Anexo informe Carbon Traning english version

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CARBON TRAINING 2009 PROGRAMME

MODULES SUMMARIES MÓDULE 1. Introduction to Climate Change

1. INTRODUCTION

The current introductory module intends to provide a general view of the main aspects regarding climate change. It aims to give the students the basic tools to be able to understand what climate change is (how it is caused and its consequences), the measures that can be adopted to alleviate its effects and to adapt ourselves to the impacts that are already unavoidable. It also details the different responses that have risen internationally throughout history and it will analyse the possibility of reaching a Sustainable Development through a Global Approach.

2. INTERNATIONAL RESPONSE TO CLIMATE CHANGE

The international community has recognised that climate is changing, and that it is due to greenhouse gas emissions originating from human activity. The United Nations Framework Convention on Climate Change, represented by almost all countries, of December 2007 acknowledged this. In said international reunion the results from the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) were recognised and adopted. The Kyoto Protocol came into force, after six years delay, on 16 February 2005, only after ratification of 55 nations representing 55% of greenhouse gases. This historic event, in which the industrialised countries took responsibility for the consequences of their activities towards the environment, is the result of numerous negotiations, meetings and studies.

3. WHAT IS CLIMATE CHANGE? CAUSES AND CONSEQUENCES

In the strict sense of the term, climate change refers to any change in climate over time, whether it is due to natural climate variability or as a result of human activity.


Evidence of Climate Change. The Scientific Foundations for Global Warming

The most recent scientific studies conclude that anthropogenic influence (i.e. of human origin) has effected global warming and cooling. The results, considered to be highly accurate,

1, show that

global warming has been the net effect of human activity since 1750, with a radiative forcing2 of

+1.6 [from +0.6 to 2.4] Wm-2

However, the average global temperature increase is causing other changes on a global scale:

Melting of the polar ice caps

Retreating glaciers

Rising sea levels

Extreme weather

Natural climate variability

Climate has changed many times on a geologic level, and will do so again. There are planetary effects that demonstrate such, like changes in: the Earth's axial tilt, the amount of incoming solar energy, the Earth's orbital eccentricity, or the relative distribution of the oceans and continents. But these changes have occurred on a geologic scale (over hundreds of millions of years), and have induced large-scale extinctions. Climate changes are therefore a constantly occurring feature of Earth. But today, when we discuss climate change, we are not referring to the events that occur on a geologic time scale, we are referring to much shorter periods that may be caused by human activity. As mentioned previously, human activity induces a change in the existing natural balance in the Earth-atmosphere system. Burning fossil fuels at a faster rate than they can be created results in an

1 9 out of 10 are likely to be correct.

2 Radiative forcing is a measure of the influence a factor has in altering the balance of incoming and

outgoing energy in the Earth-atmosphere system, and is an index of the importance of the factor as

a potential climate change mechanism. It is expressed in Watts per square meter (Wm2).


increase in CO2 concentrations in the atmosphere, which can not be taken up by the natural sinks and which consequently causes global warming. This man-made extra warming is called the “enhanced” greenhouse effect.

Projections of Future Climate Changes on Earth

In 1996, the IPCC began the development of a new set of emission scenarios

3. Four different

narrative storylines were developed to describe consistently the relationships between the forces driving emissions and their evolution to add context for the scenario quantification. Projections of future climate changes according to these scenarios are as follows:

By 2100, carbon cycle models project atmospheric CO2 concentrations of 540 and 970 ppm for the illustrative SRES models.

Climate sensitivity is likely to be in the range of 1.5 and 4.5°C.

Globally averaged water vapour, evaporation and precipitation are projected to increase.

More hot days and heat waves are very likely over all land areas.

Projections of global average sea levels rise from 1990 and 2100 lie in the range 0.11 and 0.77 m.

Furthermore, the following results have been obtained from the projections from scenarios describing a future that has stabilised GHG concentrations, Ice sheets will continue to react to climate change during the next several thousand years, even if the climate is stabilised and local annual average warming of larger than 3°C.

The Kyoto Protocol The Kyoto Protocol sets legally binding limits on greenhouse gas emissions from industrialised countries. It also introduces innovative market-based mechanisms – the so-called Kyoto flexible mechanisms – to keep the cost of curbing emissions as low as possible. Under the protocol, industrialised countries as a whole are required to reduce their emissions of six greenhouse gases (CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride) by around 5% below 1990 levels during the first “commitment period” from 2008 to 2012. A five-year period was chosen rather than a single target year to smooth out annual fluctuations in emissions due to uncontrollable factors such as the weather. There are no emission targets for developing countries. The Kyoto Protocol entered into force in February 2005. In early 2009, 183 states and the European Union had ratified the protocol.

3 The approved new set of emission scenarios is described in the IPCC’s Special Report on Emissions

Scenarios (SRES)


4. GREENHOUSE GASES

Water vapour (H2O), carbon dioxide (CO2), nitrous oxide (N2O), methane (CH4), and ozone (O3) are the main greenhouse gases in the atmosphere. There are also a number of entirely human-made greenhouse gases, as previously mentioned, such as the halocarbons and other chlorine and bromine-based substances, dealt with under the Montreal Protocol. Below is a summary of the greenhouse gas sources:

CH4 emissions generated from energy and waste

Landfills Emissions from anaerobic digestion of organic matter

Coal mines Emissions from mine ventilation

Gas pipelines Emissions from gas production, processing, transmission and distribution.

