carbon trading and the kyoto protocol antonio lim sustainable development department europe and...
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Carbon Trading and the Kyoto Protocol
Antonio LimSustainable Development Department
Europe and Central Asia RegionWorld Bank
Sarajevo, Bosnia-HerzegovinaApril 16, 2009
Overview
• Kyoto Protocol and the Carbon Market
• Features of a Carbon Finance Project
• Mitigation Project Examples
Climate Change and Global Warming
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
Global Warming Potential (GWP)
• Measure the impact that particular GHG on ‘radiative forcing’ – the additional heat/energy retained in the earth’s ecosystem through the addition of this gas to the atmosphere
Unit of Measure: ton of CO2equivalent (tCO2e)
Global Warming Potential (GWP)
• Carbon Dioxide (CO2) 1• Methane (CH4) 21• Nitrous Oxide (N2O) 310• Perflurocarbons (PFC) 6500• Hydroflurocarbons (HFC) 11700• Sulfur Fluoride (SF6) 23900
Potential Impacts
38 Developed Countries and Economies in Transition (Annex I) agreed in 1997 to
• Reduce GHG emissions by 5.2% below 1990 levels in the commitment period 2008-2012
• Total demand created for GHG Reductions: ~5 billion tCO2e, including the US
• Marrakech Accord: agreed on the rules of implementation in November 2001
• KP came into force in 2005 February with Russia ratifying the Protocol
The Kyoto Protocol
Global Market Created by the Kyoto Protocol
• Most OECD countries have a reduction target, on average 5.2% below 1990
• Targets to be achieved through: – Reductions at home
– Purchasing emission reductions credits and international emission allowances
• Credits from projects in developing countries (Clean Development Mechanism – CDM)
• Credits from projects in economies in transition (Joint Implementation – JI)
• International Emissions Trading of allowances
Carbon Market
Buyer’s side
Baselin
e em
issions
Baseline Scenario
Seller’s side (Host Country)
EmissionReductions (ERs)
Project em
issions
Project Scenario
How Carbon Trading Operates
Emissions target
Purchase of allowances
Host country benefits from technology and
financial flows
$$
ER
Purchase of ERs
Domestic action
Purchase of ERs is supplemental to
domestic action
Mobilizing Resources for Climate Change Mitigation
• Emission reduction projects located in “Kyoto” countries: →Clean Development Mechanism (CDM) and Joint Implementation (JI)– Traded Unit: Certified Emission Reductions (CERs)
• Emission reduction projects in Non-Kyoto” countries: →Voluntary Market– Traded Unit: Verified Emission Reductions (VERs)
→ Dynamic rules and conditions involving continuous change in standards, requirements, demand profile, supply, etc.
Growth of the Carbon Market
Mil. USD 2006 2007 2008
Compliance Markets 31,165 63,770 117,084
Voluntary Markets 70 265 499
Critical Operational Concepts in Carbon Finance Projects
• Baseline– Which GHG emissions will be reduced?– Business-as-Usual (BAU) Scenario
• What is the future without the proposed project?• How many years will the emission reductions last?
– What are the project boundaries?
