Review of Carbon MarketsJukka Tissari

Forestry Officer, Trade and MarketingForest Products ServiceFAO, Rome

UNECE-FAO Timber Committee Market Discussions

12 Oct. 2010

Geneva

Contents

1. COP-15 outcomes

2. Who moved carbon in 2009?

3. Forest carbon

4. Main factors for the future

COP-15 Outcomes

• Wider recognition of forests in mitigation of climate change, funding pledges to kick-start REDD+

• Mandate to:– review data on Harvested Wood Products (HWPs)– work on additional accounting methodologies in Land-use, Land-

use Change and Forestry (LULUCF)– work on the expanded scope for CDM

• The most important part of work is the new rules governing carbon accounting on forest management, which would increase the offsets from forests available to Annex 1 countries of the KP

How is Forestry Negotiated under UNFCCC?

Discussions on REDD-plus focus on two major aspects:

1. Policy approaches and positive incentives to address the broad architecture of a REDD-plus instrument under UNFCCC.

2. Methodological issues: methods for measurement, verification and reporting (MRV) and method for setting reference scenarios.

Forestry was the sole sector that was specifically addressed in the Copenhagen Accord

REDD+ methodologicalissuesREDD+

policy approachesand positive incentivesADAPTATION

LULUCFCDM

UNFCCCKyoto Protocol

CMP

Forestry Issues under UNFCCC Structure

Ad-hoc bodies

COP

SBSTA

AWG-LCA

SBI

AWG-KP

Subsidiary bodies

Convention Bodies

Policy Instruments

Issues most relevant to ECE members:

1. ECE member commitments

2. Expanding the scope of CDM

3. Reference levels and accounting rules of forest mgmt

4. HWPs

REDD+ defined but not yet agreed

Scope for REDD+ defined:• reducing emissions from deforestation & forest degradation; • sustainable management of forest; • conservation of forest carbon stocks; • enhancement of forest carbon stocks.

• BUT, REDD+ cannot be agreed before further commitments under UNFCCC, and substance of second commitment period for Kyoto Protocol are agreed

• Countries took a fast-track action: established REDD+ Partnership Agreement (May 2010), to accelerate REDD+ pilot activities in the field

Emission reduction targets announced by main countries after COP-15 (31 January 2010)

Developed country Announced target Comments

United States 17% below 2005 3.5% below 1990

European Union 20/30% below 1990 30% condit. to global agreement

Japan 25% below 1990

Canada 17% below 2005 3% below 1990

Russia 15-25% below 1990

Australia 5-25% below 2000 13% above 1990

New Zealand 10-20% below 1990

Switzerland 20/30% below 1990

Norway 30-40% below 1990

Developing country Announced targets Comments

China 40-45% cut in emissions/GDP

Brazil 36-39% below 2020 below 2020 BAU scenario

South Korea 30% below 2020 below 2020 BAU scenario

Indonesia 26% below 2020 below 2020 BAU scenario

India 20-25% cut in emissions/GDP

55 countries, accounting for 78% of global emissions from energy use, formally submitted their national targets to cut and limit GHGs by 2020 by the deadline.

Some pledges were conditional to the success of COP-15, while others showed a varied degree of ambition, announ-cements and timeframes.

Who Moved Most Carbon in 2009?

Who Moved Most Carbon in 2009?

- Global carbon market moved 8.7 bill. t CO2e, worth $ 143.7 billion

- EU-ETS is the flagship: $ 118.5 billion

- CDM: $ 20.2 billion (prim. Project supply halved in a year)

- Voluntary markets down: $ 387 million(OTC + CCX)

- RGGI grew fast

Market segment 2008 2009

Volume million tons CO2e

Value million $

Volume million tons CO2e

Value million $

Project-based transactions subtotal:

429 6,878 237 3,032

- Primary CDM 404 6,511 211 2,678

- JI 25 367 26 354

Voluntary markets subtotal:

127 728 94 387

- OTC 57 422 53 338

- CCX 69 307 41 50

Secondary CDM 1,072 26,277 1,055 17,543

Allowances markets subtotal:

3,209 101,183 7,320 122,773

- EU-ETS 3,093 100,526 6,326 118,474

- NSW 31 183 34 117

- RGGI 62 198 805 2,667

- AAUs market 23 276 155 2,003

- Alberta’s SGER 3 34 5 61

Total carbon markets 4,840 135,143 8,719 143,735

Carbon prices

• Freefall until Feb. 2009• Slow recovery,

Flopenhagen dip-down• Recovery up to April 2010 • Reason: the financial

strain caused by the slump in the global economy -more than the supply and demand dynamics

• Sellers: heavy industries falling below their emission caps, having excess supply of allowances

• Buyers: energy sector firms seeking compliance

0

5

10

15

20

25

August 2008

October 2008

December 2008

February 2009

April 2009

June 2009

August 2009

October 2009

December 2009

February 2010

April 2010

June 2010€

per

tCO

2e

Daily closing price spot EUADaily closing price spot CER

What is the Future for Forest Carbon?

