Carbon Trading and the Kyoto Protocol by xgi59866


									   Carbon Trading
and the Kyoto Protocol

               Antonio Lim
  Sustainable Development Department
    Europe and Central Asia Region
               World Bank
     Sarajevo, Bosnia-Herzegovina
              April 16, 2009
• Kyoto Protocol and the Carbon

• Features of a Carbon Finance Project

• Mitigation Project Examples
     Climate Change and Global
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

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
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
         The Kyoto Protocol
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
  Global Market Created by the
         Kyoto Protocol
• Most OECD countries have a reduction
  target, on average 5.2% below 1990                      Carbon
• 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
                            How Carbon Trading
Seller’s side (Host                                                                             Buyer’s side
                                                                                                Domestic action

                                                                                               Purchase of ERs
       Baseline emissions

                                   Emission                                                      Purchase of
                                Reductions (ERs)
                                                            ER                                   allowances
                                                                             Purchase of ERs
                                                                            is supplemental to Emissions target
                                                                              domestic action
                                      Project emissions

                                                          Host country benefits
                                                          from technology and
                                                             financial flows

  Baseline Scenario
                               Project Scenario
Mobilizing Resources for Climate Change
• 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
                      Carbon Markets (Mil. USD)

   100,000                                                 Others
    60,000                                                 UK ETS
    20,000                                                 NSW
           0                                               EU ETS
               2005   2006       2007       2008

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
• Technological Barrier
  – Less advanced technology leads to higher emission
• Common Practice Analysis
  – Prevailing practice, existing regulatory or policy
• Benefits Analysis
  – A more viable strategic alternative can lead to higher
                Emission Baseline

            emission                The difference between the actual
            Reductions              project emissions and the emission
            (CER)                   baseline constitute the volume of
            Project emissions       If project emission = baseline
                                    emission → no CERs

Investment in Schools Heat Saving
       Structures in Serbia


         0.0%                                                                   12.5%
                     0.8%        5.9%                   1.9%
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)
    Mitigation Impact for the Schools
• 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
       Investments in Hospitals Heat
         Saving Structures in Serbia

                                    4.9%          0.8%      1.4%

   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)
     Impact of the Investment in the
          Hospitals in Serbia
• Total number of hospital buildings: 11 / 50,934 m

• 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
• Post 2012 International Agreement (post
  Kyoto Protocol) – December 2009
  Copenhagen COP 15 Final Negotiations
• Transformative Approach in Mitigation –
  programmatic and sectoral approaches
   Carbon markets surpassed US$130billion in 2008
                                Allowance markets                                                Project-based transactions
Future w/ EU                       (US$ million)                                                        (US$ million)

                                                                         Opportunity for B-H
                          EU Emissions
                         Trading Scheme
                                100,000                                                          700+
                        (twice over 2007)                                                                   Secondary
 Assigned                                                                                                      CDM
 Amount Units                                               New South Wales                                   25,600
                              Regional GHG
 180                                                             Certificates

                Voluntary market in 2008 – niche segments (US$ million)
           Chicago Climate Exchange                                                          Voluntary & retail
                      310                                                                         500 ?

 Source: WB State and Trends of the Carbon Market 2009, forthcoming, Point Carbon, Reuters
          Thank You

  Overview of CDM and Voluntary
                                                                        Eligible Project
   Standard                           Description
                                                                       Excluding Nuclear,
CDM             Certification of Offset Projects and carbon credits
                                                                      new HFC and REDD

                                                                      Only Renewables and
Gold Standard Certification of Offset Projects and carbon credits
                                                                       Energy Efficiency

VCS             Certification of Offset Projects and carbon credits      New HFc excl.
                Certification of Offset Projects and carbon neutral    Nuclear, HFC and
                products                                               large hydro excl.

CCX             Certification of CCX Offset Projects and credits         New HFC excl.

CCB Standards Certification of Offset Projects                           Only LULUCF

                Certification of carbon credits, offsetting and
ISO 14064                                                                No restriction
      Comparison of CDM and GS
         Criteria                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

Project Types          Almost all types eligible   Only renewables and Energy Efficiency

Additionality          CDM additionality tool      Same as CDM

Sustainability         Host country criteria       additional sustainability criteria (SD matrix)
Assessment             apply
Stakeholder            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
Issuance of Credits    By EB                       By GS, into the “GS Registry” account

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