NO emissions from combustion and industrial sources

Combustion Combustion of moving and stationary sources

Industrial sources Nitric acid is the greatest industrial source of N0 emissions.

CH4 and NO emissions from farming

Crops Emissions coming from natural organic processes associated with crops and cattle. They can not be avoided but can be reduced (plant genetics, fertilizers, etc.)

Cattle and poultry

Animal digestion

Gases which have a high impact on the greenhouse effect (HFCs, PFCs SF)

Semiconductors Synthetic gas emissions with high global warming power come from applications which are crucial in complicated production processes and which require security and reliability

Magnesium Industry

Aluminium Industry

Electric sector

Refrigeration Emissions coming from leaks in refrigeration systems

Tropospheric ozone precursor emissions and particles

Transport Tropospheric ozone and particles influence global radiation. The particles have an effect on global warming, but are always associated with CO emissions which have an impact on cooling. Its influence is still not determined.

Biomass combustion

Greenhouse gases emissions by sector

5. MITIGATION OPPORTUNITIES

Studies conducted by experts in climate change mitigation strongly agree that there is a substantial economic potential for the mitigation of global GHG emissions over the coming decades that could offset the projected growth of global emissions or reduce emissions below current levels (high agreement, much evidence). Key mitigation technologies and practices by sector. Sectors and technologies are listed in no particular order. Non-technological practices, such as lifestyle changes, which are cross-cutting, are not included in this table.


Sector Key mitigation technologies and practices currently commercially available

Key mitigation technologies and practices projected to be commercialised before 2030

Energy supply Improved supply and distribution efficiency; fuel switching from coal to gas; nuclear power; renewable heat and power (hydropower, solar, wind, geothermal and bioenergy); combined heat and power; early applications of Carbon Capture and Storage, CCS ( e.g. storage of removed CO2 from natural gas).

Carbon Capture and Storage (CCS) for gas, biomass and coal-fired electricity generating facilities; advanced nuclear power; advanced renewable energy, including tidal and waves energy, concentrating solar, and solar PV.

Transport More fuel efficient vehicles; hybrid vehicles; cleaner diesel vehicles; modal shifts from road transport to rail and public transport systems; non-motorised transport (cycling, walking): land-use and transport planning.

Second generation biofuels; higher efficiency aircraft; advanced electric and hybrid vehicles and more powerful and reliable batteries.

Buildings Efficient lighting and day lighting;

more efficient electrical appliances and heating and cooling devices, improved cook stoves, improved insulation; passive and active solar design for heating and cooling; alternative refrigeration fluids, recovery and recycle of fluorinated gases.

Integrated design of commercial buildings including technologies such as intelligent meters that provide feedback and control; solar PV energy integrated in buildings.

Industry More efficient end-use electrical equipment; heat and power recovery; material recycling and substitution; control of non-CO2 gas emissions; and a wide array of process-specific technologies.

Advanced energy efficiency; CCS for cement, ammonia, and iron manufacture; inert electrodes for aluminium manufacture.

Agriculture Improved crop and grazing land management to increase soil carbon storage; restoration of cultivated peaty soils and degraded lands; improved rice cultivation techniques and livestock and manure management to reduce CH4 emissions; improved nitrogen fertilizer application techniques to reduce N0 emissions; dedicated energy crops to replace fossil fuel use; improved energy efficiency.

Improvements of crops yields.

Forestry/forests Afforestation; reforestation; forest management; reduced deforestation; harvested wood products management; use of forestry products for bioenergy to replace fossil fuel use.

Tree species improvement to increase biomass productivity and carbon sequestration; improved remote sensing technologies for analysis of vegetation/soil carbon sequestration potential and mapping land use.

Waste Landfill methane recovery; waste Biocovers and biofilters to optimise


management incineration with energy recovery; composting of organic waste; controlled waste water treatment; recycling and waste minimization.

CH4 oxidation.

Source: IPCC, 2007. Contribution of Working Group III to the Fourth Assessment Report of the IPCC on Climate Change. Summary for Policymakers.

Policies, measures and instruments to mitigate climate change

The governments have a wide range of national policies and instruments to mitigate climate change in their reach, some of which through practice, have proven to be effective from an environmental and economic viewpoint and are viable. Among the existing instruments and policies the results of the following stand out:

Integration of climate policies into wider development policies

Specific mitigation regulations and norms

Taxes that do not guarantee a specific emission level, but may regulate the carbon price.

Negotiable permits that establish a carbon price.

Financial incentives aimed at strengthening the use of new technologies

Voluntary agreements between industry and governments that have been achieved in some countries to accelerate the use of the best available techniques and emissions control.

Diffusion of information (public awareness campaigns as an example) that promotes informed choices and possible changes in public and company behaviour, etc.

RD&D, to encourage technological advances, reduce costs and make it possible to progress towards stabilisation.

