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Trading Investing Creating Offsets (Certificates)
Profiting from Credits
Two types of trading
Exchange traded (allowances)
ExchangeBuyer Seller
$ $
Allowance Allowance
Buyer Seller
$
Carbon Offset
Over the Counter (OTC)
OTC Project Development
Buyer Seller
$
Carbon Offset
Over the Counter (OTC) Example
Developer
$ and Offsets
UNFCCProject
Approvals
Advisor
Approved UNFCC Methods
Wind farms Landfill Methane Farm methane Sewage plants Cogeneration Solar Fertilizer plants - N2O For a full list see unfccc.int
Leading CDM Projects
CDM by Countries
Foreign companies which cannot fulfill the protocol norms can buy the surplus credits form companies in other countries through trading
Stage is set for Credit Emission Reduction (CER) trade to flourish
India is considered as the largest beneficiary of carbon trading, claiming about 31% of the total world carbon trade through the Clean Development Mechanism (CDM), which is expected to earn in at least $5-10 billion over a period of time.
Carbon Emission Trading
Carbon Finance is the term used for carbon credits to help finance GHG reduction projects
There are two categories of countries involved in carbon credit trading and finance:
Developing countries which do not have to meet any targets for GHG reduction. However, they may develop such projects because they can sell the ensuing credits to countries that do have Kyoto targets
Industrialized countries which include OECD countries (the richest nations of the world) and countries in transition from centrally planned to open market economies.
Carbon Finance
Transfer of specifically climate friendly technology to the developing countries, including emerging economies has become one of the hot topics in recent years
Governments and multilateral institutions have taken up a variety of measures in promoting and financing trade and investments in this field.
The Kyoto Protocol has given a special boost to the market forces in two ways
investments in more environmentally friendly energy production
investments in clean production technologies and energy efficiency
The developing countries are among the main beneficiaries
Impact on Developing Countries
Technology transfer to developing countries can relate to several different activities, which are targets for financial transactions
purchase and trade of carbon credits through the CDM and JI processes
Export of technologies, equipment and services on purely commercial basis
transfer of intellectual property rights through licensing and related commercial means
utilisation of multilateral and bilateral promotional and financing schemes tailored for this purpose
physical or financial investment in clean energy production and clean technology companies in the developing countries
provision of advisory services through various technical assistance programmes.
Transaction summary
A number of financing instruments are available for the following
Carbon offset cleaner energy production wider use of renewable energies use of climate cleaner production processes end user energy efficiency
Project Financing
Multilateral development financing institutions such as the World Bank Group and Regional Development Banks have been supporting and financing clean technology development in various ways
The members of World Bank Group (WBG) have been actively developing financing solutions for clean technology
Financing Institutions
http://globalwarmingism.blogspot.com/2007_06_01_archive.html
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Problem: leadership?
Leadershipparadigm
NS Conditional
leadership
Development
N
S
Pollu
tion
US EU
S
Difference in emission levels between average Northern and average Southern country especially in the past
bulk of the impacts until 2020-2050 are caused by past emissions of the developed world;
If emission levels are to be kept within safe levels – the world budget for the 21st century is over by 2032.
Impacts more severe in the South – both location wise; and because vulnerability is the greatest.
