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Global Climate Change and the International
Market for Carbon Credits
Prepared by: Econergy International Corporation
UN Framework Convention on
Climate Change (1992) and Kyoto
Protocol (1997)
 UNFCC seeks to reduce greenhouse gas (GHG)
emissions globally.
 Kyoto Protocol commits industrialized member
countries to quantitative emission limitation
and reduction obligations. Industrialized
countries must reduce GHG emissions by an
average of 5.2% under 1990 levels by 20082012.
Sources of Greenhouse Gas
Emissions Reductions
 Countries reduce domestic GHG emissions
 Industrialized countries exchange “carbon
credits” or emissions reductions (ER’s)
 Trading - quota based
 Joint Implementation – project based
 Industrialized countries purchase ER’s
created by projects in developing countries
(including China)
 Clean Development Mechanism (CDM)
CDM Transaction
Source of
Emissions
Industrial
Country
Certified
Emission
Reductions
(CER)
$
Mitigation
Project in
Developing
Country
Elements of CDM Project
Development
 Identification of developing country
project that reduces GHG emissions
 Should be in final implementation phases
 Technical Analysis
 Baseline
 Carbon Accounting
 Monitoring and Verification
 Local Benefits and Approval
 Certification of ER’s
 Financing and Implementation
 Verification
Carbon Finance
 Industrialized countries and companies
purchase Certified Emissions Reductions
from under CDM to offset their own
emissions as they work towards mandated
reductions.
 The additional value created by the ER’s
can make projects in developing countries
more attractive to investors.
 Sale of ER’s can be direct, through a
broker, or via investment in a fund set up
for the purpose. Many development banks
have established such funds.
Example: Carbon Finance at
the World Bank
 World Bank has several “funds”
 Prototype Carbon Fund
 Community Development Carbon Fund
 The Netherlands Clean Development Fund
 These funds invest contributions from
companies and industrialized countries in
developing country projects that reduce GHG
emissions. Investors get a share of the ER’s to
count towards their mandated emissions
reductions.
Demand for ER’s
 Demand has fluctuated since 1997.
 European countries will receive
emissions reductions mandates this
spring; many will rely on purchase of
ER’s to meet requirements.
 Even if the Kyoto Protocol does not
come into effect, it is expected that a
European Trading System will accept
the ER procedures established under
the CDM.
Opportunities for Greenhouse
Gas Emissions Reductions in
China
 More efficient use of coal for power
production
 Fuel switching
 Increasing biomass-to-energy
 Increasing industrial energy
efficiency
 Using renewable energy (wind, solar,
geothermal) for power production