Offsetting emissions under CORSIA: Analysing the potential … IATA... · Carbon Offsetting and...

IATA - IETA workshop on aviation and carbon markets

Offsetting emissions under CORSIA: Analysing the potential supply of credits

Harry Fearnehough

Geneva, 24 July 2018

Analysis of the potential supply from 4 largest offset programmes

www.newclimate.org 2

For the CDM, we have examined the marginal costof supplying offset credits for emission reductions over the period 2013 - 2020

For all 4 programmes we have analysed the supply potential for emission reductions over the period 2013 – 2035

Analysis covers registered projects as well as the existing pipeline of projects that could register in the future

Bottom-up, project-level analysis

Supply potential influenced by a number of project factors:

• Issuance success of project type;

• Physical status of project;

• Monitoring status;

• Recent issuance; …etc.

Categorise projects according to their vulnerability to ceasing abatement activities:

• Low vulnerability (82%)

• Variable vulnerability (13%)

• High vulnerability (4%)


Estimating credit supply potential

Investment date vintageRestricting the use of credits to projects that made their investment

decision post 2012 and 2016

Start of operations date

vintage

Restricting the use of credits to projects that started operations post

2012 and 2016

Scenarios include vintage, type and host country eligibility restrictions


Base case

Emission reduction date

vintage

Registration date vintages

Host country restrictions

All potential emission reductions over the period 2013-2035

Restricting the use of credits to those issued for emission reductions

post 2016

Restricting the use of credits to projects registered post 2012 and 2016

Restricting the use of credits to projects located in LDCs or SIDS

Double claiming restrictionsRestricting the use of credits to those outside of the scope of national

GHG mitigation targets

Excluding low vulnerability

projects

Restricting the use of credits to projects dependent on carbon

revenues to continue abatement

CER supply curve under different scenarios


…for emission reductions between 2013-2020 for registered CDM projects

4,3002,892275121

690

Up to 3.8bn new CERscould supply the market at prices below €1

A large share of projects do not depend on CERrevenues to continue emission reductions

Project developers of existing projects are unlikely to benefit from new demand

Supply potential for credits under different scenarios


~ CORSIA demand

DRAFT results

…for emission reductions between 2013-2035 from all four programmes


Under several restriction scenarios under consideration supply from existing projectsexceeds likely demand from CORSIA to 2035

Large potential supply within the pipeline of CDM projects

Even excluding the CDM, the potential supply would exceed CORSIA demand in some scenarios

Unrestricted supply potential is 6x level of projected demand

Base case CDM overlap


Stock of unused offset credits is approximately 600m

Most of these credits are likely to be readily available to serve new demand, such as from CORSIA

Existing stock could supply all of pilot and phase 1 demand under CORSIA

How can CORSIA incentivise further emission reductions?

Without eligibility restrictions, demand from CORSIA over the period to 2035 is unlikely to:

Alter the overall level of GHG

abatement undertaken; or

Materially impact the current

CER price level

Robust eligibility restrictions essential for CORSIA to deliver on its goal


CORSIA demand should be targeted to:

1. Vulnerable projects, i.e. projects that require carbon market or other revenues to continue GHGabatement, and/or

2. New projects implemented in response to the incentives from CORSIA

Recommendations


Limit eligibility to new projects

• Projects with an investment

decision date later than X (e.g.

2017, 2020), or

• Projects that started operation

later than X (e.g. 2020)

Limit eligibility to new or vulnerable projects

• Projects with an investment

decision date later than X (e.g.

2017, 2020), or

• Projects that started operation

later than X (e.g. 2020)

AND

• Project types that are potentially

vulnerable to discontinuing GHG

abatement

Simple approach Differentiated approach

Contact details:

Thank you for your attention!

Harry Fearnehough

[email protected]

Interested to know more about the topic?

See our blog post: bit.ly/2GFV4hm

Backup material

Carbon Offsetting and Reduction Scheme for International Aviation

Overview

• Overseen by International Civil Aviation Organisation (UN body)

• Aims to ensure carbon neutral growth for international aviation from 2020 through a combination of abatement measures as well as offsetting

Scope

• International aviation

• Voluntary participation in pilot and first phase; compulsory in second phase

• Exclusively focused on carbon dioxide emissions


End of

pilot

phase

End of

Phase

1

End of

Phase

2

CORSIA

introduction

Carbon dioxide emissions

from international aviation

maintained at 2020 levels

Potential growth of

emissions = demand for

offsets of ~3 bn tCO2

Vulnerable projects depend on carbon credit revenues to operate

Which CDM projects are most at risk of discontinuing mitigation?

What is the potential mitigation impact from supporting (vulnerable) projects?

What options exist for supporting vulnerable projects?

14www.newclimate.org

Assessing a project’s vulnerability is based on its current dependence on

carbon market revenues to continue GHG abatement activities

The assessment of the current economic conditions of the project does not

offer insight into the additionality of a project at its point of inception


Assessing vulnerability


Assessing vulnerability

Low – medium risk Potentially high risk

Coal mine methane

EE Industry

EE own generation

EE supply side

Geothermal

Hydro

Solar

Wind

Forests

Fossil fuel switch

Biomass

Fugitive

Landfill gas

Methane avoidance

PFCs+SF6

HFC-23

Household stoves

N2O abatement

Risk of discontinuing

abatement:

-----------------------------------------

Low risk

Low - medium risk (variable)

Low - high risk (variable)

High risk

Estimating the marginal cost of supplying CERs

Supply curve reflects the number of credits that could come to market at a given price level

02/08/2018 www.newclimate.org 17

Current marginal abatement

costs (i.e. ex sunk costs)

Ongoing CDM transaction

costs

Emission verification and

CER issuance margin

Key cost components

Relevant to projects

that depend on CER

revenues

Relevant to all

projects

Relevant to projects

without recent

issuance

Offsetting emissions under CORSIA: Analysing the potential … IATA... · Carbon Offsetting and...

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