6. ADAPTING TO THE UNAVOIDABLE IMPACTS OF CLIMATE CHANGE

According to the United Nations, “adaptation is a process through which societies make themselves better able to cope with an uncertain future. Adapting to climate changes entails taking the right measures to reduce the negative effects of climate change (or exploit the positive ones). There are different types of adaptation, for example: preventive and reactive, private and public, and autonomous and planned. Natural and social systems more or less adapt to the climate conditions that surround them. Climate change presents new pressures on these systems. There will be changes that will influence the relative survival probability of many species in natural systems. Social systems will be submitted to selective pressures, although it is likely that there will be innovation and change as individuals and organisations are capable of adapting to new climate conditions. Undoubtedly, the ability to adapt and lessen the effects of climate change depends on the socioeconomic and environmental circumstances and the availability of information and technology.


Costs of inactivity and early adaptation to climate change A considerable number of climate scientists and economists agree that the threat to the ecosystems, human health, business and real estate sectors and remaining infrastructures will be minimised by anticipating the possible climate change consequences, subsequently avoiding that they reach a disastrous extent. These conclusions come from several studies, including the Stern report and those conducted on the economic impacts of climate change, by the European Union (Green Paper “Adaption to Climate Change in Europe”: Options for EU Action). According to the data collected in this Green Paper, the damage caused by sea level rises in the scenario where adaptation measures were not taken, could incur costs four times greater than if additional flood defences were created.

7. GLOBAL CLIMATE CHANGE MANAGEMENT: TOWARDS SUSTAINABLE

DEVELOPMENT

There is growing understanding of the possibilities to choose and implement climate response options (both in the area of adaptation and global climate mitigation) in several sectors to realise synergies and avoid conflicts with other dimensions of sustainable development. Climate change policies related to energy efficiency and renewable energies are often economically beneficial, improve energy security and reduce pollutant emissions. Reducing both loss of natural habitat and deforestation can have significant soil and water biodiversity conservation benefits, and can be implemented in a socially and economically sustainable manner. Similarly, forestation and bioenergy plantations can restore degraded land, manage water run-off, retain soil carbon and benefit rural economies. Also, certain decisions about macro-economic policy, agricultural policy, multilateral development bank lending, insurance practices, electricity market reform, energy security and forest conservation, for example, which often treated as being apart from climate policy, can significantly reduce emissions (see Table 1). At the same time, non-climate policies can affect adaptive capacity and vulnerability.


Module 2. Project Management for reducing emissions (clean development mechanisms)

1. INTRODUCTION TO CDM PROJECTS

In this first topic of the module on Project Management for Reducing Emissions, and in particular Clean Development Mechanisms (CDM), we are going to attempt to provide an overview of these types of projects. The student will be able to understand the concept of the Clean Development Mechanism as well as its current status in order to get an idea of its importance in the fight against climate change. Furthermore, the student will be introduced to the different stages of the CDM project as well as to sections 2 and 3 which will be developed in this module. The Clean Development Mechanism (CDM) is an agreement under the Kyoto Protocol, established in article 12, which allows the governments of industrialised countries (also called developed countries or Annex 1 countries in the Kyoto Protocol) and companies (natural or legal persons, public or private entities) to underwrite agreements for achieving targets of reducing greenhouse gases (GHGs) in the first commitment period undertaken between 2008 – 2012. This allows them to invest in projects for reducing emissions in developing countries (also called non Annex 1 countries in the Kyoto Protocol) as an alternative to acquiring Certified Emission Reductions (CERs) at lower prices than in their markets.

CDM: a tool to combat climate change

The Clean Development Mechanism (CDM) constitutes an alternative tool that compensates for the emissions of a country or company (whose government has imposed emission restrictions). In this way, a country or company can use the flexible mechanisms to fulfil their quota of emissions at a lower cost than in the emissions trading scheme. This mechanism allows certified emission reductions to be obtained to compensate for the excess of emissions that the company or the country has made up to a limited percentage (for example, 15% of the emissions that are undertaken to be reduced).

CER: unit of pollution

Certified Emission Reductions (CERs) have been created for projects that reduce emissions in developing countries (non Annex 1 countries). These projects are certified once they have prevented greenhouse gases from entering the atmosphere. A CER is equivalent to not emitting into the atmosphere 1 tonne of carbon dioxide equivalent (1 tCO2e). The company or country with imposed emission restrictions that purchases these CERs is investing directly in a project that reduces emissions in a developing country, since the project developer in the developing country receives an additional income for their project activity of reducing greenhouse gas emissions.

The purpose of CDM

The Clean Development Mechanism contributes to the final objective of creating a market which, as well as achieving a real and measurable reduction of emissions, also creates a series of investments into underdeveloped countries, thus contributing to creating sustainable economic development in these countries.


The number of registered projects is growing every year, and each one of the projects will issue certified emission reductions during a period (crediting period) that could last for 21 years. The CDM therefore fulfils a triple objective:

It allows the investor country to use CERs to meet their own targets of reducing or limiting emissions.

The developing country receives investments into projects based on clean technologies.

