Global Climate Change Alliance: Intra-ACP Programme

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• Global Climate Change Alliance Intra-ACP
  Programme
• Training ModuleClimate Change Finance
• Module 5 Introduction to the Voluntary Carbon
  Market
• Ms Isabelle MamatySenior ExpertClimate Support
  Facility

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Module Structure

• Functioning of Voluntary carbon markets VER
  concept
• Voluntary carbon market project procedures
  standards, registries
• Voluntary carbon market project types
• Voluntary carbon market vs. CDM project
• Voluntary carbon market opportunities in
  developing countries

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What is the Voluntary Market ?

• Companies and individuals take responsibility for
  offsetting their own emissions as well as
  entities that purchase pre-compliance offsets.
• They co-exist with compliance markets that are
  driven by regulated caps on GHG emissions
• There are two types of voluntary market
  cap-and-trade and offset

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Functioning of the Voluntary Carbone Market

• Uses Carbon Credits
• Generated through a project based system
• Uses a Baseline Project Emissions
• Similar to CDM procedures (many projects use same
  methodologies)
• Additionality verified by independent third party
  
• The volume of carbon credits transacted
  voluntarily in 2010 represents less than a 0.3
  share of the global carbon markets

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Voluntary Cap- and-Trade

• Cap-and-Trade (a limit on emissions of countries,
  regions, sectors)
• Successful mandatory cap-and-trade examples SO2
  (US), European Trading Scheme (EU ETS)
• There are no voluntary cap-and-trade markets
  functioning at present but a number of countries
  and regions of the world are considering them
• e.g. California, USA

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What is being traded?

• Emission reductions
• Measured in tonnes of Carbon Dioxide (tCO2)
• Also called offsets or
• Verified or Voluntary Emission Reductions (VER)

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VER Concept

• Voluntary Emission Reduction (VER) is a type of
  carbon offset exchanged in the voluntary or
  'Over-the-Counter' (OTC) market for carbon
  credits
• VERs are usually created by projects which have
  been verified outside of the Kyoto Protocol.
• 1 VER 1 tonne of CO2 emissions.
• VERs may be developed and calculated in
  compliance with one of several VER standards.
  These set-out rules define how emission
  reductions are measured. Standards provider
  assurance for buyer of VERs. At a minimum, all
  VERs should be verified by an independent
  third-party.

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Voluntary Carbon Market buyers (1)

• Who buys carbon credits?
• Companies, NGOs and individuals
• For?
• Offsetting activities and products (travel,
  books, music festivals)
• Pre-compliance with mandatory schemes
• Why?
• Competitive advantage Public relations,
  Branding, Corporate Social Responsibility
• Investment/Resale

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Voluntary Carbone Market buyers (2)

• Purely voluntary buyers
• Organisations, companies or individuals not
  subject to mandatory emission reductions
• Purchase CO2 emission credits and remove them
  from the market
• In order to offset their own emissions
• Motivation ethical thinking or corporate social
  responsibility (CSR)
• Pre-compliance buyers
• Companies buying credits in anticipation of a
  mandatory market being established in the future
• They expect that by buying now they will benefit
  from a lower price than will prevail once
  emissions reductions are mandatory

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Voluntary Carbone Market Suppliers

• Project Developers Develop GHG emissions-
  reduction projects and sell the VERs
• Wholesalers Only sell offsets in bulk and often
  have ownership of a portfolio of credits
• Retailers Sell small amounts of credits to
  individuals or organizations, usually online, and
  might have ownership of a portfolio of credits
• Brokers Do not own credits, but facilitate
  transactions between sellers and buyers.

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Emission reduction principle
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Additionality

• Similar to CDM projects Additionality is a
  principal condition for the eligibility of any
  project in the voluntary carbon market.
• Additionality is the requirement that the
  greenhouse gas emissions after implementation of
  a project activity are lower than those that
  would have occurred in the most plausible
  alternative scenario to the implementation of
  this project activity

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Existing Standards and Methodologies

• There are various standards, certification
  processes, and emissions registry services, but
  no standard is universally accepted.
• However some standards are now widely recognized
  and accepted as a proof of credibility such as
  the Voluntary Gold Standard the GHG Protocol for
  Project Accounting and the Climate, Community
  and Biodiversity Project Design Standards

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Existing Standards and Methodologies

