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Carbon Markets and the Economic Impact of the CDM. Crans Montana, CH September 19, 2008 Henry Derwent President and CEO International Emissions Trading Association. What is IETA?.
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Carbon Markets and the Economic Impact of the CDM Crans Montana, CH September 19, 2008 Henry Derwent President and CEO International Emissions Trading Association
What is IETA? • IETA is the business organisation promoting emissions trading as the most economically efficient and business-friendly approach to the reduction of greenhouse gas emissions worldwide. • Membership: 182 companies • IETA members are emitters, project developers, intermediaries, financial institutions, brokers, verifiers, and/or legal firms • IETA offices • Geneva, Brussels, Washington DC
Spreading across the World – Kyoto or not EU –in operation, refining and expanding UK – first economy-wide Norway and Switzerland too UK – pushing further Canada – Wide variety Korea - committed California – rapid progress Japan – now beyond voluntary CCX – in operation China – local experiments REGGI – nearly there Australia –on the way Taiwan too US – now a certainty New Zealand – rapid progress NSW – in operation
First or second stage after 2012...? Europe staying much as it is? What will Russia’s terms be? China and India partial domestic schemes? Japan teams up with Korea? A full North American system? Australia finds a way of bringing in Indonesia and PNG? Brazil and South Africa still resistant? Truly massive potential – programmatic, policy, forestry, agriculture, SD-PAMs – but when and for how long?
Elements of Design of an Emissions Trading System Governing Body International offset Projects eg CDM Domestic offset projects Supply injections Supply injections Trading Entity A Trading Entity B Foreign Scheme Regulation and support Trading Trading Foreign Scheme Emissions Emissions Compliance Periods 1 2 3 1 2 3
Value of world carbon market increased by 120% in 2007 • Mostly driven by increased volume and price of EUAs 70% 120% 150% 180% Source: New Carbon Finance estimates
Consequences in terms of GDP cost IPCC 4AR: majority of lower-cost opportunities are in non-OECD countries Source: 4AR To achieve Stern’s low GDP costs, transfers to developing countries of between $50 and $100bn a year are required
CDM general overview| International mandate • Legal basis in the Kyoto Protocol • Run by Executive Board (EB) answerable to KP Parties • EB back-stopped by UNFCCC secretariat with support for: • Registration and issuance • Accreditation of certification companies • Methodologies for emissions baseline setting and monitoring
CDM general overview| International challenge Additionality Defines operationally what would happen in the absence of a CDM emission reduction project • Two experts – two views • Agreement how best to do it A challenge for any offset mechanism/market outside an inventory target-based system
Annual value of CDM/JI - Emission Reductions Transactions (billion USD)(up to 2012 vintages) Source: State and Trends of the Carbon Market 2008. Karan Kapoor and Philippe Ambrosi, World Bank, May 2008
Globally a success, but regionally the CDM has been mixed • 4 countries (China, India, Brazil and South Korea) account for 70% of CDM projects and 80% of CERs through to 2012 • Sub-Saharan Africa accounts for 2% of registered projects and 5% of CERs through to 2012 • 88 non-Annex 1 countries have yet to benefit from any registered CDM project activity
CDM pipeline August 2008: 1200 CDM projects registered with UNFCCC’s CDM EB, and 2500 projects are in the pipeline. The Pipeline was produced by Jørgen Fenhann, UNEP Risø Centre 01-08-08
How the Carbon Price does affect clean energy investment – CDM analysis Source: World Bank State of Carbon market 2007
A few CDM benefits • CDM has been made functional and is now developing very dynamically despite being the first mechanism of its kind at the international level with all associated regulatory challenges. • CDM has raised awareness of the climate change issue. • It has mobilized great quantities of investment in a short time. • CDM permits bottom -up initiatives, which help to move away from the traditional donor transaction approach.
Lessons learned from the CDM so far • CDM generates real emission reductions • Although average underperformance at around 11% • More experience has to be gained in certain sectors, e.g. landfill gas, agriculture • Additionality remains one of the main rejection criterion • Increasing number of reviews of registration and issuance requests continues • Transparency of decision making project process still to be improved • Enhanced interaction with project developers needed Way forward • Scale-up of CDM required • Certainty on Post-2012 framework needed
CDM in Africa –registered projects Estimated $3.9 billion capital investment* . . . in 27 projectsin 7 countries,expected to generate38 million CERsto 2012 Registered CDM projects * Based on average investment estimates per tonne CO2 equivalent reduction; from: UNFCCC, Investment and Financial Flows to Address Climate Change
Registered projects (27) Projects seekingregistration (44) CDM in Africa –registered and in validation stage Estimated $12-18 billion capital investment* * Range based on $137.39 average investment/CER and $200 /CER alternate estimate for project mix containing fewer industrial gases projects, from UNFCCC, Investment and Financial Flows to Address Climate Change.
CDM general overview| World’s largest CO2 offset system Not an academic concept – CDM is up and running! • 3 years of operational experience (in the context of exponential growth!) • More than US$ 1.5 billion worth of CERs issued (low global administration cost below 1%) • Large pool of learning opportunities
National Cap and Trade going from strength to strength EU-ETS expanding in countries, sectors and gases Australia, Japan, Korea changing their minds Developing countries seeing trading as a possible emissions reduction tool US national system looks a near certainty – timing less clear (36 L-W Nays in the Senate)
