The 2020 Emissions Gap

1. Accelerating technology transfer through new market mechanisms and services to help close the pre-2020 gapLatin American & the Caribbean Carbon Forum Colombia, Bogotà03-05 September 2014Sébastien Raoux, President & CEOTranscarbon International

2. The 2020 Emissions Gap 60 Business as usual: 59 GtCO2e • The remaining gap to stay within the 2°C limit by 2020 is 8-12 GtCO2e/yr. • It is more likely than not that the gap in 2020 will be at the high end of the range. • There is a disconnect between political ambition and practical reality. • Technologies to reduce the gap are available but implementation is lacking dramatically. • A ten year delay in starting emissions reduction leads to more than doubling the probability of exceeding the 2°C target. • After such a delay, energy-related CO2 reduction rates until 2050 need to be on average 2.4% per year (of 2010 levels), rather than 1.5% per year. Case 1: 12 GtCO2e Case 2: 11 GtCO2e Case 3: 10 GtCO2e Case 4: 8 GtCO2e Annual Global Total Greenhouse Gas Emissions (GtCO2e) Remaining gap to stay within 2°C limit: 8 to 12 GtCO2e 2°C range Median estimate of level consistent with 2°C: 44 GtCO2e 40 Time (years) 2020 2010 Source: The Emissions Gap Report 2013, a UNEP Synthesis Report

3. Options to Close the Gap • In principle: • Adopting strict accounting rules. • Moving towards unconditional pledges. • Increasing the scope of current pledges. • Furthering national and international action. • In reality: • Options to reduce the gap under least-cost paths are closing. • Locking-in to carbon-intensive infrastructure will narrow the range of future options. • The transfer and implementation of low-carbon technologies is insufficient. Sources: Wedging the gap (Block et al., 2012), UNFCCC technical paper (2013), IEA energy / climate map (2013)

4. The Technology Transfer (TT) Gap • Existing market mechanisms have limited efficiency in promoting technology transfer, even for readily-known solutions. • Limited scope of CDM project types involving technology transfer. • The creation of capacity, in a recipient country, to adapt, produce or further develop low-carbon technologies is rare. • Barriers to technology transfer are numerous: • Information and awareness. • Capacity, network, and human skills. • Policy, legal, and regulatory. • Technical (technology readiness level). • Financial (capital costs). • Economic (abatement costs). • Transfer of breakthrough technologies must be accelerated • Innovation must be supported by national and international policies and effective carbon market mechanisms to overcome key barriers to technology transfer. Sources: Technology transfer in the CDM: an updated analysis (Murphy et al., 2013), Technology transfer under the Clean Development Mechanism (Das, 2011)

5. Intrinsic Barriers to Technology Transfer • Two intrinsic barriers of (many) low-carbon technologies: • High upfront capital costs. • Even for some technologies with negative abatement costs. • High abatement costs. • Cost of ownership. • Innovation can help bring the marginal cost curve downwards and expand the pool of available low-carbon technologies. • Reallocation of financial resources (R&D) and strong carbon price signals are required. 40$/tCO2e 10$/tCO2e Source: Pathway to a Low-Carbon Economy, McKinsey & Company (2009)

6. Carbon Markets & Breakthrough LCTs €/tCO2 ICE Certified Emissions Reduction (CER) futures front contract • Carbon markets should stimulate innovation and diffusion of technologies to lower marginal abatement costs… Source: www.quandl.com/c/futures/ice-cer-emissions-futures

7. Carbon Markets & Breakthrough LCTs • Carbon markets should stimulate innovation and diffusion of technologies to lower marginal abatement costs… • but most carbon instruments are priced at <40$/tCO2e or even <10$/tCO2e... <40$/tCO2e • … at insufficient prices to offset abatement costs and provide incentives for research and development (R&D) and diffusion of breakthrough technologies. • Because the development of technologies involves sunk costs, uncertainty and high price volatility further delay investments. < 10$/tCO2e • A next generation of carbon mechanisms is required to bridge the technology transfer gap. Source: State and trends of carbon pricing, World Bank Group / Ecofys (2014)

8. Carbon Markets & Breakthrough LCTs U.S. compliance market SREC weighted average price August 2009 to August 2013  • Carbon markets should stimulate innovation and diffusion of technologies to lower marginal abatement costs… • Sectoral crediting mechanisms can be effective to spur industry-specific solutions. • Technology-specific crediting mechanism could be more effective in stimulating breakthrough LCTs. • Example of Solar Renewable Energy Credits (SRECs). • While a ton of CO2e should always be a ton, not all tons should be born equal. • Carbon instruments for priority breakthrough technologies should be priced commensurately with their abatement costs and their long-term benefits. • Homogeneous carbon prices is not the solution in the short term to spur the development and implementation of breakthrough Low-Carbon Technologies. Source for SREC historical price curve: SRECTrade (2013)

9. Bridging the Technology Transfer Gap Intellectual Property Market • The private sector can help bridge the technology transfer gap by providing services to connect the Intellectual Property (IP) and end-user markets for breakthrough LCTs. Technology manufacturer or service provider Technology Holder (IP) End-User Market Technology end-users Transfer the ability to produce the good or service Transfer the good or service itself Crossing the “Valley of Death” Low Carbon Technology Marketplace & Brokerage Services • Provide knowledge of the IP and End-User markets • Identify and pitch promising technology transfer transactions • Support structuring of transactions • Provide financing & risk mitigation Source: Asian Development Bank (2013)

10. Priority Low-Carbon Technologies • Priorities for breakthrough LCTs: • Renewable energy • Solar • Wind • Hydro / tidal • Energy storage • Waste to energy • Energy efficiency • Biomass/biogas/biofuels • Agriculture • Biotechnologies • agricultural practices • Transportation • Fuel switching • Energy efficiency • Water technologies Source: Third synthesis report on technology needs identified by Parties not included in Annex I to the Convention (FCCC/SBSTA/2013/INF.7)

11. Conclusion • The 2020 gap is not closing. • Technical options exist but political ambition is lacking. • Existing measures do not sufficiently stimulate innovation and low-carbon technology transfer. • New market mechanisms and policy instruments must be implemented to support the emergence of breakthrough technologies. • Sectoral crediting mechanisms. • Technology-specific crediting mechanisms (e.g. SRECs). • Specific policies aimed at boosting climate-friendly technologies. • Increase public R&D spending in priority areas, better international collaboration. • Removing subsidies for fossil fuels. • Increasing competition in energy markets. • Use of innovation prizes. • A strong carbon price signal is required. • The private sector can help bridge the technology transfer gap by providing services to connect the Intellectual Property (IP) and End-user markets to facilitate implementation of breakthrough LCTs.