INTERNATIONAL EMISSIONS TRADING ASSOCIATION Crans Montana, CH September 19, 2008 Henry Derwent President and CEO International Emissions Trading Association

INTERNATIONAL EMISSIONS TRADING ASSOCIATION

Crans Montana, CHSeptember 19, 2008

Henry DerwentPresident and CEO

International Emissions Trading Association

Carbon Markets and the Economic Impact of the CDM


What is IETA?• IETA is the business organisation promoting emissions trading as the most economically efficient and business-friendly approach to the reduction of greenhouse gas emissions worldwide.

• Membership: 182 companies• IETA members are emitters, project developers, intermediaries, financial institutions, brokers, verifiers, and/or legal firms

• IETA offices

• Geneva, Brussels, Washington DC


Spreading across the World – Kyoto or not

Korea - committed

Japan – now beyond

voluntary

China – local experiments

Australia –on the way

New Zealand – rapid

progress

Canada –Wide variety

California – rapid

progress

CCX – in operation

REGGI – nearly there

US – now a certainty

EU –in operation,

refining and expanding

UK – first economy-

wide

NSW – in operation

Norway and Switzerland

too

Taiwan too

UK – pushing further


First or second stage after 2012...?

A full North

American system?

Europe staying much as it is?

Australia finds a way of

bringing in Indonesia and

PNG?

Japan teams up with Korea?

China and India partial domestic

schemes?

Brazil and South Africa still resistant?

Truly massive potential –

programmatic, policy, forestry, agriculture, SD-

PAMs – but when and for

how long?

What will Russia’s terms

be?


Elements of Design of an Emissions Trading System

Trading

Foreign Scheme

ForeignScheme

1 2 3 1 2 3

GoverningBodyDomestic offset

projects

International offsetProjects eg CDM

Trading Entity A Trading Entity B

Compliance Periods

Trading

Emissions Emissions

Supply injections Supply injections

Regulation and support


Value of world carbon market increased by 120% in 2007

0

500

1000

1500

2000

2500

3000

3500

2005 2006 2007

Tra

de

d v

olu

me

(M

t C

O2

e)

Allowance - EUAs (1) Allowance - NSWAllowance - CCX CDM - PrimaryCDM - Secondary JIOther compliance

700

1800

3000

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2005 2006 2007T

rade

d vo

lum

e ($

mill

ion)

Allowance - EUAs (1) Allowance - NSW Allowance - CCXCDM - Primary CDM - Secondary JIOther compliance

$10bn

$30bn

$67bn

150%

70%

180%

120%

• Mostly driven by increased volume and price of EUAs

Source: New Carbon Finance estimates


Consequences in terms of GDP cost

To achieve Stern’s low GDP costs, transfers to developing countries of between $50 and $100bn a year are required

IPCC 4AR: majority of lower-cost opportunities are in non-OECD countries

Source: 4AR


• Legal basis in the Kyoto Protocol

– Run by Executive Board (EB) answerable to KP Parties– EB back-stopped by UNFCCC secretariat with support

for:• Registration and issuance• Accreditation of certification companies• Methodologies for emissions baseline setting and

monitoring

CDM general overview | International mandate


AdditionalityDefines operationally what would happen in the absence of a CDM emission reduction project

• Two experts – two views• Agreement how best to do it

A challenge for any offset mechanism/market outside an inventory target-based system

CDM general overview | International challenge


-

1

2

3

4

5

6

7

8

9

2003 2004 2005 2006 2007

Annual value of CDM/JI - Emission Reductions Transactions (billion USD) (up to 2012 vintages)

Source: State and Trends of the Carbon Market 2008. Karan Kapoor and Philippe Ambrosi, World Bank, May 2008


Globally a success, but regionally the CDM has been mixed

• 4 countries (China, India, Brazil and South Korea) account for 70% of CDM projects and 80% of CERs through to 2012

• Sub-Saharan Africa accounts for 2% of registered projects and 5% of CERs through to 2012

• 88 non-Annex 1 countries have yet to benefit from any registered CDM project activity


CDM pipeline

•August 2008: 1200 CDM projects registered with UNFCCC’s CDM EB, and 2500 projects are in the pipeline.

The Pipeline was produced by Jørgen Fenhann, UNEP Risø Centre 01-08-08


How the Carbon Price does affect clean energy investment – CDM analysis

Source: World BankState of Carbon market 2007


Prices of CER also expected to increase post 2012

3

7

14

8

44

16

2927

8

32

0

10

20

30

40

50

60

Between now and 2012 2012 - 2020

%

Under Eur10 Eur 10 - 15 Eur 15-20

Eur 20 - 25 Over Eur 25


• CDM has been made functional and is now developing very dynamically despite being the first mechanism of its kind at the international level with all associated regulatory challenges.

• CDM has raised awareness of the climate change issue.

• It has mobilized great quantities of investment in a short time.

• CDM permits bottom -up initiatives, which help to move away from the traditional donor transaction approach.

A few CDM benefits


Lessons learned from the CDM so far• CDM generates real emission reductions

– Although average underperformance at around 11%– More experience has to be gained in certain sectors, e.g. landfill

gas, agriculture• Additionality remains one of the main rejection criterion• Increasing number of reviews of registration and issuance requests

continues• Transparency of decision making project process still to be

improved • Enhanced interaction with project developers neededWay forward• Scale-up of CDM required• Certainty on Post-2012 framework needed


capital investment*

CDM in Africa –registered projects

Registered CDM projects

. . . in 27 projectsin 7 countries,

expected to generate38 million CERs

to 2012

$3.9 billionEstimated

* Based on average investment estimates per tonne CO2 equivalent reduction; from: UNFCCC, Investment and Financial Flows to Address Climate Change


CDM in Africa –registered and in validation stage

Registered projects (27)

Projects seekingregistration (44)

capital investment*

$12-18 billionEstimated

* Range based on $137.39 average investment/CER and $200 /CER alternate estimate for project mix containing fewer industrial gases projects, from UNFCCC, Investment and Financial Flows to Address Climate Change.


Focus CDM on technology transfer


Not an academic concept –CDM is up and running!

CDM general overview | World’s largest CO2 offset system

3 years of operational experience (in the context of

exponential growth!) More than US$ 1.5 billion worth of CERs issued (low

global administration cost below 1%) Large pool of learning opportunities


1: The State and Sentiment of the Carbon Market


Significantly higher prices beyond 2012

1

64

29

9

51

28

7

47

0

10

20

30

40

50

60

Between now and 2012 2012 - 2020

%

Under Eur10 Eur 10 - 20 Eur 20 - 25

Eur 25 - 35 Over Eur 35


2: The Clean Development Mechanism (CDM)


National Cap and Trade going from strength to strength

• EU-ETS expanding in countries, sectors and gases• Australia, Japan, Korea changing their minds• Developing countries seeing trading as a possible emissions

reduction tool• US national system looks a near certainty – timing less clear

(36 L-W Nays in the Senate)

Documents

INTERNATIONAL EMISSIONS TRADING ASSOCIATION Crans Montana, CH September 19, 2008 Henry Derwent President and CEO International Emissions Trading Association