The atmospheric integrity of the model is maintained as, if the projects are additional (see below for the definition of additionality), they contribute to achieving the final objective of the Framework Convention: stabilising the concentration of GHGs in the atmosphere.

2. DEVELOPMENT OF THE CDM PROJECT

A project that claims to be registered under the Clean Development Mechanism scheme must follow a process in which several stages are distinguished.

Actors in the CDM project

Several actors with well-defined functions intervene in each stage. To summarise, these actors are:

Project Participants (PP): private or public companies, or entities that have become associates in order to develop the CDM project. They can be from the country where the project is being developed (host country) or from a country with emissions restrictions (Annex 1 country).

Designated National Authority (DNA): public organisation which must approve the project. There must be one in the host country and another in the country that is purchasing the Certified Emission Reductions.

Designated Operational Entity (DOE): private independent entity which performs an independent study of the project and issues a report on the same.

Executive Board (EB): organisation belonging to the United Nations which makes the final decision on the project.

3. STAGES OF THE CDM PROJECT

A Clean Development Mechanism project must go through a series of stages in sequential order. The sequence of activities can be separated into two stages: pre-registration (Implementation) and post-registration (Operation).

Pre-registration stage (Implementation)

In the first stage, the PP will prepare the Project Design Document (PDD) and will submit it to be validated by the DOE. Once the EB has completed the validation, the Clean Development Mechanism project will be registered. The main processes of this stage are:


Process Group Responsible

Description of the process

PDD Preparation

PP The PDD (Project Design Document) presents essential information on the project activity and is a key product for the validation, registration and verification of the project. In particular, the PDD contains information on the project activity, the approved methodology applied to the design of the base line and monitoring and calculation of the emission reductions expected from the project activity.

Validation DOE Validation is the process of independently evaluating the project activity in order to ensure that the requirements of the CDM are fulfilled in accordance with the PDD. The DOE determines whether the project meets the necessary requisites to be considered a CDM project. There is a formal procedure for the validation.

Approval by the DNA

DNA The PP must obtain written approvals of their voluntary participation from the Designated National Authority (DNA) of each involved party, including the host country. The detailed approval procedures are specific to each party (country).

Registration EB Registration is the formal acceptance of a validated project as CDM project activity. The registration is carried out by the Executive Board (EB) of the CDM. There is a formal procedure to acquire registration. The PP will pay a registration fee during the registration period.

Post-Registration Stage (Operation)

Once the project is registered, the PP will begin monitoring the data in accordance with that described in the PDD. Periodically (for example annually), the PP will submit the monitoring period summarised in the Monitoring Report to be verified by the DOE. Once it has been verified, the DOE will certify the emissions and the EB will issue the CER. The main processes in this stage are:

Process Group responsible

Description of the process

Monitoring PP The PP will collect and file all the relevant and necessary data to calculate the reduction of GHG emissions generated by the CDM project activity, in accordance with the Monitoring Plan stated in the PDD. The PP will present a Monitoring Report to the DOE at the end of the process.

Verification DOE Verification is the periodic independent review and a posteriori determination of the reduction of GHG emissions observed (monitored) with the aim of ensuring that the reduction of the emissions has been real. Verification is carried out by a Designated Operational Authority (DOE). This DOE must be different from that which carried out the process of validation for large scale CDM projects.

Certification DOE Certification is the written insurance issued by a DOE that a project activity has reduced GHG emissions by the amount stated in the verification.

Issuance EB The Executive Board will issue certified emission reductions (CERs) equivalent to the verified reduction of GHG emissions. There is a formal procedure for the issuance of CERs.


As can be observed, the key process in the implementation stage is the registration, while in the operation stage, the issuance of carbon credits (CER) is crucial. In any case, a CDM project is a sequence of processes and a mistake or a correct decision in an initial process can affect subsequent processes.

CARBON PROFESSIONALS

The Clean Development Mechanism constitutes an additional source of income for the activity of projects which prevent greenhouse gases from entering the atmosphere. This income constitutes an incentive so that more and more projects of this type are developed in developing countries. In order to secure these types of projects, the intervention of consultant companies, which are engaged in the development of CDM projects, is often necessary to obtain carbon credits, thus creating a new type of professional: the carbon professional. The companies which are engaged in the development of CDM projects must identify projects that could be registered under the Clean Development Mechanism scheme. Often, project developers in developing countries are unaware of the possibility of registering their projects on this scheme, which can provide them with an additional income thus making their projects profitable. In other cases, project developers do not consider the possibility of carrying out these projects until, thanks to the profits obtained from the CDM, a certain activity becomes feasible, whether for economic reasons or the transfer of technology which occurs. A carbon professional can intercede in the decision making process for large projects. It is possible that the project developer does not need the services of another company which provides advice on CDM development and therefore the whole process is carried out independently. The developer will only contact other companies interested in purchasing CERs when the project has already been registered or has issued carbon credits. In this case, the carbon professional will be integrated into the developer’s own team of staff. In conclusion, CDM, and by extension climate change, is generating a demand for new types of professionals. The CDM Cycle is, in some way, the basis for any carbon professional.


