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International CDM Market

International CDM Market . Dr. Manuel Fuentes. IT Power – a brief introduction. International organisation consulting on energy, climate change & international development Established 1981 in UK

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International CDM Market

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  1. International CDM Market Dr. Manuel Fuentes

  2. 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

  3. Presentation contents • Structure of Carbon Market • CDM • European Emissions Trading Scheme • Voluntary market

  4. 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

  5. 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

  6. Carbon Dioxide (CO2) • Methane (CH4) • Nitrous oxide (N2O) • Hydrofluorocarbons (HFCs) • Perfluorocarbons (PFCs) • Sulfur hexafluoride (SF6) GHG Emissions 5.2 % 1990 2000 2010

  7. 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.

  8. 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

  9. 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?

  10. 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

  11. 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 (7+7+7) years for reduced GHG (“basket of 6” - in CO2eq) emissions compared to “business as usual” scenario – baseline

  12. 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…

  13. What is bundling?

  14. 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

  15. 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)

  16. 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

  17. 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…

  18. 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 operator’s holding account • surrendering of CERs and ERUs are subject to specified preconditions

  19. 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

  20. 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 government’s 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

  21. 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!!

  22. Thank you Manuel Fuentes +44 1256 392700 Manuel.fuentes@itpower.co.uk

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