Carbon Trading and the Kyoto Protocol by xgi59866

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									   Carbon Trading
and the Kyoto Protocol

               Antonio Lim
  Sustainable Development Department
    Europe and Central Asia Region
               World Bank
     Sarajevo, Bosnia-Herzegovina
              April 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
         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
                                                          Market
• 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
                                Operates
Seller’s side (Host                                                                             Buyer’s side
     Country)
                                                                                                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
               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
                      Carbon Markets (Mil. USD)

   120,000
                                                           Voluntary
   100,000                                                 Others
                                                           JI
    80,000
                                                           CDM
    60,000                                                 UK ETS
    40,000
                                                           RGGI
                                                           CCX
    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
    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
                Emission Baseline
            Certified
emissions




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

                   time
Investment in Schools Heat Saving
       Structures in Serbia
                                                75.0%




  1.3%

         0.0%                                                                   12.5%
                     0.8%        5.9%                   1.9%
                                               2.6%
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
                                                         55.7%




7.8%
                                                                                               16.1%
                10.4%
                                                                            3.0%
                                    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
                                   2

• 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
   Carbon markets surpassed US$130billion in 2008
                                Allowance markets                                                Project-based transactions
Future w/ EU                       (US$ million)                                                        (US$ million)


                                                                         Opportunity for B-H
                                                                                                             CDM
                          EU Emissions
                                                                                                             6,000
                         Trading Scheme
                                                                                                  JI
                                100,000                                                          700+
                        (twice over 2007)                                                                   Secondary
 Assigned                                                                                                      CDM
 Amount Units                                               New South Wales                                   25,600
                              Regional GHG
 180                                                             Certificates
                                Initiative
                                                                          180
                                         240

                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



• www.carbonfinance.org
• www.unfccc.int
  Overview of CDM and Voluntary
            Standards
                                                                        Eligible Project
   Standard                           Description
                                                                             Types
                                                                       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
VER+
                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
                emissions
      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
                                                   component

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)
Consultation
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

								
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