MODULE 3. Carbon Strategies: application trends and experiences

1. GHG EMISSIONS INVENTORIES

The main value of a GHG inventory lies in generating sufficiently valid information so that it can be taken into account as a strategic value of the company. An emissions inventory is the first step towards a more holistic and universal strategy in an organisation. Having a relevant, unabridged, consistent, transparent and precise inventory (concepts that will be examined further later in the chapter) from the very beginning is essential, since it constitutes the basis upon which other initiatives are built.

1. Standards

The majority of the GHG inventory’s programs and initiatives use what was set out in the GHG Protocol as a basis, specifically the “Corporate Accounting and Reporting Standard”. In order that an inventory constitutes an impartial and reliable representation of a company’s emissions, the GHG Protocol says that the accounting and reporting of greenhouse gases must be based on the principles of relevance, completeness, consistency, transparency and accuracy. The GHG Protocol introduces the concept of direct and indirect GHG emissions, as was outlined in the introduction. Basically, direct GHG emissions are emissions from sources that are owned or controlled by the company. Meanwhile, indirect GHG emissions are the result of activities of the company but occur at sources that are owned or controlled by another company.

2. Emissions factor

An emission factor is that which allows GHG emissions to be estimated from available activity data (such as tonnes of fuel used, tonnes of product produced) and total GHG emissions. This is the most commonly used method for obtaining GHG emissions data when carrying out inventories. The general formula used is:

E = AD · EF

Where, E is Emissions (CO2 eq) AD is Activity Data EF is Emission Factor The main sources where emission factors can be found in order to estimate emissions are described below: - The 2006 IPCC guidelines for national greenhouse gas inventories provide methodologies for estimating anthrogenic emissions by sources. - National reports: Every year, countries throughout the world report information regarding their GHG emissions. These reports can be very useful for finding more specific emission factors. - GHG Protocol.


2 CARBON FOOTPRINT

The term carbon footprint is understood to mean the total amount of carbon dioxide and other greenhouse gases that are directly and indirectly caused by an individual, an organisation, an event or a product

4. This concept is directly related to emissions inventories. The main difference lies in

the fact that the carbon footprint focuses on a particular good or service, whereas an inventory is of an entire organisation. One of the main difficulties when working out a carbon footprint is the complexity of supply chains in the globalised world in which we live. In this sense, different standards are being developed to meet this demand for the gathering and generation of data. The main standards are:

- PAS 2050 by Defra. Department for Environment, Food and Rural Affairs.

- Product and Supply Chain Standard the creators of the GHG Protocol are developing the purpose

- ISO 14067.

3 REDUCTION OF EMISSIONS

The growth of the world economy, despite the current financial crisis, in global terms has sped up in comparison with the previous decade. Although it is clear that this is positive, it also has a negative impact on the environment. One of the greatest environmental problems is climate change, which is produced by the emission of greenhouse gases into the atmosphere. In order to reduce an organisation’s carbon footprint, a series of steps must be followed:

1. Carrying out a greenhouse gas emissions inventory: it is very important to know where our emissions are, in order to know where to act and how to do so in the most efficient manner.

2. Emissions analysis: the results of the inventory must be analysed in depth. One must know which the most relevant emission sources are and which can be acted on more easily and with the least effort.

3. Measures study: see which measures are the most efficient for the emission sources that have been analysed previously.

4. Reduction plan: design and application of the measures considered in the previous phases

4 EMISSIONS REDUCTION THROUGH SUSTAINABLE MOBILITY

Progress in transport activities, such as infrastructure resources, leads to effects on the environment, which lead to an increase in protection and environmental policies. Transport is growing in Spain at a faster rate than in other countries, and faster than the economy as a whole. Therefore, harmful environmental effects increase as a result of transport, such that transport is one of the greatest factors affecting the environment.

4 Carbon Trust: Carbon Footprinting, 2007.


Mobility Management is, above all, a form of making the transport of passengers and goods aimed towards demand, which involves new associations and a series of tools to support and promote a change in attitude and behaviour as regards sustainable modes of transport. These tools are normally based on information, the organisation and coordination, and require promoting.

5 VOLUNTARY MARKETS

In general, the world’s carbon markets can be divided into two: voluntary markets and regulated markets (obligatory compliance). The voluntary carbon markets include all the carbon exchanges that are not required by a regulation. Over recent years, numerous standards and registers have been introduced into the voluntary carbon market, consequently greatly increasing the competition between the different VERs (as many types of VERs as standards). These standards are not regulated by the United Nations. Amongst the different standards, the methodology and type of projects carried out can vary, as well as the quality criteria. Some of the standards that are most commonly used are The Voluntary Carbon Standard (VCS), The Gold Standard (GS) y el Climate Action Reserve (CAR) The records are designed to track the transactions and ownership of credits, as well as to reduce the risk of a credit being sold to more than one client (double counting). When dealing with such an intangible raw material as a carbon credit, such records are crucial. That said, they have not been relevant to the OTC market

5 until recently.

Carbon neutralisation is the final step to be taken in compensating the impact that a company or organisation’s activity has on the environment. When considering the concept of carbon neutralisation, this can be defined as: “neutralising emissions is the process of balancing CO2 emissions originating from human activity by supporting projects that contribute to reduce or eliminate emissions in other places”.

