carbon markets: a us perspective

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First Climate AG Carbon Markets: A US Perspective Dr. Sascha Lafeld, Executive Board Member Dr. Sascha Lafeld, Executive Board Member Amsterdam,13.11.2008 Amsterdam,13.11.2008

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Presentation by Dr. Sascha Lafeld at TBLI CONFERENCE EUROPE 2008.

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Page 1: Carbon Markets: A US Perspective

First Climate AG

Carbon Markets: A US Perspective Dr. Sascha Lafeld, Executive Board Member Dr. Sascha Lafeld, Executive Board Member Amsterdam,13.11.2008Amsterdam,13.11.2008

Page 2: Carbon Markets: A US Perspective

© First Climate | 12/19/08Dr. Sascha Lafeld

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Main Questions

1) What are the latest developments in the potentially largest carbon market worldwide?

2) How can investments in US carbon reduction projects be stimulated?

Page 3: Carbon Markets: A US Perspective

© First Climate | 12/19/08Dr. Sascha Lafeld

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First Climate

Carbon Investment Advisory

CarbonAsset

Development

Sales & Trading

Climate Neutral

Services

ProjectFinance

Integrated Carbon Asset Management

Page 4: Carbon Markets: A US Perspective

© First Climate | 12/19/08Dr. Sascha Lafeld

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Global Player: 13 Offices on 4 Continents

Washington, D.C.

Santiago de Chile

Paris

Kolkata Hanoi

Frankfurt Zurich Beijing

San Francisco

London

Partnerships

Offices

Berlin

Luxembourg Singapore

Page 5: Carbon Markets: A US Perspective

© First Climate | 12/19/08Dr. Sascha Lafeld

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Regional and State Initiatives in the US

Regional Greenhouse Gas Initiative (RGGI) Cap-and-trade program which limits carbon emissions from fossil fuel-fired power

plants larger that 25 MW Start in 01/09, includes 10 northeastern US states Domestic carbon offsets can be used to meet 3.3% of emissions obligations during

each three-year trading phase

Western Climate Initiative (WCI) 7 western US states and 4 Canadian provinces Multi-sector cap-and-trade scheme by 01/12 with overall goal of reducing regional

GHG emissions 15% below 2005 levels by 2020 Domestic & international offsets shall be used to cover approx. 1% of overall cap in

2013 and up to 7.35% by 2020

Midwest Regional GHG Reduction Accord (MRP) Signed in November 2007, newest regional initiative, includes 6 mid-western US

states and 1 Canadian province Market design anticipated to be released in March 2009

Page 6: Carbon Markets: A US Perspective

© First Climate | 12/19/08Dr. Sascha Lafeld

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California: Assembly Bill 32 (AB 32)

Signed in 2006, GHG reduction measures implemented by 2012 Reduce CA emissions to 1990 levels by 2020, approx. a 30%

reduction from “business-as-usual”

Key Components Energy efficiency Renewable energy Cap-and-trade linked to WCI Aggressive targets for transport related emissions

Pending Decisions Role of offsets Proposed scoping plan released in 10/08, vote in 12/08

Page 7: Carbon Markets: A US Perspective

© First Climate | 12/19/08Dr. Sascha Lafeld

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RGGI Observer

Midwestern Regional GHG Reduction Accord

MRGHGRA Observer

Regional Greenhouse Gas Initiative RGGI

Western Climate Initiative Observer

Western Climate Initiative •The District of Columbia is a RGGI observer, but does not appear on this map. Source: Pew Center on Global Climate Change.

US States Participating in GHG Programs

Page 8: Carbon Markets: A US Perspective

© First Climate | 12/19/08Dr. Sascha Lafeld

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Federal Level: Lieberman/Warner - Dingell-Boucher

Climate Security Act (Lieberman-Warner) Introduced to Senate in 10/07

Latest version calls for 19% GHG reductions below 2005 levels by 2020 and 71% below 2005 levels by 2050

Stalled in Senate June 2008

Dingell-Boucher proposal Introduced in the House of Representatives 10/08

Draft has not yet been formally introduced for a vote but will guide federal climate policy discussions in 2009

Weak short-term target: 6% reduction from 2005 by 2020

Strong long-term target: 80% by 2050

Significant use of domestic/international offsets allowed, increasing over time

Page 9: Carbon Markets: A US Perspective

© First Climate | 12/19/08Dr. Sascha Lafeld

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The Obama Administration

Proposed Policies:

Implement Economy Wide Cap-and-Trade Program GHG Emissions reduction goal of 80% below 1990 levels by 2050

Require 100% auction of pollution credits

Portion of revenue generated from cap-and-trade to be used to accelerate development of low-carbon technologies

Obama’s stance on the role of offsets under federal cap and trade still to be determined

International Efforts Re-engage UNFCCC

Create new Global Energy Forum based on the G8 plus Brazil, China, India, Mexico and South Africa

Page 10: Carbon Markets: A US Perspective

© First Climate | 12/19/08Dr. Sascha Lafeld

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Potential size of the US Carbon Market

source: Goldman Sachs: Global Climate Change Policy, October 2008

Page 11: Carbon Markets: A US Perspective

© First Climate | 12/19/08Dr. Sascha Lafeld

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Role of offset credits

Page 12: Carbon Markets: A US Perspective

© First Climate | 12/19/08Dr. Sascha Lafeld

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How offset credits influence price (Lieberman-Warner)

Current draft: Domestic offsets & International offsets = 15% of compliance obligation

US carbon prices of $35-40/t by 2015 & $45/t by 2020 (New Carbon Finance)

EPA analysis: If the use of domestic offsets and international credits is unlimited,

then allowance prices fall by 71% compared to the bill as written

If domestic offsets and international credits are not allowed, the allowance price increases by 93% compared to the bill as written

Page 13: Carbon Markets: A US Perspective

© First Climate | 12/19/08Dr. Sascha Lafeld

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Conclusions

Climate change is likely to remain high on the Obama Admin agenda.

The existence of various regional GHG reduction schemes will expedite the development of a federal scheme due to the concerns about effectiveness of a “patchwork” of programs.

Investment in carbon reduction projects stimulated by:

Clear market signals related to use of offsets within federal/regional schemes

Innovative financing approaches to provide equity investment i.e public funding with lower cost of capital

Money from allowance auctions to fund technology research

Page 14: Carbon Markets: A US Perspective

© First Climate | 12/19/08Dr. Sascha Lafeld

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Obama

“Today we begin in earnest the work of making sure that the world we leave our children is a just a little bit better than the one we inhabit today”

-President-Elect Barack Obama