International CDM Market

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International CDM Market

• Dr. Manuel Fuentes

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IT Power a brief introduction

• International organisation consulting on energy,
  climate change international development
• Established 1981 in UK
• Clients include private companies and banks, UN
  Agencies, Multilateral Finance Institutions, UK
  Government, EU and Bilateral Agencies
• 70 staff worldwide

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Presentation contents

• Structure of Carbon Market
• CDM
• European Emissions Trading Scheme
• Voluntary market

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United Nations Framework Convention on Climate
Change (UNFCCC)

• First discussed at Earth Summit in Rio de Janeiro
  in 1992
• Objective To achieve stabilisation of
  greenhouse gas concentrations in the atmosphere
  at a level that would prevent dangerous
  anthropogenic interference with the climate
  system Article 2, UNFCCC

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Kyoto Protocol

• Most important decision of UNFCCC
• Adopted in December 1997
• Developed countries agreed to reduce emissions to
  5.2 percent below 1990 levels, within commitment
  period 2008 to 2012
• Kyoto Protocol enforced February 2005

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• Carbon Dioxide (CO2)
• Methane (CH4)
• Nitrous oxide (N2O)
• Hydrofluorocarbons (HFCs)
• Perfluorocarbons (PFCs)
• Sulfur hexafluoride (SF6)

GHG Emissions
5.2
1990
2000
2010
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Mechanisms

• Clean Development Mechanism
• Aims to assist non-Annex I countries achieve
  sustainable development
• Annex I countries with emission caps pay to
  implement projects to achieve emission reductions
  in developing countries. Credits issues based on
  emission reductions of project.
• Joint Implementation
• Annex I country assists another Annex I country
  to implement project to reduce emissions.
• International Emissions Trading
• Trade of emissions allowances or reduction
  credits. Aim is to reduce total costs of
  achieving collective emissions reductions. Total
  amount of emissions reductions of Annex I
  countries does not change.

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Why a Carbon Market?

• Regulatory pressure on firms, governments, and
  even individuals to constrain their greenhouse
  gases (GHGs) emissions
• Voluntary reasons firms, governments, individuals
  and other organisations constrain emissions
  carbon neutral
• Both domestic reductions and purchase of outside
  GHG emission reductions
• As GHGs settle in the atmosphere, it does not
  matter where emissions are reduced
• Opportunity for countries such as Brazil to
  benefit from investment in activities to reduce

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Structure of the Carbon Market
EU, Canada, Japan New Zealand
Kyoto compliance (Annex 1 Governments)
EU Emissions Trading Scheme
JI CDM
Retail
Voluntary
Domestic trading schemes e.g. UK ETS, NSW GHG
abatement scheme, Chicago Climate Exchange,
Canada domestic scheme, Japan?
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Clean Development Mechanism

• Carbon finance for sustainable development
  projects with benefits such as job creation,
  clean energy service provision etc.
• Reduced Kyoto compliance costs of greenhouse gas
  reductions for industrialised countries
• CDM projects are undertaken in non-Annex I
  countries and may be
• Unilateral (participants host country only)
• bi-lateral (participants host country Annex 1
  country)
• multi-lateral (participants host country a
  number of annex 1 country partners)
• The emission reductions credits achieved are
  referred to as Certified Emission Reductions
  (CERs) 1 CER 1 tonne CO2 equivalent

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CDM Eligibility

• Real, measurable and long-term benefits related
  to mitigating climate change
• Voluntary participation of each party involved
• Projects must result in GHG reductions that are
  additional
• Project must help host country in achieving
  sustainable development
• CERs generated for 10 or 21 (777) years for
  reduced GHG (basket of 6 - in CO2eq) emissions
  compared to business as usual scenario
  baseline

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Small scale projects

• Simplified procedures -administrative levy halved
• Possible project activities
• Renewable energy up to 15MW
• Energy efficiency improvements up to equivalent
  of 15GWh/ year
• Others which reduce emissions and which directly
  emit less than 15 000 tCO2 per year. E.g.
  improved fertiliser use, management of rice
  cultivation

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What is bundling?
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The EU Emissions Trading Scheme (1)

• An entity-based domestic cap and trade
  emissions allowance programme
• Governed by Community Law using a special unit of
  trade allowances
• Compatible with international emissions trading
  under Kyoto, contributing towards Kyoto targets

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The EU Emissions Trading Scheme (2)

• Summary
• Phase 1 2005-07
• Phase 2 2008 -12
• Covers the EU 15 the 2004 Accession States
• 50 of all carbon emissions in the EU (12,000
  plants)

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The EU ETS - who is affected?

• Energy combustion installations over 20MW
• Ferrous Metals
• Minerals kilns, glass, ceramic, cement
• Other
• (Pulp and Paper)
• Renewables, transport other sectors are NOT
  included

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EU Allowances

• 1 EUA 1 tonne CO2 equivalent 1 CER
• 1 EUA trading for 15
• Penalty value for failing to meet EUA 100/EUA
  for 2008-2012 period!!
• 1 CER trading for 6
• Higher risks associated with CER investors

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How can CERs and ERUs be used in the ETS?

• EU ETS and Linking directive
• under the EU ETS each installation is required to
  surrender a number of allowances corresponding to
  their verified emission volume for each calendar
  year
• in the event that an installation has
  insufficient allowances for compliance, the
  shortage can be covered by
• purchasing additional allowance from the market
• surrendering a specified number of CERs and, from
  2008, ERUs from its operators holding account
• surrendering of CERs and ERUs are subject to
  specified preconditions

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Preconditions for surrendering CERs

• Since 2005 CERs can be used for compliance
• up to a percentage of the allocation to each
  installation - specified by its Member State
• CERs are not converted into EU allowances but
  entered directly into the surrendered allowance
  table
• UNFCCC ITL required for the transfer of CERs into
  an EU registry still to be implemented

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Voluntary Action by Firms, Individualsand.even
Governments

• A large number of companies have engaged in
  volunatry programs to reduce their GHG emissions
• e.g. Novartis (Swiss Pharmaceutical company) to
  reduce GHGs by 5 below 1990 levels over
  2008-2012 (in line with governments commitment)
• Individuals and Firms have engaged in purchases
  of small amount of emission reductions to become
  carbon neutral (event, corporation, or product)
• HSBC to become carbon neutral (made 1st purchase
  of 170,000 tCO2e assorted credits (3 mths
  offsetting)
• IT Power offsets emissions from international
  travel
• UK Government
• chosen to offset emissions from staff/operations
  through purchase of credits 1st purchase from
  Kuyasa Gold Standard CDM project in South Africa

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Buyers

• Public funds (Government only)
• Public-private funds (e.g. Community Development
  Fund, Baltic Sea Region Testing Ground Facility,
  Italian Carbon Fund)
• Private funds (e.g. European Carbon Fund, Japan
  Greenhouse Gas Reduction Fund)
• Private purchasing pools (e.g. CRM, ICECAP and
  GG-CAP).
• World Bank and other multilateral organisations
• Brokers
• Direct investment by companies

 
 
Many and the list keeps growing!!
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Thank you

• Manuel Fuentes
• 44 1256 392700
• Manuel.fuentes_at_itpower.co.uk