5 OTC (Over The Counter) market: a decentralised financial market, where the contracting is carried

out by phone or electronically, meaning that one single price is not usually set.


MODULE 4. Legal aspects overview Climate change, and consequently carbon markets, represent a real challenge for all legal, national, community, and international players and opens a new field thus far unknown and therefore, not regulated. From a legal standpoint, climate change is one of the biggest challenges in recent times. From national governments to enforcers of the law, to international and regional organisations, and the European Union, a new commercial area hitherto unknown has been discovered which is forcing a modification to existing legislation, as well as requiring regulation of this new commercial industry for the sake of the planet. The primary objective of the present legal module is therefore to provide an overview on the legislation, either international or national, and how private commercial relations have regulated and dealt with climate change. Consequently, this module starts with a short historical review along the main issues of the climate change norm from 1979 to the present day, forming the following six distinct sections: 1.- The first phase will cover the European Union's adhesion to the KP (Kyoto Protocol), which resulted in the creation of a European Cap & Trade system. This system allows emission trading geared towards achieving compliance with the commitments undertaken by European Union Member States to reduce their CO2 emissions through the ability to buy and sell allowances. The commented system became operational in 2008, fruit of the European commitment to limit GHG emissions established in the Kyoto Protocol by 8% during 2008-2012 compared to 1990. The European system is an own system of the European Union based on Article 17 of the Kyoto Protocol whose participants are non-governmental entities and not states. Also in this chapter we will be able to analyze the various Community and Spanish legislation applicable to the system created 2.- The second section examines the flexible mechanisms of the KP, their scope in relation to reducing emissions, and their impact on the level of compliance of commitments imposed by international treaties. This way, the KP establishes three flexible mechanisms (i) purchase and sale emission allowances; (ii) Joint Implementation (JI); and Clean Development Mechanism (CDM). These mechanisms are created to provide the countries in Annex I to the UNFCCC to achieve its goals of reducing and limiting greenhouse gas emissions (GHG). This chapter analyses two of the previous mechanisms: CDM and JI. The purpose of the CDM and JI is nothing more than facilitating countries in Annex I to the UNFCCC to meet the commitments of reducing greenhouse gas emissions acquired by obtaining emission reductions in countries with no obligation to reduce (CER -certified emission reduction- or ERU -emission reduction units-). This is because the atmosphere is equally damaged by greenhouse gas emissions regardless of their source of origin and at the same time, is also favoured by the reductions of emissions regardless of where these are achieved. Apart from these mechanisms, this section will focus on the purchase and sale agreement of emissions reductions, called ERPA, and the different aspects each side should consider at the moment of negotiate an acquisition of carbon credits resulted from the development of a project based on flexible mechanisms described above, paying particular attention to the regulation of its most important aspects as the conflict between the parties, the risks and costs of itself. Finally, we


will make a brief mention of the LULUCF decision that reflects the possibility of implementing the CDM to forestation and reforestation projects. 3.- The third section focuses in the study of carbon funds as financial instruments, created and promoted by various organisations and multilateral and national entities It will be analysed therefore, the principal carbon funds involved, reviewing some of them, it will be explained the legal structure of these funds from the standpoint of Spanish Law, as well as the necessary documents for its regulation. Finally, it will be analyzed the main risks that can take participants in the carbon funds. Through Carbon Funds involved institutions seek to promote sustainable development by gaining economic benefits due to carbon markets have become a great business opportunity. Similarly, it is aimed to have a positive economic impact by investing in clean technologies and helping facilities to comply with the targets set in Kyoto. In this sense, these structures can buy carbon credits to meet its commitments without resorting to the secondary market, thereby obtaining better economic conditions without having to invest directly in projects. Thus we get the mitigation of the risks associated with such operations, since investors provide capital which the fund invests in different projects and receives in return credits generated by projects in accordance with their participation. 4 .- The fourth section presents the aim to bring the reality of the voluntary markets closer to the student, explaining the less regulated and regulated forms of trade in emission rights Since the implementation of the Kyoto system and due to the growing concern of the media and public opinion about climate change, businesses and consumers have become aware of the consequences, promoting environmental and social responsibility. Therefore, various initiatives have been created to help businesses, institutions and individuals to combat climate change, one of which is the compensation or reduction of GHG emissions So many people decide to offset emissions by investing in projects that reduce real and additional emissions. . For this reason, this section will deepen the main differences between the different types of emission reductions that may result from the development of a volunteer project, the differences in emission reductions resulting from a project developed in accordance with the mechanisms stipulated in the Kyoto Protocol and the type of contract used in the operations of voluntary credit trading Therefore, the standard voluntary market must be considered a supplement and not a threat to the CDM as it is an opportunity for small projects, benefiting the sustainability and providing opportunities for countries that have not ratified the Kyoto Protocol and unregulated sectors. Therefore, the voluntary market offers new opportunities for a large number of projects 5. Then, in the fifth section of the Carbon Training legal module, an introduction of CO2 capture and storage (CCS) in emission allowance trading community regulations will be developed. Capturing and storing carbon dioxide (CCS) is a process of separating CO2 emitted by industrial and energy related sources, transporting it to a storage site and isolating it from the atmosphere over time In accordance with the discussion in the special report of the Intergovernmental Panel on Climate Change (IPCC) that was held in Montreal in September 2005, the CCS appears as one of the mitigation measures for stabilization of atmospheric GHG concentrations