Classical North-South issue
We are going to talk about: What’s happening today
Copenhagen India perspective
The other view too little too late reality check
What it holds for us Some trivia
Copenhagen (COP 15): The process Process flowing from the Climate Convention
Includes US Excludes all the agreements made at Kyoto
Process flowing from the Kyoto Protocol Excludes US Follows up on the Kyoto agreements
Process flowing from the Danish intervention Ignores the integrity of the negotiating process Tries to bypass and shortcut Focuses on US interests
New ABASIC (Africa, Brazil, South Africa, India, China) proposal in the wings
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Copenhagen: The substance Long term target Targets for developed countries NAMAs: Nationally appropriate mitigation
actions REDD: Reducing emissions from
deforestation and land degradation Financial mechanism
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Long-term target
Objective promoted by scientists/ NGOs - 80 % below 1990 levels by 2050 350 ppm CO2 eq. Peaking by 2015
UN secretariat hopes for: 50% below 1990 levels by 2050 Peaking global emissions by 2025
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Targets for developed countries EU: - 20% in 2020 Norway: - 40% in 2020 Japan: - 25% in 2020 US: - 4% in 2020
(-17% in 2020/2005)
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• Pledges amount to 8-12% below 1990 levels
Impact of loopholes on 1990 Annex 1 emissions in 2020
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Source: ECO, 10 Dec
Inclusion of loopholes means 4% reduction from 1990 levels
NAMAs for developing countries Brazil: 38-42% reduction in 2020 India: 25% energy efficiency target in 2020 Indonesia: 26% energy efficiency target in 2020 South Korea: 21-30% China: 40-45% energy efficiency target
First time willingness to take on commitments Not absolute, but relative; Governance system weak – so implementation
questionable! Risk of double counting
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REDD
Forestry – about 20% of GHGs How to reduce deforestation Faith in market mechanisms!! Goal for discussion:
Half deforestation rate by 2020 Halt forest loss by 2030 Resources needed – 35 billion $ annually
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Financial mechanisms
Evolution of language – from compensation to subsidy
Assistance for adaptation (seen as local issue!!!) Assistance for mitigation
Shift from climate assistance to mainstreaming climate change into development cooperation!
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India’s Position
Emission Reduction obligations only for developed countries, based on 1990 baseline
Concept of “Measurable, Reportable and Verifiable” (MRV) Mitigation actions under the Bali Action Plan: Developed countries to Implement MRV Mitigation
actions
Developing countries to undertake ‘nationally appropriate mitigation actions’ (NAMA) in context of sustainable development “supported and enabled by technology, financing and capacity building
MRV for developing countries under Bali Action Plan applies only in the context of tech and financial support.
Main Points of Contention
India ER Targets not possible:
Common but Differentiated Responsibility
No Deviation from IPCC Baseline of 1990
Emphasis on new financial architecture
MRV for LCG to be linked to MRV for financial contributions & tech transfer
EU & US ER Targets for Dg countries (US
more insistent than EU) Differences between EU & US:
Baseline of 1990 or 2005 EU emphasis: Commitment to
Low Carbon Growth by Dg countries
Robust & Verifiable Strategies for accessing int’l support
Identification of support reqd. Int’l Registry for Actions for
monitoring LCG
India okays Copenhagen Accord, with riders After three months of confabulation within the government,
on 09-Mar-10 India allowed a conditional association of its name with the Copenhagen Accord
Riders attached:
the accord is meant to facilitate the ongoing negotiations in the two tracks (of the formal UN negotiations) and that it is not a legally binding document.
its name be used to back the accord only if all its conditions, including the fact that the pact will not become a new track of negotiations or a template for outcomes, is indicated in the Copenhagen Accord.
US accounts for 30% of global emissions, while India makes for 3% - India can transfer part of its allowed emissions to developed countries
1,207 projects (25.2% of global count), having an emission reduction potential of 112 million CER credits that will go up to 454 million CER credits which is 16.1% of the global total.
has the potential to supply 30-50% of the projected global market of 700 million CERs by 2012
India is being heralded as the next carbon credit destination of the world
Indian Scenario
Domestic Challenges & Opportunities
Carbon Financing‐ Challenges To be made a viable source of funding at
the project construction/ development stage; not just an ‘additional’ source of revenue
Clarity required on receiving ‘advances’ against ERs
Regulatory framework required for financial viability of carbon neutral projects
Domestic Challenges & Opportunities Incentives for Investment in Low Carbon
Growth Current legal Framework‐ lopsided and often
favours ‘high‐carbon’ growth patterns; No adequate support for low‐carbon initiatives; E.g.s:
High subsidies for Chemical Fertilizers; not for Organic Composting
Mining‐ Compensatory Afforestation reqd. only when mining on forest land; not otherwise;
No sufficient incentives for Common Effluent Treatment Plants.
