CDM Market Overview. Romeo Pacudan PhD Risoe National Laboratory, Denmark. URC-IGES Workshop on Capacity Development for CDM in Asia

Transcription

1 CDM Market Overview Romeo Pacudan PhD Risoe National Laboratory, Denmark URC-IGES Workshop on Capacity Development for CDM in Asia Asian Institute of Technology 29 September 1 October 2004

2 Outline of presentation Global carbon market Demand and supply of CERs Current buyers CER prices CDM projects Conclusion

3 Kyoto Mechanisms Emissions Trading (ET) permits Annex 1 countries transfer parts of their allowed emissions Joint Implementation (JI) allows an Annex 1 country to claim credits for emissions reductions that arise from investment in another Annex 1 country Clean Development Mechanism (CDM) allows an Annex 1 country to claim credits for emissions reductions that arise from investment in non- Annex 1 countries.

4 1. Global carbon market Market Structure 1. Project-based (baseline and credit system) Kyoto pre-compliance CDM Joint Implementation Not for Kyoto compliance voluntary markets retail schemes 2. Allowance market (cap and trade system) Kyoto pre-compliance Kyoto Emissions Trading Not for Kyoto compliance EU Emissions Trading Scheme (EU ETS) UK ETS Chicago Climate Exchange New South Wales Certificates Norway ETS Others

5 1. Global carbon market Volumes and transactions Volume (vintages up to Nb of Transactions 2012, in MMtCO 2 e) (01-05) Project-Based Total, including: Kyoto compliance Voluntary Retail Allowance Trading (estimated) TOTAL ,

6 1. Global carbon market Project-based transactions (MMTCO2 eq Jan to May) 80 Kyoto Pre-Compliance Not Kyoto Pre-Compliance

7 1. Global carbon market EU ETS and the Linking Directive cap on CO2 emissions, EU compliance period 1st phase: , 2nd phase: EU-ETS Sectors covered (4) Iron and steel, minerals, energy, pulp & paper Covers 46% of EU CO2 Allocation Each State must assigned allocations for free (NAPs) 5% may be auctioned Enforcement and compliance 40 and 100/ton CO2 penalty for 1 st and 2 nd periods Linking Directive Project-based conversion (with or without Kyoto) CERs in 2005 ERUs in 2008 Project limitation Nuclear and sinks not allowed hydro if it passes WCD conditions Volume limitation No cap of imports but supplemental to domestic actions (50%)

8 2. Demand and Supply of CERs Kyoto Compliance Demand Supply Total demand based on Kyoto Protocol commitments excluding US Mitigation within OECD (domestic or via trading) Excess credits from economies in transition (hot air) Carbon Sinks in OECD CDM/JI Market

9 2. Demand and Supply of CERs Factors affecting CER demand Growth of demand in Annex-1 countries economic growth domestic measures and abatement costs operationalization of EU Emissions Trading Scheme others (voluntary and retail markets) Competition with other supply options hot air market JI market Annex-1 country policies supply options geographic distribution/preference

10 2. Demand and Supply of CERs Kyoto Gap EU-15 (burden sharing) (-8%) + Japan (-6%) + Canada (-6%); 2010 (with policy measures projection) 2000 (actual) Kyoto Target P EL S IRL E F % 1990 emissions FIN CN JN NL I B UK A D DK L

11 2. Demand and Supply of CERs Kyoto Gap current trend: increasing emissions P EL S IRL E F FIN NL I B EU15 UK A D DK L Kyoto Target

12 2. Demand and Supply of CERs The Surplus Scenario Free trade of supply in competitive market, year 2010 low surplus 366 MMTCO2eq/year; high surplus 1873 MMTCO2eq/year MMTCO2eq/year EU-15 Japan Canada Other GHGs Forests Russia UKR ACC 10 Other EIT Other GHGs Forests CDM -800 low surplus scenario high surplus scenario

13 2. Demand and Supply of CERs The Shortage Scenario Hot air is unacceptable. EU 15 demand 208 MMTCO2eq/yr; others 220 MMTCO2eq/yr; global demand 428 MMTCO2eq/yr No. of projects If 400,000 tons/project (average of 11 approved project methodologies) 520 projects to satisfy EU 1070 projects to satisfy global demand If 250,000 tons/project 832 projects to satisfy EU 1712 projects to satisfy global demand Current projects 22 projects w. approved methodologies (cumulative 150 MMTCO2e) Point Carbon (23.4 MMTCO2eq in 2007/year) 106 projects with PDDs (w. methodologies approved, rejected or under consideration: cumulative 351 MMTCO2eq) Constraint lead times: 3-7 years to deliver credits by 2012 projects be signed in 2006

14 3. Current Buyers CDM Funds are growing Purchase targets ( ) (366.5 MMTCO2eq) Netherlands 100 Spain 100 Italy Portugal Austria Denmark 18.7 Ireland 18.5 Belgium 12.3 Finland 3 France 0 Germany 0 UK 0 CER Procurement Funds Public-private partnerships Kyoto pre-compliance Government funds Kyoto pre-compliance Private funds Kyoto pre-compliance Trading Retail Other Funds Project development grants

