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Kyoto Protocol and Carbon Market

Kyoto Protocol and Carbon Market. Dr. Venkata Ramana Putti Workshop on Carbon Finance Sarajevo, Bosnia-Hercegovina April 17, 2009. Climate Change. Earth’s climate is warming and human activities are primarily responsible (>90% certainty)

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Kyoto Protocol and Carbon Market

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  1. Kyoto Protocol and Carbon Market Dr. Venkata Ramana Putti Workshop on Carbon Finance Sarajevo, Bosnia-Hercegovina April 17, 2009

  2. Climate Change Earth’s climate is warming and human activities are primarily responsible(>90% certainty) 280 to 430ppm concentration between 1850 and 2000 (0.5-0.8oC increase) 550ppm likely by 2035 with 77-99% chance of 2oC increase 50% chance of 5oC increase

  3. Greenhouse Gases Global Warming Potential • Carbon Dioxide (CO2) 01 • Methane (CH4) 21 • Nitrous Oxide (N2O) 310 • Perflurocarbons (PFC) 6500 • Hydroflurocarbons (HFC) 11700 • Sulfur Fluoride (SF6) 23900

  4. Distribution of GHG Emissions Red -- % contribution (2004); Blue – tCO2/capita (2000)

  5. Potential Impacts

  6. UN Framework Convention on Climate Change • Ultimate objective of stabilizing global greenhouse gas concentrations in the atmosphere • Developed countries (Annex I countries) aimto restore GHG emissions to 1990 levels • Support capacity building in, and facilitate technologytransfer to developing countries to mitigate, and to adapt to climate change • Meet as a “Conference of Parties” annually, to monitorprogress

  7. Kyoto Protocol 38 Developed Countries and Economies in Transition (Annex I countries) took on reduction commitments in 1997 “BUSINESS AS USUAL” Emissions The Demand: • Kyoto Projects • EU ETS Allowances GHG Emissions ton/ year AVG: 1990 - 5.2% 2008 2012 1990: Base Year First Commitment Period: 2008-2012

  8. Carbon Market Components

  9. Clean Development Mechanism CDM, Art. 12 KP: Defined: credit for emission reduction (CERs) from investments in developing (non-Annex I) countries Objectives: • To promote sustainable development in developing countries • To assist Annex I countries in meeting their emission reduction targets in cost-effective manner Certified Emission Reductions (CERs) must: • Createreal, measurable, andlong-term benefits related to the mitigation of climate change. (Art. 12.5b) • Beadditional to any that would occur in the absence of the certified project activity. (Art. 12.5c) Emission Reductions must: be verified by designated operational entity (DOE)

  10. Clean Development Mechanism Non-Annex I Country Annex I Country Funding Technology Projects to reduce GHG emissions Emission reduction compared to an existing baseline Certified Emission Reduction (CER)

  11. Key Market Drivers • For Buyers (Annex I countries) • Compliance targets • Sustainable development • For Sellers (Non-Annex I Countries) • Contribute to sustainable development • Facilitate technology transfer • Improve financial returns

  12. CDM Status(02/04/09)

  13. Carbon Market Growth 7,4 US$B: CDM in 07

  14. Carbon Price during Economic Crisis Spot EUA and sCER (€ per tCO2e) Sources: ECX & Bluenext

  15. Dramatic Reduction Needed by 2050 Effort required to stabilize emissions by 2050 (GtCO2e) Dramatic emission reductions required. Otherwise emissions and temperature will rise to unacceptable levels. Stabilization at 550 ppm CO2e by 2050 needs emissions to go down 60% from business-as-usual. Mitigation efforts over the next two to three decades will be critical. Source: Stern, 2007 Volume of carbon transacted (GtCO2e) 50 GtCO2e per year needed by 2050. Current carbon trading is 4 GtCO2e but actual volume of reduction barely half of that amount as the market includes large trade in permits (quotas repeatedly changing hands). Enormous gap between effort needed and current volumes.

  16. Significant Potential Yet to Tapped in CDM 1. Location of CDM projects (percentage of volume, 2007) 2. Many countries are under-penetrated even relative to their emissions Uneven regional focus; China, India and Brazil = 85% of CDM market share; Just 16 projects in ECA = 4 Armenia, 1 Goergia, 3 Cyprus, 4 Moldova, 4 Uzbekistan Reductions from reforestation and avoided deforestation largely absent. Many countries with high emissions have relatively low presence in carbon markets.

  17. Opportunities for Scale-up and Extension Forestry is barely visible in CDM 64% of 2007 contracts for clean energy Agreement reached at Bali to move forward on Reduced Emissions from Deforestation and Degradation (REDD), providing opportunity for countries with tropical forests to join the carbon markets. Required now: build capacity to measure and verify emissions associated with forests and bring these assets to market as soon as international regulatory framework is in place. Building on success to scale up Programmatic approaches will enable scaling up/extending to interventions in key development sectors (energy, appliances, waste management, transport, and newer technologies). Approaches compatible with financing provided by domestic FIs need special attention.

  18. Need for CDM Reform 2-year delay DOE at validation or req. reg. registered issuance 180 days 348 days 328 days 2,645 projects 1,451 MCERs 1,170 projects 1,342 MCERs 403 projects 195 MCERs 6% 74% to high yield projects (ind. gas) 70% of all projects (half of volumes) have not reached registration RE and EE (70%) stuck somewhere in the pipeline

  19. Need for Strong Decisions

  20. Key Messages on Carbon Market

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