Jatropa plantations: Caught in legal ambiguity of ‘no foreign investment in plantations’
Domestic Challenges & Opportunities Common but Differentiated Responsibility at Int’l Level
Same principle at national level as well to bridge the ‘rich‐poor’ divide & ensure fulfillment of development needs
Recent study: Significant carbon footprint of a relatively small wealthy class (1% of the population) is camouflaged by the 823 million poor population of the country, who keep the overall per capita emissions below 2 tonnes of CO2 per year.
PM has recently addressed issue of ‘lifestyle changes’ at the national level
Top CER earners in India
WORLD’S LARGEST SOLAR STEAM COOKING SYSTEM AT TALETI, NEAR MOUNT ABU, RAJASTHAN
Budget 2010 – Go green Clean Energy Cess
A Clean Energy Cess is being imposed on coal, lignite and peat produced in India. This cess would be levied and collected as a duty of excise from coal mines. The rate of the cess, the date from which it will be effective and the rules and procedure for its collection shall be notified after the enactment of the Finance Bill, 2010. This cess would apply to imported coal as CVD.
Budget 2010 – Go green Excise Duty:
A uniform concessional rate of duty of 4% is being prescribed for parts, namely batteries including battery chargers, electric motors and AC or DC motor controllers required for manufacture of all categories of electrical vehicles including cars, two wheelers and three wheelers (like „Soleckshaw‟) subject to actual user condition. This concession will be available till 31.03.2013. Such vehicles will also be charged to excise duty @ 4%.
Full exemption from excise duty has been provided for few more specified raw materials for the manufacture of rotor blades for wind operated electricity generators
Budget 2010 – Go green Customs Duty:
Full exemption from Additional Duty of Customs being provided to Carbon Black Feedstock and Waste Paper.
Full exemption to – Bio-polymer/bio-plastics (HS Code 39139090) used for manufacture of
biodegradable agro mulching films, nursery plantation & flower pots Specified parts namely, batteries including battery chargers, electric
motors and AC or DC motor controllers imported for manufacture of all categories of electrical vehicles including cars, two wheelers and three wheelers (like Soleckshaw) with CVD of 4% and full exemption from special CVD till 31.03.2013.
Concessional basic customs duty of 5% to-Machinery items, instruments, appliances required for initial setting up of solar power generation projects or facilities with full exemption from excise duty/ CVD
We are going to talk about: What’s happening today
Copenhagen India perspective
The other view too little too late reality check
What it holds for us Some trivia
The Emission tracking goal.
Confusion helps inaction. Carbon tracking took 15 years to monetize. Emission tracking will take 15 years or more .
Needless and acrimonious debate amongst nations resulted in a dozen COP Conferences during the past decade that achieved little in terms of stated objective.
Where do Cap & Trade funds go to No provision in Carbon auctions or Kyoto pact
stipulates that Carbon funds shall be essentially used for funding clean energy.
Clean development is not mandatory.
Kyoto’s main international offsets scheme, the Clean Development Mechanism http://tinyurl.com/59at69
Critiques & Concerns (1)
Some emission reductions under the CDM are false or exaggerated
In 2007 the CDM was accused of paying €4.6 billion for projects that would have cost only €100 million if funded by development agencies
Where as the project developers feel they did not get a fair price
Critiques & Concerns (2)
The first commitment period of the Kyoto Protocol excluded forest conservation/avoided deforestation
- carbon emissions from deforestation represent 18-25% of all emissions, and will account for more carbon emissions in the next five years than all emissions from all aircraft since the Wright Brothers until at least 2025.
Carbon Capping did not work
Only $ 366 million raised in U.S. and similar small sums in Europe in country wise carbon auctions in 2008.