• Full-fledged Standards include accounting,
  monitoring and registration
• Gold Standard
• Voluntary Carbon Standard 2007 (VCS 2007)
• VER
• Chicago Climate Exchange (CCX)
• Offset Standard Screens accept project under
  other standards
• Voluntary offset Standard (VOS)
• Bio-Sequestration Standards are sector specific
  standard (ex forestry)
• VCS AFOLU standard
• Climate, Community Biodiversity Standards
  (CDBS) CDM methodologies
• Plan Vivo System
• Offset Accounting Protocols provide definitions
  and procedures to account for GHG reductions from
  offset projects
• GHG Protocol
• ISO14064

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Forest-based Standards

• Plan Vivo project specific methodologies
• CarbonFix
• BMV Standard
• Forest Carbon Standard International
• Forest-specific standards made up one third of
  all active standards in 2010

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Registries

• Verified carbon reduction are converted to a
  saleable asset
• Credits have unique ID
• Transferred from seller to buyers account
• Examples Gold Standard Registry, VCS Registry,
  Markit Registry, ACR, J-VER and others
• Many standards have their own registries

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How to Develop a project

• You have an idea for a project which reduces or
  avoids carbon emissions
• The project requires some extra financing or
  needs some assistance to secure finance
• It should contribute to the sustainable
  development of the local community
• Get your partners together
• Write a Project Idea Note (PIN)
• Decide on a Standard to use
• Present project to credit buyers
• Get funding for your Project Design Document
  (PDD)

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Different steps of Project Development Process
1. PROJECT IDEA AND PRELIMINARY ASSESSMENT
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Voluntary Carbon Market Project types

• The top Three Voluntary Market Projects in 2010
• REDD / Avoided Conversion 29
• Landfill methane 16
• Wind 11

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Other Voluntary market project types

• Run-of-river hydro
• Agricultural soil
• Improved Forest management
• Livestock methane
• Energy efficiency
• Biomass

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Price related to Project characteristics (1)

• Project type is one of the most significant
  factors influencing price
• Examples in 2010
• Two of the highest average prices Solar
  (16/tCO2e) and biomass projects
• Medium (4-8/tCO2e) forestry, run-of- river
  hydro and landfill
• Lowest large hydro (1.7/tCO2e) and agricultural
  soil credits (1.2/tCO2e)

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Price related to Project characteristics (2)

• Project location can also influence the price
• Project environmental impacts
• Contribution to local community social impacts
• Project size
• Which Standard used e.g. Gold Standard or VCS for
  renewables, Plan Vivo for Forestry, SOCIALCARBON
  for projects with social benefits

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Issues/ constraints for the Voluntary carbon
market

• Generally lower price than CDM (but not always)
• Quality assurance
• Transparency
• Many different buyers market is changing
• Many standards and registries can be confusing
• Market is still small just 0.3 of the global
  carbon market

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Voluntary vs. Compliance (1)
Voluntary Compliance
Commodity VER CER
Price Variable accordingly with standard and project (typically around USD2-6) Higher (around USD 11)
Coverage Voluntary/worldwide Annex 1 countries
Market size Smaller Larger
Volume 2009 98 MtCO2 2010 131 MtCO2 2009 7,437 MtCO2 2010 6,692 MtCO2
Regulation No Formal regulation UNFCC Executive Board (EB)
Methodologies CDM, Verified Carbon Standard (VSC), Gold Standard and Others Approved by EB
Independent Third Party CDM DOEs and Others DOEs and EB
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Voluntary vs. CDM (2)

• Less bureaucratic / reduced transactions cost
• Cheaper to generate credits
• Flexibility and Innovation - niche/new sectors
  not covered by CDM
• Can contribute more to sustainable development
• Value for co-benefits environmental social
  contributions
• Easier to register forestry projects

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• Turning words into action

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Discussion

• Questions and answers
• Discussion and sharing of experiences concerning
  the development of the voluntary carbon market
  projects

Have you ever developed a voluntary carbon market
project in your sector or at your level ? what
are the institutional and capacity needs in your
organisation to do so?
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Where to get the information?

• Site markit
• http//www.markit.com/en/
• Carbon Finance website of the World Bank
• http//carbonfinance.org

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Case studies

• Presentation of case studies of projects relevant
  to the country needs.

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• Thank you
• Contact Dr. Pendo MARO, ACP Secretariat
  pendomaro_at_acp.int or 32 495 281
  494www.gcca.eu/intra-acp