15 3. Current Buyers Public-Private Partnerships Multilateral Institutions World Bank Prototype Carbon Fund (US$ 180 million) Community Development Carbon Fund (US$100 million) Bio Carbon Fund (US$100 million) Italian Carbon Fund (US$15 million) Spanish Carbon Fund (under negotiation) European Investment Bank Carbon Investment Trust Other Financial Institutions JBIC- DBJ Japan Carbon Fund (10 billion Yen) KfW German Carbon Fund (Euro 50 million) Ecosecurities-Standard Bank of London Denmark Carbon Facility (DKK 59 million)

16 3. Current Buyers Government Funds Own Tender Dutch C-ERUPT Finnish CDM/JI Pilot Program Sweden International Climate Investment Program Austria JI/CDM Program ( 11 M in 2004, 24M in 2005, 36M in 2006) Belgium CDM/JI Program ( 70 M) Denmark CDM/JI Program ( 100 M) Through Multilateral Institutions World Bank (Netherlands Clean Development Facility - 70 M) IFC (IFC-Netherlands Carbon Facility - 44 M) Through Banks Rabo Bank (Netherlands) (to purchase 10 MMTCO2eq)

17 3. Current Buyers Government Funds Bilateral Transactions Austria Morocco, discussions with China Canada Costa Rica, Colombia, Chile, Nicaragua, Tunisia, South Korea Denmark Malaysia, discussions with China, South Africa Finland China, Costa Rica, El Salvador, Nicaragua, India France Colombia and Morocco Italy Algeria, China, Cuba, Cyprus, Egypt, El Salvador, Israel, Morocco Netherlands Colombia, Costa Rica, El Salvador, Panama, Uruguay, Bolivia, Nicaragua, Guatemala, Honduras

18 3. Current Buyers Private Funds Kyoto Compliance Japanese companies, European companies (Italy, UK, Canada) Retail market Dutch Development Finance Company For Trading ICECAP (Cumbria Energy, Investec Bank and Less Carbon) Mitsubishi Corporation Purchased emission rights from Hidroelectrica Guardia Vieja, SA Mitsubishi Securities Co. Mizuho Securities Co.

19 3. Current Buyers Other Funds Sources of Project Funds Debt Equity Upfront payment for CER purchase Grants Grants Danish government Thai firms to kick-off CDM European Investment Bank Transaction Assistance Facility Canada CDM facility for Indian firms

20 4. CER Prices Carbon asset prices (fragmented markets, differentiated prices) Allowance certificates high price (less delivery risks) ERU (JI) price higher than CERs (supported by host country agreements) CER (CDM) price low rates (high risks) CER prices (no single price, differentiated prices) risks social development components technology type

21 Project-Based Clean Development Joint Implementation Mechanism PCF 1 PCF 5 US$ US$ premium of US$0.5 per ERUPT 6 ton of CO2e for projects First tender average price with developmental (closed in April components (Colombia 2001) Wind Farm) Second tender average C-ERUPT 2 (maximum price (closed in prices) March 2002) renewable energy 5.5 Third tender - expected biomass energy price range energy efficiency (closed in January 2003) fuel switch and methane - Denmark-Romania JI estimated price range average price Finish Government 4 small-scale Allowance Markets Regional EU-ETS (indicative price); (forward price in Jan 2004); (forward price in Apr 2004) National UK-ETS 11 Bid price 1.75, offer price 2.25 Firm BP Emissions Trading Scheme 12 (Scheme discontinued in 2001) average in 2000 US$7.6 average in 2001 US$39.63

22 4. CER Prices Price Differentiation Emerging price differentiation projects complying with the WWF Gold Standard projects with developmental features standard projects forestry projects (long-term and short-term) Other factors (current) Status of methodology approval Contract conditions Option premiums, payment upon delivery, penalty for non-delivery Contingency to the Kyoto Protocol

23 4. CER Prices Implications of EU-ETS Linking Directive EU-ETS operators will compete with governments Two-tier CERs for EU-ETS imports and not for imports market convergence, raise CER prices set upper limit price for CERs CER price = EU allowance unit price minus risk premium (regulation/registration and non-delivery) EU-ETS forward prices (EU 2005) in 2004 (per TCO2eq) January February March April May June July August September

24 5. CDM Projects 106 projects with PDD (as of 8 September 2004, CDM Watch Database) Methodology Status withdrawn 1% approved 21% under consideration 66% rejected 12%

25 5. CDM Projects Host country location India 20 projects; Brazil 14 projects Central Asia 3% Africa 7% Asia-Pacific 41% LA and Caribbean 49%

26 5. CDM Projects Investors number of projects unknown 24% WB 21% CN Co 4% EU Co (UK, I) 4% Japanese Co 15% EU (S, D, DK, FIN) 13% Netherlands 19%

27 5. CDM Projects Investors volume of CERs 351 MMTCO2eq (cumulative) WB 16% unknown 54% Ne the rlands 12% EU (S, D, DK, FIN) 1% CN Co 1% Japanese Co 11% EU Co (UK, I) 5%

28 5. CDM Projects Project type large hydro 11% sinks 2% fuel switch 7% efficiency 12% renewables 40% gas capture/dest 27% transport 1%

29 6. Emerging Trends CDM Market (Point Carbon s 5 emerging trends) Increasingly dynamic Interest is rising sellers prepared to take more risks Investors are paying attention to host country approval Countries with clear rules are favored (India, Brazil, Mexico, costa Rica and Chile) Project preference Low abatement cost (methane capture) Methodology clarity EU ETS development Raise CER demand Raise CER prices Obstacles to market Delays in CDM Executive Board decisions Bearish trends in EU ETs