Mega market pipe dream busted as real numbers appear. http://tinyurl.com/luzxss
Why CDM is a market failure? (1)
Too sophisticated/complex a market Too expensive to enter The future beyond 2012 is yet uncertain Does not survive the Cost Benefit analysis Huge Markets like agriculture untouched Forestry projects are too complex The project developer doesn’t get a fair
price The ultimate buyer doesn’t get a fair
price
Why CDM is a market failure? (2) Profits go in the pocket of middlemen
CDM popular only in developing countries not in Lower developed countries
Technology transfer which CDM promises already exist with South in some cases
Little initiative by government entities to take up CDM projects
Carbon exchanges have played limited role till yet
Carbon Tax is better? will lend predictability to energy prices, whereas cap-
and-trade systems will aggravate the price volatility that historically has discouraged investments in less carbon-intensive electricity generation, carbon-reducing energy efficiency and carbon-replacing renewable energy.
can be implemented much sooner than complex cap-and-
trade systems. Because of the urgency of the climate crisis, we do not have the luxury of waiting while the myriad details of a cap-and-trade system are resolved through lengthy negotiations.
are transparent and easily understandable, making them more likely to elicit the necessary public support than an opaque and difficult to understand cap-and-trade system.
Carbon Tax is better? can be implemented with far less opportunity for
manipulation by special interests, while a cap-and-trade system’s complexity opens it to exploitation by special interests and perverse incentives that can undermine public confidence and undercut its effectiveness.
address emissions of carbon from every sector, whereas some cap-and-trade systems discussed to date have only targeted the electricity industry, which accounts for less than 40% of emissions.
Carbon tax revenues would most likely be returned to the public through dividends or progressive tax-shifting, while the costs of cap-and-trade systems are likely to become a hidden tax as dollars flow to market participants, lawyers and consultants.
The case against carbon trading The largest resource grab in history Will strengthen existing inequalities Many of the sources of carbon credits are
scams Tree planting is not a solution Encourages companies to profit from
efficiencies that would have been introduced anyway
"Hot air" trading is an accounting fraud Huge incentives for cheating
The vendor gets the cash without having to change anything and the buyer gets cheap credits.
Carbon trading cannot work The carbon market cannot be monitored or
controlled no global institution or accounting system that can
manage the complexity of this market. The legal framework will never be strong enough
Countries that want to use carbon credits to subsidise their emissions are already arguing for penalties so weak that they will not discourage cheating.
Co2 is not SO2 or CFC these programme were small, easy to monitor (one
pollutant from one industrial process), and within a strong legal framework.
Carbon credits from different sources are not equivalent
Add to this the complexity of trading in different greenhouse gases. Each source requires different monitoring rules, different criteria and different agencies.
http://risingtide.org.uk/resources/factsheets/carbontrading
Some more concerns:
A tsunami is rolling across the climate science establishment since the e-mails were leaked from the Climatic Research Unit (CRU) at the University of East Anglia. What climate warming skeptics have been saying for years is now being examined seriously for the first time and the results are making headlines in major newspapers.
Professor Phil Jones, head of CRU, has now stated the warming from 1975-1998 is no different than that of 1860-1880 and 1910-1940. That there has been no statistically significant warming since 1995 and the Medieval Warm Period could indeed have been global. They are comments for which he would have been labeled a “denier” or “flat earther” a scant three months ago.
Read More at http://www.delcotimes.com/articles/2010/03/07/opinion/doc4b93166a65b71184122352.txt
Some more concerns:
Read more athttp://www.dailymail.co.uk/home/moslive/article-1188937/The-great-carbon-credit-eco-companies-causing-pollution.html
We believe, in dealing with global warming, we should at least adopt an approach based on the precautionary principle.
We are going to talk about: What’s happening today
Copenhagen India perspective
The other view too little too late reality check
What it holds for us Some trivia
act now.
before it’s too late….
66
Source–The Economist, reprinted from Joe Romm (http://www.climateprogress.org) 23-11-2009