Globally, several countries are currently researching and developing projects that capture and geological store CO2, including the USA, Canada, member countries of the European Union and Australia. However, the obstacles that will have to be overcome so that this technology can be fully operational and extended to a global level are many and varied: technological, scientific, economic, environmental and legal. This is therefore, a high process cost for technologies, in most cases, especially immature permanent storage of CO2 underground and potential risks to the environment and the health of future generations, not to mention the lack of clarity and development of existing regulation in this regard. Also, under this chapter we focus on the major legal issues that may arise with respect to the CCS, the development prospects of such projects under the CDM and also, in the recently published Directive 2009/31, 23 April 2009 by establishing the legal framework regulating the geological storage of CO2. 6. - The sixth and final section focuses on legal trends regarding the future of carbon markets in the short term. This will summarize in this chapter the main elements of the package of energy and climate change under the EU level, reviewing also some perspectives on the Kyoto Protocol that were opened during the Conference held in Copenhagen December 2009. Thus, referring to the new reforms that the European Union prepares concerning the European system of emission trading, the changes will be discussed in the existing directives such as those 2003/87CE Directive, including aviation activities or developments made by Directive 2009/29CE To sum up what is intended by this module is to show on one side, in a comprehensive and easy way, all the existing rules on climate change, so that we understand and we support the need for developed countries to take seriously their leadership role and responsibility in reducing climate change impacts, contributing further to the development of underprivileged countries through.


MODULE 5: Finance in carbon markets overview Climate change is having significant repercussions not only in the environmental field, but also in social and economic-financial. This module focuses on this last one, which is structured in the following topics:

Theme 1: Economic and organizational aspects of the fight against climate change.

Theme 2: New Carbon Economy: Agents of the financial sector and assets linked to carbon.

Theme 3: Carbon markets and trading platforms.

Theme 4: Assets of carbon trading and financial operations.

Theme 5: Financial Markets adaptation

Theme 6: The financial information relating to the assets of carbon.

The objective of this topic is that the student learns the major economic implications of climate change, the costs associated with it, and the strategies being adopted by organisations to address them. Specifically, first in theme 1, it is analysed the main characteristics of low-carbon economy which, among other things, involves the decoupling of economic growth in the consumption of fossil fuels, analyzing then the main advantages and disadvantages of nowadays different sources of renewable energy. Likewise, we consider the negative externalities of climate change and it is considered the main instruments that can be used to address them: carbon markets and taxes on emissions. Second, we analyze the impact of climate change on different socio-economic sectors, with particular reference to measures that could be taken as adaptation, linked to structural change of economic growth such us reduction, which are considered for different sectors in particular. Thirdly, we present the main findings in the Stern report, we analyzed: the costs involved in alternative "business as usual" and a fight against climate change active, the influence of climate change on annual production in different countries, the differences between the impacts in developed and developing countries, and mitigation policies. Finally, this theme examines the implications of climate change for organizations of different sectors, referring to the reasons that may have to contribute to emissions reduction, the factors that force them to it and the barriers that they can find. This theme also considers the different activities that organizations can carry out to obtain strategic benefits to combat climate change, and the different strategic responses that can be taken against emissions trading. For this first theme, the proposed activity for the student is to analyze the information on an organization that is proposed as an object of study and answer a series of questions about its organizational response to the challenge of climate change. The didactic objectives of theme 2 are that students learn the impact of the fight against climate change on different players in the financial sector, the various assets with carbon as its source, focusing on the assets that have their origin in the Kyoto Protocol and the main characteristics and risks of carbon-linked assets. Thus, the theme 2 begins by analyzing the regulatory and market components that characterize the current model for combating climate change. Next, we consider how the new environment is affecting the way of acting of the various players in the financial sector of the new carbon economy.