• Additionality
Concept of Additionality
• Investment Barrier– A more financially viable alternative can lead to higher
emissions
• Technological Barrier– Less advanced technology leads to higher emission
• Common Practice Analysis– Prevailing practice, existing regulatory or policy
requirements
• Benefits Analysis– A more viable strategic alternative can lead to higher
emissions
Baseline/Additionality
time
emis
sion
s
Project emissions
Emission Baseline
Certified emissionReductions (CER)
The difference between the actual project emissions and the emission baseline constitute the volume of CERs
If project emission = baseline emission → no CERs
75.0%
12.5%1.9%
2.6%5.9%
0.0%0.8%
1.3%
Wall insulation Roof insulation
New windows and doors Termostatic radiator valves and VSD pumps
Three-way valves and VSD pumps Pipe & exchanger insulation, new heat exchanger
New heat substation or boilers (fuel switch) Boiler reconstruction (with fuel switch)
Investment in Schools Heat Saving Structures in Serbia
• Total number of schools : 16 / 54,035 м2
• Heat for space heating (MWhe/y)– before 11,168 -> after 6,321 (-43.4%)
• Average specific heat consumption for space heating– before 207 кWh/ m2/y -> after 117 кWh/ м2/y
• CO2 emission reduction
– before 3,303 t/y -> after 1,844 t/y (-44.2%)• Specific investments
– Average € 38.8/m2 in range € 18.1 to € 97.4 /m2
Mitigation Impact for the Schools
16.1%
55.7%
7.8%
1.4%0.8%3.0%
10.4%4.9%
Wall insulation Roof insulation
New windows and doors Termostatic radiator valves and VSD pumps
Three-way valves and VSD pumps Pipe & exchanger insulation, new heat exchanger
New heat substation or boilers (fuel switch) Boiler reconstruction (with fuel switch)
Investments in Hospitals Heat Saving Structures in Serbia
Impact of the Investment in the Hospitals in Serbia
• Total number of hospital buildings: 11 / 50,934 m2
• Annual heat for space heating (MWhe/y)– before 16,747 -> after 10,673 = reduction of 36.3%
• Specific heat consumption– Before 329 кWh/ m2,y -> after 210 кWh/ m2,y (-36.3%)
• CO2 emission
– Before 4,668 t/y -> after 3,101 t/year (-33.6%)• Specific investments
– Average € 29.23/m2 ; range € 19 to € 58.8/m2
The Road Ahead for B-H
• EU 20-20-20 Vision
• US renewed engagement in international negotiations
• Post 2012 International Agreement (post Kyoto Protocol) – December 2009 Copenhagen COP 15 Final Negotiations
• Transformative Approach in Mitigation – programmatic and sectoral approaches
Secondary CDM
25,600
EU EmissionsTrading Scheme
100,000
(twice over 2007)
New South Wales Certificates
180
CDM6,000
JI700+
Allowance markets(US$ million)
Source: WB State and Trends of the Carbon Market 2009, forthcoming, Point Carbon, Reuters
Project-based transactions(US$ million)
Voluntary market in 2008 Voluntary market in 2008 – niche segments (– niche segments (US$ million)US$ million)
Voluntary & retail500 ?
Chicago Climate Exchange310
Carbon markets surpassed US$130billion in 2008Carbon markets surpassed US$130billion in 2008
Regional GHG Initiative
240
Assigned Amount Units180
Opportunity for B-H
Future w/ EU
Thank You
• www.carbonfinance.org
• www.unfccc.int
Overview of CDM and Voluntary Standards
Standard DescriptionEligible Project
Types
CDM Certification of Offset Projects and carbon creditsExcluding Nuclear,
new HFC and REDD
Gold Standard Certification of Offset Projects and carbon creditsOnly Renewables and
Energy Efficiency
VCS Certification of Offset Projects and carbon credits New HFc excl.
VER+Certification of Offset Projects and carbon neutral products
Nuclear, HFC and large hydro excl.
CCX Certification of CCX Offset Projects and credits New HFC excl.
CCB Standards Certification of Offset Projects Only LULUCF
ISO 14064Certification of carbon credits, offsetting and emissions
No restriction
Comparison of CDM and GSCriteria CDM Gold Standard
Organization UN-backed Backed by 60 NGOs & charities
Supervising Body UNFCCC EB GS TAC
Registration Process Rigorous & Bureaucratic CDM-like with strong sustainable development focus & community consultation component
Project Types Almost all types eligible Only renewables and Energy Efficiency
Additionality CDM additionality tool Same as CDM
Sustainability Assessment
Host country criteria apply
additional sustainability criteria (SD matrix)
Stakeholder Consultation
1-step consultation 2-step consultation (also at project design)
Prices Roughly standard prices Project dependent
Crediting Period 10 / 21 years (*LULUCF) Same as CDM
Methodology CDM methodologies CDM methodologies + additional methodologies
Issuance of Credits By EB By GS, into the “GS Registry” account