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The Climate Convention (UNFCCC) and
Carbon Finance & Carbon Markets
First presentation - Day Two of Global Gas Flaring Workshop
4th -6th October 2009 in Doha, Qatar
Overview
1. The scientific basis for UNFCCC
•
Emissions – Atmospheric Concentration – Temperature Increase
•
Temperature increase and climate change impacts
•
Uncertainty and risk of massive and irreversible impacts
2. How to operationalize the broader objective of UNFCCC
•
Quantitative commitments of the Kyoto Protocol
•
The Clean Development Mechanism (CDM) - its objectives, rules and procedures
•
The emerging international carbon market
1
Carbon Limits AS
Environmental Challenges – time and space
space
Global
Ozon
Global Warming
Acid Rain
Regional
Emissions
to Water
Local
Noise
Odour
Smog
Particulates
Time
Seconds
Hours
Decades
Centuries
Why Climate Change Matters
3
The Climate Convention and the Kyoto Protocol
UNFCCC into force in 1994, ultimate objective:
– Stabilise GHG emission at a level that would prevent dangerous human–inference with the climate
system
– Ratified by Qatar in April 1996
• Interpretation:
– EU and others: avoid global average temperature rise exceeding 2OC
• Kyoto Protocol signed in 1997, in force from 2005, cap:
– Industrialized countries commit to a 5% reduction in GHG emissions by 2008-2012, 1990 base year
– Established rules and procedures for the CDM and other emissions trading mechanisms
– Ratified by Qatar in January 2005
– Equality and burden sharing a main issue in KP negotiations:
– Developed countries responsible for accumulated emissions
– Should take on commitments to reduce emissions
The international processes
• IPCC (Intergovernmental Panel on Climate Change)
– Assesses the scientific, technical and socio-economic information relevant for the understanding
of the risk of human-induced climate change
– Reduced uncertainty about causal relationships between GHG-concentration, temperature rise
and impacts
– Increasingly important as a basis for targets and policies, has given weight to the 2OC target
• Adaptation and mitigation must go hand in hand
– Mitigation essential to keep adaptation costs in check
– Adaptation and damage prevention critical for DCs and highly relevant for ODA programmes,
– Mitigation must for a large part be market-driven
• Key linkages must be understood:
– Emissions → Atmospheric concentration → Temperature increase
Climate change – the main challenge
Is a 2oC target feasible and economically sound/defensible?
• Must be operationalized in the form of atmospheric concentration and annual emissions
of green house gases /GHGs)
– Current concentration : 430 ppm CO2e increases by 2 ppm per annum
– Current level of annual emissions 45 GT CO2e
• Projections to 2050 (business-as-usual, BaU):
– 85 GT CO2e in annual emissions
– 630 ppm in atmospheric concentration
• 630 ppm: 50% risk of temperature increase exceeding 3.5oC
• Stern Review: stabilise at 450-500 ppm gives the best balance between costs and
benefits (avoided damage)
• Stabilise at 450 ppm not possible, requires global peak in emissions in a few years from
now
– 450 ppm in line with target of max 2oC temperature increase
• 500-550 ppm possible
– Value of damage 3-4 times abatement costs
Stabilising at 550 ppm
Gt CO2e
90
Global emissions BaU
80
70
60
DC must reduce
emissions from 2030
50
40
Developing countries
30
20
Industrialized countries
EU:20-30% reduction,
USA:10% reduction
10
0
1990
2020
EU:80-90% reduction
USA:80% reduction
2050
What is the Clean Development Mechanism (CDM)?
Business as usual
Industrialised Countries’ Greenhouse Gas Emissions
CERs
Kyoto commitment
Developing Countries’ Emissions
CERs
Business as usual
Own ERs
CDM: shared benefits
US$/ton CO2e
Abatement Costs - Europe
Benefits for
Importer
(in Europe)
Price of carbon credits
Benefits
for
Qatar
Abatement Costs - Qatar
Baseline scenario and the CDM project
GHG emission
Baseline emissions
what would have happened to greenhouse gas
emissions in absence of the proposed (CDM) project
Emission reductions
equals Carbon Credits
Emissions from CDM project
Project
Crediting
implementationPeriod
Additionality test:

Step 1: Baseline not prohibited by law

Step 2: Investment analysis, and/or

Step 3: Barrier analysis

Step 4: Common practice
CDM Project Cycle
National process
(Russian) process
Project
Project
Participants
Step
Step1:1:
Project ID &
Project ID & screening
screening
Step 2:PDD
Step
2: PIN & PDD
Step 2a:
Obtain approval of
parties involved
Step 2b:
Develop baseline &
monitoring plan
Step 2c:
Additionality
assessment
Step 2d:
Environmental
analysis
Step 3:3:
Step
SubmitPDD
PDDto
toindependent
IE
Submit
Certification company
12
Carbon Limits AS
National
Parties
authorities
Written approval
of project
International process
Independent
Certification
Company
entities
Supervisory
Relevant
UN
bodies
Committee
Step 4:4:
Step
Make
Make PDD
PDD public
public
for
comments
for comments
Step 5:5;
Step
Assess whether
PDD
PDD is
is complete
complete &
&
adequate
Step 6:6:
Step
IE ’’s assessment
Certifiers
assessment
made public for
comment
UN review
SC
bodies ifreview if
requested
Step 7:7:
Step
Determination
Final
approval
final after 45 days,
if no review
requested
A $ 100 billion market
Allowance market
IET-AAUs
$ 211 m
Project-based transaction
Govt purchases
CDM
$ 6.5 bn
2008/2007: - 12%
EU ETS
$ 92 bn
2008/2007: +87%
JI
JI
New South Wales
$ 294 m
2008/2007:- 40%
$ 183 m
RGGI (USA)
$ 246 m
Chicago Climate Exchange
$ 309 m
13
Carbon Limits AS
VERs
$ 397 m
2008/2007:- 40%
Price trends
CERs Secondary OTC assessment EUR/ton CO2e
14
January, 2008
Carbon Limits AS
Future Carbon Prices
Import of credits (CDM/JI/AAUs)
40
Less imports
More imports
35
Abatement
cost curve
Euro per ton CO2e
30
25
20
15
10
5
0
0
500
1000
1500
2000
Level of domestic emission reductions
2500
3000
MtCO2e
Global abatement costs 2030 (Euros/tCO2e)
Coal-to-
Avoid
CCS;coal Gas shift
Deforestation
retrofit
Waste Asia
Industrial
feedstock substitution
40
30
20
10
0
-10
-20
-30
-40
-50
-60
-70
-80
-90
-100
-110
-120
-130
-140
-150
-160
Livestock/
soils
Smart transit
Small hydro
Industrial non-CO2
Airplane efficiency
Stand-by losses
Nuclear
Forestation
CCS EOR;
New coal
Forestation
Soil
Wind;
low
pen.
Solar
8
Cellulose
ethanol
Sugarcane
biofuel
Fuel efficient vehicles
Water heating
Industrial
non-CO2
Co-firing
biomass
CCS;
new coal
Avoided
deforestation
America
Industrial motor
systems
Industrial
CCS
Abatement
GtCO2e/year
Air Conditioning
Lighting systems
Fuel efficient
commercial
vehicles
Insulation improvements
Much disputed abatement cost curve developed by McKinsey:
•
450 ppm can be reached at 40 EUR/ton or less in abatement costs
•
Major abatement opportunities with negative costs
•
Abatement opportunities are fragmented and required change in behavior