchange
(EEX) EUAs and CER Derivatives (options and futures/ swaps/ gCER)
– by different exchanges through their launched products– E.g. Chicago Climate Futures Exchange® (CCFE®) trades
– Futures & Options for CFI, CER – Futures for Dow Jones Sustainability World Index (DJSI-W) & ECO-
Clean Energy Index (Eco-Index)– Event Linked Futures - U.S. Wind (IFEX) , Florida Wind
(IFEX-FLW), and Gulf Coast Wind (IFEX-GCW) – Futures & Options for Nitrogen & Sulphur Financial Instruments
(NFIA & SFI) – Futures for Regional Greenhouse Gas Imitative (RGGI)
– ECX offers Futures & options for EUAs
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Position of Ukraine Position of Ukraine
AAUs - one of the main potential suppliers of– Estimated to have about 1-1,5 billion AAUs
surplus– subject to Green Investment Scheme (GIS)
requirements JI - N.1 in PointCarbon rating of JI hosts
– Additionally: reductions may not be generated if project is not implemented
– 33% share of all JI projects globally
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JI projects globallyJI projects globally
Source: World Bank, State and Trends of the Carbon Market 2008
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JI project in Ukraine JI project in Ukraine
about 40 JI projects submitted to JISC hosted by Ukraine (various stage of development and implementation) with potential of generating about 60 million tones CO2 reductions by 2012
3 projects under Track 2 passed the final determination
5 projects under Track 1 submitted by NEIA hosts the first JI project approved by JISC first transferred ERUs – 1.4 million ‘early’ ERUs
to the Japanese registry for the Zasyadko project (immediately after the completion of the connection with the ITL in October 2008)
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Types of JI ProjectsTypes of JI Projects
Coal mine methane15%
Natural Gas Leaks4%
Cogeneration19%
Energy Efficiency18%
Landfill gas25%
Heating7%Biomass
4%
Wind3%
N2O5%
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JI project in Ukraine JI project in Ukraine Has both Track 1 and Track 2 in place
– Track 1 – registration by NEIA; national/international determination and verification
– Track 2 – registration by JISC; international determination and verification
Designated authority: National Environmental Investment Agency of Ukraine (NEIA)
Legislation:– Procedure for JI projects development, consideration, approval
and implementation, adopted by the Resolution of the CMU of 22 February 2006 N.206;
– Requirements to the JI projects documents, adopted by 2 NEIA Orders of 25 June 2008 N.32 and N.33;
– Track 1 procedure, adopted by NEIA Order of 18 December 2008 N.79
JI legal framework recognizes– “early crediting” - issuing credits generated before the beginning
of the first Kyoto crediting period of 2008-2012; – “late crediting” – allowing applications for credits to be generated
after 2012.
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JI registration procedureJI registration procedure
1. Project proposal submitted to NEIA; 2. Letter of endorsement issued by NEIA that approves
development of project design documentation (PDD)3. PDD submitted for determination to independent
accredited authority;4. Letter of approval issued by NEIA;5. Letter of endorsement issued by the country of buyer;6. Registration by NEIA (+ JISC if Track 2);7. Annual reporting by the project owner;8. Verification by the independent accredited authority;9. NEIA issues ERUs into the account of the seller in
Ukraine’s National Registry;10. NEIA transforms ERUs into AAUs and transacts them to
the account of buyer through the International Transaction Log
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Who can register JI projectWho can register JI project
Legal or natural person (registered entrepreneur)
Whose activity is not suspended due to liquidation, bankruptcy or insolvency procedures
That owns or legitimately possess for the whole duration of the project
An object located in Ukraine which operation causes anthropogenic GHG emissions or their reduction
– objects may include: workshop, installation or unit of production or non-production purpose
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Project OwnersProject Owners
State20%
Municipal34%
Private46%
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What is next?What is next?
Post-Kyoto treaty to be negotiated and adopted in 2009 at next COP 15 (according to the Bali Action Plan of COP 13)
– COP 15 in Copenhagen December 7-18 2009 http://en.cop15.dk/ Main problem identified at COP 14 in Poznan:
– Targets for developing countries big polluters (China, India) Potential developments meanwhile:
– EU adopted a goal of 20 % GHG reduction by 2020 that will develop through EU ETS
– US is expected to adopt a national ETS, otherwise regional ETS, like RGGI, will expand
– Canada, Australia and other countries may adopt national ETS – Emission reduction and trading will be covered through separate
regional/national schemes – Some schemes may link (e.g. EU ETS will extend to other non-EU
countries)– Voluntary schemes are developing in non-Annex I countries, e.g.
– Tianjin Climate Exchange (TCX) - a joint venture of CCX and China National Petroleum Corporation Assets Management Co Ltd (CNPCAM) along with Tianjin Property Rights Exchange (TPRE);
– India Climate Exchange™ (ICX™)
QuestionsQuestions
Thank you!Thank you!
Tetyana [email protected] Tel: +380 44 391 3377Fax: +380 44 391 3388
www.law-now.com