In particular, we analyze these changes for: funders, who must analyze the risks and opportunities posed by the projects as well as action protocols, investors, highlighting the role of investment promoters, institutional investors and investors with less risk averse in projects related to carbon, insurance entities, which should cover risks in new events and consider the birth of new products such as catastrophe bonds, and consultants and advisors, who serve on the technical aspects, legal, accounting, strategic in relation to measures to combat climate change. The last part of unit 2 refers to assets linked to carbon. It outlines the main characteristics that define the statutory and contractual assets and discusses in detail the different types of assets originating from the Kyoto Protocol: the EUAs (European Union Allowances), the CERs (Certified Emission Reductions) and ERUs (Emission Reduction Units). For this second theme, the proposed activity is to identify the different products associated to carbon that are traded on a relevant market, as well as point out their main characteristics. The learning objectives of unit 3 is for the student to learn the types of markets, and their main characteristics, in which carbon-linked assets can be traded, the establishment, operation, and main characteristics of the European market for emission allowances and the main platforms through which carbon assets can currently be traded To do so, item 3 starts by analyzing in great detail the defining characteristics of the ETS (European Trade Scheme), through to complete the regulated markets for carbon market with the consideration of IETS (International Emissions Trading Scheme) markets, the New South Wales Greenhouse Abatement Scheme, the Regional Greenhouse Gas Initiative and others that are currently being implemented in New Zealand, Japan and the United States. Also, in unit 3 are considered voluntary carbon markets, in particular the Chicago Climate Exchange and the OTC market (Over-The-Counter), paying special attention to the VER (Verified Emission Reduction). Unit 3 is supplemented by the analysis of the main differences between regulated and voluntary markets, the operation of the accounts and records in the carbon markets and, ultimately, different trading platforms for assets linked to carbon in particular: European Climate Exchange (ECX), Chicago Climate Exchange (CCX), Climex, Austrian Energy Exchange (FEX), European Energy Exchange (EEX), Greenhouse Gas Exchange (GHGx) NordPool, Powernext Carbon and SENDECO2. The activity for the student at the end of unit 3 is to identify the different phases and develop the entire procedure through the web RENADE, for opening an account on this record from which it might do transactions to emissions rights. The learning objectives of unit 4 are that the student knows: the various factors that may influence upward or downward on the price of carbon emissions allowances, the characteristics of major financial transactions that may be associated with active carbon in different markets and the development of carbon markets from its origins to the present. In this unit, we first consider those factors that can influence the price of carbon, including the switch gas-carbon, climate, emissions allocation, CERs created by CDM projects and other macroeconomic factors. Then, operations carbon assets are detailed, in particular: cash or spot transactions, transactions with futures, options, zero cost collar, semi-flexible structures for sale, monetization, carbon collaterization, leverage carbon finance, repo structures -swaps, swaps CER- EUAs and cross commodities. Finally, this theme 4 closes with a brief description and analysis of the evolution of carbon markets. For theme 4, the proposed activity for the student is to participate in a forum broadcast their opinions on the issues raised by the teacher and the other students, in relation to financial products and contract structures.


Unit 5 aims to familiarize the student with those tools available for companies that can be used to reduce their exposure to climate change risks. In particular, students should know the weather derivatives and the clauses introduced in certain debt emissions that is subordinated to the non-occurrence of natural disasters. Theme 5 begins considering how the financial markets have developed assets for finance needs and risk management that traditional products could not meet, focusing on weather derivatives. From these financial instruments that fall within the so-called adaptation, are detailed their characteristics and operational system, and are considered in some depth these aspects: the underlying (heating degree days, cooling degree days and cumulative average temperatures), the structures (calls, puts, swaps and futures) and liquidation (as well as notional) contracts, for which explanation is used several practical examples. Unit 5 is completed by what is called disaster bonds (cat bonds) characterized by emissions debt (bonds or obligations) which payment of principal and / or interests is conditioned upon to an event of a catastrophic nature, does not occur. The theme ends with a reference to the main features and operation of this financial instrument, as well as events that can trigger the failure to repay the bond, called the trigger event, which can be simple or referred to a number of losses, may also be defined in different ways. The activity proposed to the student is the realization of a questionnaire to determine the degree of knowledge acquired over the first five units of the module. The last topic of the module, unit 6, has as training objectives: to know the different accounting practices to the financial reflection of the emissions rights of the companies, within the mitigation mechanisms, and how they affect its financial statements; and grant, trade and other contracts relating to the carbon assets under international accounting standards, coming from voluntary or regulated markets, defined as mitigation mechanisms. Unit 6 initially states, as a general introduction, the usefulness of the information provided by the Accounting as well as its content. Then, It presents the main characteristics of carbon assets as assets from the point of view of accounting regulation, referring to the disparities in their accounting treatment, which mainly focus on: the nature of the emissions rights as an asset: intangible assets or inventory, and how to evaluate initially and throughout his life allowance. Due to in the companies’ financial statements we can find incorporated emissions rights as assets, but with different nature criteria, recognition and measurement, this theme discusses the different accounting treatment of allowances, in particular those provided by: the IASB (International Accounting Standard Board), U.S. GAAP, the accounting practices more prevalent in businesses when they register their allowances and the Resolution of February 8th, 2006 the ICAC. It is also considered the particularities from the accounting point of view present emissions rights such as CERs, ERUs and VERs. Unit 6 concludes referring to those parts of the report that must produce companies in which you can find information on carbon finance specifically: accounting policy (on intangibles, inventories, provisions for emissions, deferred income and adjustments by changes in value), risk management policy (on the risks that the company is sensitive and hedging strategy) and some specific items (intangibles and inventories, provisions for emissions, derivatives, equity and deferred income). Also, this topic 6 contains an appendix giving several case studies on the impact on balance sheet and income statement of allowances according to IFRIC 3 (repealed), the FERC rule, the PwC survey, IETA (2007) resolution and ICAC.


The activity proposed to the student to finalize this unit is: to search and download the annual accounts of a business group for 2008, to identify the balance, in which items are included related elements related to carbon assets and environmental obligations, to identify in the memory, following the content of the unit 6, data and explanations related to carbon assets and environmental obligations and to express an opinion on those areas that should provide further details.

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