REDD and the Carbon Market. Agus Sari Ecosecurities ICRAF Workshop on REDD November 2009

Transcription

1 REDD and the Carbon Market Agus Sari Ecosecurities ICRAF Workshop on REDD November 2009

2 Carbon Market... in a nutshell Emissions Offset Reduction Credits Baseline / reference Emission emissions limitations Emissions in developing country Developed country Developing country

3 Market mechanism under the Kyoto Protocol Mechanisms Parties Emissions Trading Trading of permits (assigned amount) Developed countries Joint Implementation Clean Development Mechanism Trading of credits (emission reduction) Trading of credits (certified emission reductions Developed countries Developing countries

4 A growing market... Carbon market is growing rapidly CDM market alone is worth about $20 billion today. Total carbon markets are estimated to be about $150 billion today. "#$%!;,'+'4% 0%A=%%!5'678+9(,% &'()*+(,%-%0% 3:2:4% CDM Total Carbon Market !"#$%&'()*+(,%-%./0%1234% Figures are for 2006 ;,'+'%8'8< "#$% 0=>?111%

5 New and emerging markets CDM as we know it might be limited to only few countries. Simplification and reform of CDM. Programmatic and sectoral CDM will expand the markets. Creditable NAMAs. US domestic markets. Voluntary market Carbon capture and (geological) storage. Nuclear. Explicit biases (multiplication and discount, co- benefits) (Reformed) afforestation and reforestation. REDD (plus, plus)

6 Emissions, causalities... Emissions Tenurial (In) Security Policy and enforcement Fiscal and Economic Incentives Socio- Economic Drivers Logging (HPH) HTI Pulp and Paper Plantations Palm Oil Plantations Forest Fires Illegal Logging Illegal Conversion to Agriculture Destruction of Protected Forest Other carbon releases Peat Forest Non-Peat Forest Changes in Carbon Stock Deforestation and Degradation Institutions and Governance Underlying Causes Landscapes Forest Conversion Symptoms

7 ... and what market can do Carbon Payments Carbon Market Emissions Tenurial (In) Security Policy and enforcement Fiscal and Economic Incentives Socio- Economic Drivers Logging (HPH) HTI Pulp and Paper Plantations Palm Oil Plantations Forest Fires Illegal Logging Illegal Conversion to Agriculture Destruction of Protected Forest Other carbon releases Peat Forest Non-Peat Forest Changes in Carbon Stock Deforestation and Degradation Institutions and Governance Underlying Causes Landscapes Forest Conversion Symptoms

8 Fund or market? Staged approach: fund first to prepare for markets. Scale of financing needed cannot be met by fund alone. Fund Market

9 Fund or market?

10 REDD in the carbon markets Under the CDM As a new market

11 Nationally- appropriate mitigation actions (NAMAs) Unilateral NAMA Financed NAMA Creditable NAMA National actions planned and implemented unilaterally (domestically) without foreign involvement National actions planned and implemented with overseas financial assistance. National actions planned and implemented with a view of producing emission reduction credits that can be sold in the carbon markets Will REDD (plus, plus) be a NAMA?

12 Transactional Relationships Developed Country Government Payment Developing Country Central Government Payment Payment Regulations Developing Country Local Government Payment Developed Country Buyer / Intermediaries Payment Developing Country Developer / Seller

13 Distribution of payments Developing Country Central Government Payment for community benefits tax / levy Developing Country Local Government Payment after tax / levy Payment for community benefits tax / levy Developing Country Developer / Seller Payment for community benefits Community

14 Perceptions of Risk Carbon risks at the project level Project risks Country risks International agreement risks Additionality Availability of financing Investment and trade regime Approvals (international and domestic) Monitoring and verification Permits and other legal compliance Conservation risks Forestry sector regulations Securities regulation and regime REDD will generate (compliance) and tradable credits? Fund- based or market- based? Governmental or private sector- oriented Carbon title Operational risks Asset class regime Developed country reduction commitments Market risks (price etc) Social issues Distribution of benefits (levies, taxes, etc) Enforcement of law (and governance regime in general) Domestic REDD regulations Size of the markets Methodology for REDD project development

15 Quality standards Climate Community and Biodiversity (CCB) Voluntary Carbon Standard (VCS) Upcoming International REDD Compliance Standard

16 Deal formats... Investment Upfront payment Forward contract (Emission Reduction Purchase Agreement) Options Cash- and- carry (secondary) Spot Derivatives Direct investment, equity position in the project Securitizing payment upfront, can be used for investment Binding agreement to buy and sell, with agreed upon conditions, may include price, quantity, delivery dates. Payment upon delivery. Options (but not obligation) to buy (under certain market conditions) to buy. Payment upon delivery. Buying / selling directly from the market Selling to a spot market. Buying / selling derivative products as risk- management / hedging policy

17 Price, risks, and quality!"#$ ;8)<=&'(')*++,$1"# $,+./0+(7$ %&'(')*++,$-$,+./0+(+,$1"#2$ "#$ "34$ :&'./*7$ 5+6&(/*7$89$,+./0+(7$

18 Thank you