Voluntary carbon markets (VCM):– at least 434 forest projects have been identified up to date in all types of

carbon markets– in VCM a 2008 base of 226 forest-based projects in 40 countries– a combined transaction volume estimated at 20.8 million tons of CO2

equivalent in the past 20 yearsClean Development Mechanism (CDM):

– has approved 17 forest carbon projects as of mid-2010, doubling from 2009– only represent 0.6% of all CDM projects and thus far have not issued any

carbon credits to the market– expansion of CDM scope (REDD, A/R, re-vegetation, wetland restoration,

agriculture: grazing/crop lands, soil C mgmt)US cap-and-trade scheme:

– up to one billion tons of CO2 equivalent of land-use and forestry offsets could be deployed both domestically and in tropical countries

Forest projects in other cap-and-trade schemes / sub-regional climate initiatives

CDM forestry projects registered since Sept. 2009

Title and year registered Host Parties Other Parties

Reduction in CO2e

Reforestation of croplands and grasslands in low income communities of Paraguarí Department, 2009

Paraguay Japan 1523

Afforestation and Reforestation on Degraded Lands in Northwest Sichuan, 2009

China 23030

“Reforestation, sustainable production and carbon sequestration project in José Ignacio Távara´s dry forest, Piura”, 2009

Peru 48689

Humbo Ethiopia Assisted Natural Regeneration Project, 2009

Ethiopia Canada 29343

Assisted Natural Regeneration of Degraded Lands in Albania, 2010

Albania Italy

22964

The International Small Group and Tree Planting Program (TIST), Tamil Nadu, 2010

India UK 3594

Forestry Project for the Basin of the Chinchiná River, an Environmental and Productive Alternative for the City and the Region, 2010

Colombia 37783

Nerquihue Small-Scale CDM Afforestation Project using Mycorrhizal Inoculation in Chile, 2010

Chile UK 9292

Afforestation/Reforestation

Developed in partneships

Small projects and reduction potentials

Why large corporate off-setters look favourably on forest projects in voluntary markets?

• More activities being eligible under VCM than in compliance markets: – Afforestation and Reforestation (AR), – Reduced Emissions from Deforestation and Forest Degradation

(and more broadly, REDD+), – Improved Forest Management (IFM), and – Carbon stocks associated with Harvested Wood Products (HWP).

• Positive co-benefits for community livelihoods, biodiversity conservation, etc.

• Forest carbon credits can be certified against recognized standards

• Good for CSR

Main Factors Shaping Forest Carbon Markets

• COP-16 Cancun

• US cap-and-trade system postponed to 2013-2014

• Kick-start REDD+: 100 bill. $ yr by 2020: potential to become the overarching platform of forest-based carbon

• “Interim COP”• Prepare ground for agreement in

COP-17 South Africa• Offsets from forest mgmt in

developed countries, CDM

• Passing bill through the legislature, water-down effect

• Stagnation (Kerry-Lieberman bill aka American Power Act)

• White House

• Big money, strings attached• Governance, local capacities,

CO2 tenure• 100 b$=1/4 forest prod. export / yr.• Partnerships, not under UNFCCC

Factors in Immediate Future Main challenges

Possible Elements of the Cancun Outcome

1. Shared vision– on global long-term goals and cooperative actions for emission reductions

2. Adaptation– framework and institutional arrangement, approach to address loss and damage

3. Mitigation– economy-wide emission reduction commitments or actions by developed countries– MRV for developed countries’ commitments or actions – nationally appropriate mitigation action (NAMAs) of developing countries and

associated support– MRV for developing countries; NAMAs– readiness phases of activities that contribute to mitigation actions in forest sector

(REDD+)– approaches to enhance the cost-effectiveness of, and to promote, mitigation actions,

including using markets

4. Finance, technology and capacity building– reporting on fast-start finance for 2010-2012– new fund, mobilization of long-term finance, MRV– technology mechanism, Climate Technology Centre and Network

(06 Oct. 2010)