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Carbon Trading and the Kyoto Protocol Antonio Lim Sustainable Development Department Europe and Central Asia Region World Bank Sarajevo, Bosnia-Herzegovina.

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Presentation on theme: "Carbon Trading and the Kyoto Protocol Antonio Lim Sustainable Development Department Europe and Central Asia Region World Bank Sarajevo, Bosnia-Herzegovina."— Presentation transcript:

1 Carbon Trading and the Kyoto Protocol Antonio Lim Sustainable Development Department Europe and Central Asia Region World Bank Sarajevo, Bosnia-Herzegovina April 16, 2009

2 Overview Kyoto Protocol and the Carbon Market Features of a Carbon Finance Project Mitigation Project Examples

3 Climate Change and Global Warming Earths climate is warming and human activities are primarily responsible (>90% certainty) 280 to 430ppm concentration between 1850 and 2000 (0.5-0.8 o C increase) 550ppm likely by 2035 with 77-99% chance of 2 o C increase 50% chance of 5 o C increase

4 Global Warming Potential (GWP) Measure the impact that particular GHG on radiative forcing – the additional heat/energy retained in the earths ecosystem through the addition of this gas to the atmosphere Unit of Measure: ton of CO 2 equivalent (tCO 2 e)

5 Global Warming Potential (GWP) Carbon Dioxide (CO 2 )1 Methane (CH 4 )21 Nitrous Oxide (N 2 O)310 Perflurocarbons (PFC)6500 Hydroflurocarbons (HFC)11700 Sulfur Fluoride (SF 6 )23900

6 Potential Impacts

7 38 Developed Countries and Economies in Transition (Annex I) agreed in 1997 to Reduce GHG emissions by 5.2% below 1990 levels in the commitment period 2008-2012 Total demand created for GHG Reductions: ~5 billion tCO 2 e, including the US Marrakech Accord: agreed on the rules of implementation in November 2001 KP came into force in 2005 February with Russia ratifying the Protocol The Kyoto Protocol

8 Global Market Created by the Kyoto Protocol Most OECD countries have a reduction target, on average 5.2% below 1990 Targets to be achieved through: –Reductions at home –Purchasing emission reductions credits and international emission allowances Credits from projects in developing countries (Clean Development Mechanism – CDM) Credits from projects in economies in transition (Joint Implementation – JI) International Emissions Trading of allowances Carbon Market

9 Buyers side Baseline emissions Baseline Scenario Sellers side (Host Country) Emission Reductions (ERs) Project emissions Project Scenario How Carbon Trading Operates Emissions target Purchase of allowances Host country benefits from technology and financial flows $ $ ER Purchase of ERs Domestic action Purchase of ERs is supplemental to domestic action

10 Mobilizing Resources for Climate Change Mitigation Emission reduction projects located in Kyoto countries: Clean Development Mechanism (CDM) and Joint Implementation (JI) –Traded Unit: Certified Emission Reductions (CERs) Emission reduction projects in Non-Kyoto countries: Voluntary Market –Traded Unit: Verified Emission Reductions (VERs) Dynamic rules and conditions involving continuous change in standards, requirements, demand profile, supply, etc.

11 Growth of the Carbon Market Mil. USD200620072008 Compliance Markets31,16563,770117,084 Voluntary Markets70265499

12 Critical Operational Concepts in Carbon Finance Projects Baseline –Which GHG emissions will be reduced? –Business-as-Usual (BAU) Scenario What is the future without the proposed project? How many years will the emission reductions last? –What are the project boundaries? Additionality

13 Concept of Additionality Investment Barrier –A more financially viable alternative can lead to higher emissions Technological Barrier –Less advanced technology leads to higher emission Common Practice Analysis –Prevailing practice, existing regulatory or policy requirements Benefits Analysis –A more viable strategic alternative can lead to higher emissions

14 Baseline/Additionality time emissions Project emissions Emission Baseline Certified emission Reductions (CER) The difference between the actual project emissions and the emission baseline constitute the volume of CERs If project emission = baseline emission no CERs

15 Investment in Schools Heat Saving Structures in Serbia

16 Total number of schools : 16 / 54,035 м 2 Heat for space heating (MWhe/y) –before 11,168 -> after 6,321 (-43.4%) Average specific heat consumption for space heating –before 207 кWh/ m 2 /y -> after 117 кWh/ м 2 /y CO 2 emission reduction –before 3,303 t/y -> after 1,844 t/y (-44.2%) Specific investments –Average 38.8/m 2 in range 18.1 to 97.4 /m 2 Mitigation Impact for the Schools

17 Investments in Hospitals Heat Saving Structures in Serbia

18 Impact of the Investment in the Hospitals in Serbia Total number of hospital buildings: 11 / 50,934 m 2 Annual heat for space heating (MWhe/y) –before 16,747 -> after 10,673 = reduction of 36.3% Specific heat consumption –Before 329 кWh/ m 2,y -> after 210 кWh/ m 2,y (-36.3%) CO 2 emission –Before 4,668 t/y -> after 3,101 t/year (-33.6%) Specific investments –Average 29.23/m 2 ; range 19 to 58.8/m 2

19 The Road Ahead for B-H EU 20-20-20 Vision US renewed engagement in international negotiations Post 2012 International Agreement (post Kyoto Protocol) – December 2009 Copenhagen COP 15 Final Negotiations Transformative Approach in Mitigation – programmatic and sectoral approaches

20 Secondary CDM 25,600 EU Emissions Trading Scheme 100,000 (twice over 2007) New South Wales Certificates 180 CDM 6,000 JI 700+ Allowance markets (US$ million) Source: WB State and Trends of the Carbon Market 2009, forthcoming, Point Carbon, Reuters Project-based transactions (US$ million) Voluntary market in 2008 – niche segments (US$ million) Voluntary & retail 500 ? Chicago Climate Exchange 310 Carbon markets surpassed US$130billion in 2008 Regional GHG Initiative 240 Assigned Amount Units 180 Opportunity for B-H Future w/ EU

21 Thank You

22 Overview of CDM and Voluntary Standards StandardDescription Eligible Project Types CDMCertification of Offset Projects and carbon credits Excluding Nuclear, new HFC and REDD Gold StandardCertification of Offset Projects and carbon credits Only Renewables and Energy Efficiency VCSCertification of Offset Projects and carbon creditsNew HFc excl. VER+ Certification of Offset Projects and carbon neutral products Nuclear, HFC and large hydro excl. CCXCertification of CCX Offset Projects and creditsNew HFC excl. CCB StandardsCertification of Offset ProjectsOnly LULUCF ISO 14064 Certification of carbon credits, offsetting and emissions No restriction

23 Comparison of CDM and GS CriteriaCDMGold Standard OrganizationUN-backedBacked by 60 NGOs & charities Supervising BodyUNFCCC EBGS TAC Registration ProcessRigorous & BureaucraticCDM-like with strong sustainable development focus & community consultation component Project TypesAlmost all types eligibleOnly renewables and Energy Efficiency AdditionalityCDM additionality toolSame as CDM Sustainability Assessment Host country criteria apply additional sustainability criteria (SD matrix) Stakeholder Consultation 1-step consultation2-step consultation (also at project design) PricesRoughly standard pricesProject dependent Crediting Period10 / 21 years (*LULUCF)Same as CDM MethodologyCDM methodologiesCDM methodologies + additional methodologies Issuance of CreditsBy EBBy GS, into the GS Registry account

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