Slide 1

Kyoto Protocol and Carbon Market Dr. Venkata Ramana Putti Workshop on Carbon Finance Sarajevo, Bosnia-Hercegovina April 17, 2009 Slide 2 Earths climate is warming and human activities are primarily responsible (>90% certainty) 280 to 430ppm concentration between 1850 and 2000 (0.5-0.8 o C increase) 550ppm likely by 2035 with 77-99% chance of 2 o C increase 50% chance of 5 o C increase Climate Change Slide 3 Global Warming Potential Carbon Dioxide (CO 2 )01 Methane (CH 4 )21 Nitrous Oxide (N 2 O)310 Perflurocarbons (PFC)6500 Hydroflurocarbons (HFC)11700 Sulfur Fluoride (SF 6 )23900 Greenhouse Gases Slide 4 Distribution of GHG Emissions Red -- % contribution (2004); Blue tCO2/capita (2000) Slide 5 Potential Impacts Slide 6 Ultimate objective of stabilizing global greenhouse gas concentrations in the atmosphere Developed countries (Annex I countries) aim to restore G HG emissions to 1990 levels Support capacity building in, and facilitate technology transfer to developing countries to mitigate, and to adapt to climate change Meet as a Conference of Parties annually, to monitor progress UN Framework Convention on Climate Change Slide 7 AVG: 1990 - 5.2% GHG Emissions ton/ year 1990: Base Year 2012 2008 First Commitment Period: 2008-2012 BUSINESS AS USUAL Emissions The Demand: Kyoto Projects EU ETS Allowances Kyoto Protocol 38 Developed Countries and Economies in Transition (Annex I countries) took on reduction commitments in 1997 Slide 8 Market Transaction Type Credit typeRegime Regulatory Allowance- based AAU (Assigned Amount Units) International Emissions Trading EUA (EU Allowance) EU-Emissions Trading Scheme Project-based ERU (Emission Reduction Unit) Joint Implementation CER (Certified Emission Reduction) Clean Development Mechanism Voluntary Mainly project-based VER (Verified Emission Reduction) Voluntary projects Carbon Market Components Slide 9 CDM, Art. 12 KP: Defined: credit for emission reduction (CERs) from investments in developing (non-Annex I) countries Objectives: To promote sustainable development in developing countries To assist Annex I countries in meeting their emission reduction targets in cost-effective manner Certified Emission Reductions (CERs) must: Create real, measurable, and long-term benefits related to the mitigation of climate change. (Art. 12.5b) Be additional to any that would occur in the absence of the certified project activity. (Art. 12.5c) Emission Reductions must: be verified by designated operational entity (DOE) Clean Development Mechanism Slide 10 Annex I Country Non-Annex I Country Funding Technology Projects to reduce GHG emissions Certified Emission Reduction (CER) Emission reduction compared to an existing baseline Clean Development Mechanism Slide 11 For Buyers (Annex I countries) Compliance targets Sustainable development For Sellers (Non-Annex I Countries) Contribute to sustainable development Facilitate technology transfer Improve financial returns Key Market Drivers Slide 12 RegisteredRequestedPipeline Projects155049>2600 Total CERs1520m30m>1350m Annual CERs280m8.8m CDM Status (02/04/09) Slide 13 Carbon Market Growth 7,4 US$B: CDM in 07 Slide 14 Carbon Price during Economic Crisis Sources: ECX & Bluenext Spot EUA and sCER ( per tCO 2 e) Slide 15 Volume of carbon transacted (GtCO 2 e) 50 GtCO 2 e per year needed by 2050. Current carbon trading is 4 GtCO 2 e but actual volume of reduction barely half of that amount as the market includes large trade in permits (quotas repeatedly changing hands). Enormous gap between effort needed and current volumes. Dramatic emission reductions required. Otherwise emissions and temperature will rise to unacceptable levels. Stabilization at 550 ppm CO 2 e by 2050 needs emissions to go down 60% from business-as- usual. Mitigation efforts over the next two to three decades will be critical. Effort required to stabilize emissions by 2050 (GtCO 2 e) Source: Stern, 2007 Dramatic Reduction Needed by 2050 Slide 16 Uneven regional focus; China, India and Brazil = 85% of CDM market share; Just 16 projects in ECA = 4 Armenia, 1 Goergia, 3 Cyprus, 4 Moldova, 4 Uzbekistan Reductions from reforestation and avoided deforestation largely absent. Many countries with high emissions have relatively low presence in carbon markets. 2. Many countries are under-penetrated even relative to their emissions 1. Location of CDM projects (percentage of volume, 2007) Significant Potential Yet to Tapped in CDM Slide 17 Forestry is barely visible in CDM Agreement reached at Bali to move forward on Reduced Emissions from Deforestation and Degradation (REDD), providing opportunity for countries with tropical forests to join the carbon markets. Required now: build capacity to measure and verify emissions associated with forests and bring these assets to market as soon as international regulatory framework is in place. 64% of 2007 contracts for clean energy Building on success to scale up Programmatic approaches will enable scaling up/extending to interventions in key development sectors (energy, appliances, waste management, transport, and newer technologies). Approaches compatible with financing provided by domestic FIs need special attention. Opportunities for Scale-up and Extension Slide 18 at validation or req. reg.registeredissuance 2,645 projects 1,451 MCERs 403 projects 195 MCERs 1,170 projects 1,342 MCERs 348 days 328 days 180 days 74% to high yield projects (ind. gas) 70% of all projects (half of volumes) have not reached registration DOE 2-year delay RE and EE (70%) stuck somewhere in the pipeline 6% Need for CDM Reform Slide 19 To provide long-term carbon price s ignals and certainty to the private s ector Define a global goal for 2050 supported by i ntermediate targets, to be agreed by the UNFCCC process To facilitate access to new carbon m arkets and sources of capital and lo wer costs of abatement Build a truly global carbon market by linking regional carbon schemes and markets to each o ther through increased access, converging prices a nd harmonized products To accelerate low-carbon growth i n developing countries Reform the existing market-based mechanisms and explore new policy instruments reduced transaction costs, streamlined process, simplified methodologies To scale up and deepen access to c arbon markets and finance Facilitate the transfer of low-carbon technologies and establish sector-based programs to enable larger scale investments in cleaner development Need for Strong Decisions Slide 20 1.Market can play an important role in Greenhouse gas (GHG) emissions reduction 2.Technologies are available now that enable substantial reductions at a cceptable marginal abatement costs 3.A variety of policies can lead to reductions of GHG emissions; carbon markets are needed to implement cap-and-trade and can interconnect policy measures 4.A deep, liquid and global carbon market has the potential to deliver significant benefits to all participants, including for development 5.But countries will need to take decisions to establish long-term price s ignals and gain the full benefits of carbon markets Key Messages on Carbon Market