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Overview of Carbon Markets

Overview of Carbon Markets. SIO Fall 2007 Environmental Science and Policy Forum Mitigation and Adaption in a High CO2 World. Melanie McCutchan MPIA Candidate 2009 UCSD IR/PS October 23, 2007. Outline. Carbon Markets Regulatory Voluntary EU ETS and Lessons Learned

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Overview of Carbon Markets

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  1. Overview of Carbon Markets SIO Fall 2007 Environmental Science and Policy Forum Mitigation and Adaption in a High CO2 World Melanie McCutchan MPIA Candidate 2009 UCSD IR/PS October 23, 2007

  2. Outline Carbon Markets • Regulatory • Voluntary EU ETS and Lessons Learned Market Prices for Carbon

  3. CarbonMarkets Regulation Based Existing • Clean Development Mechanism (Kyoto) • European Union Emission Trading Scheme (EU ETS) • Australian Carbon Trading Scheme • United Kingdom ETS Under Development • California - Global Warming Solutions Act • NE States - Regional Greenhouse Gas Initiative Under Debate • “Cap & Trade” Bill in Senate

  4. Carbon Markets Voluntary Emission Reduction Markets • Chicago Climate Exchange • Keidanren Voluntary Action Plan • Over the Counter (OTC) Market

  5. Market Growth Source: World Bank. State and Trends of the Carbon Market 2007. p. 3

  6. EU ETS Linked to Kyoto Protocol Developed Nation (Annex 1) Targets • GHG Emissions to 1990 levels by 2000 • 5% reduction by 2008-2012 Kyoto Expires 2012 New negotiations now under way in Bali

  7. European Union Emission Trading Scheme (EU ETS) Trading began 2005 Covers: • Electric Power and Major Industrial Sectors • 45% of EU C02e emissions Allowances with some Auctioning Phase I 5% Phase II 10% National Allocation Plans

  8. Source: Parliament of the United Kingdom at http://www.publications.parliament.uk/pa/cm200607/cmselect/cmenvaud/70/7004.htm 10/18/2007

  9. Source: World Bank. State and Trends of the Carbon Market 2007. p. 12

  10. Effects of the EU ETS Market • Some reduction 1-4% of EU’s 2005 Emissions (Ellerman and Buchner 2006) • Price signal resulted in internal abatement (Point Carbon 2007)

  11. Lessons from the EU ETS Market • Challenges • Allocating allowances • Technical • Political • Creating an appropriately constrained market

  12. Price of Carbon Phase II EU ETS Market $20-$25/tCO2e • Chicago Climate Exchange Auction • Carbon Credits from Wind Farm in India $22/tCO2 Sources: For EU ETS Phase II Price: World Bank. State and Trends of the Carbon Market 2007. p. 3 For CCX Auction: CCX Press Release at http://www.chicagoclimatex.com/market/pdf/CER_Auction_Results_2007.pdf

  13. Insert

  14. $8.70/metric ton .8 metric tons Insert

  15. The Future Price of Carbon Depends on a number of unknowns: • New International Agreements • Market Rules

  16. Links Carbon Markets: European Union Emission Trading Scheme ec.europa.eu/environment/climat/emission.htm Chicago Climate Exchange www.chicagoclimateexchange.com Keidanren Voluntary Action Plan www.keidanren.or.jp/index.html Further Reading: World Bank: “State and Trends of the World Carbon Markets 2007” carbonfinance.org/docs/Carbon_Trends_2007-_FINAL_-_May_2.pdf "Business is getting down to cutting carbon, but needs more incentives to make much difference to climate change" www.economist.com/specialreports/displayStory.cfm?story_id=9217992  “Recommendations for a Greenhouse Gas Cap and Trade System for California” (page 4-6 executive summary) www.climatechange.ca.gov/documents/2007-06

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