Linking of national carbon standards via VCS to facilitate future regional carbon trading regimes

Transcription

1 Linking of national carbon standards via VCS to facilitate future regional carbon trading regimes Bangkok, January 24 th 2011 Manuel Cocco South Pole Carbon Asset Management Ltd.

2 Overview We think that linking and mutual recognition defines the pathway to carbon trading post-2012 in the South East Asia region Definition and Driving Force for Linking Why Linking? (Rationale) The Durban Outcome and UN process lead to a fragmented carbon market and therefore "call for" this approach We have seen it before: the evolution of the voluntary carbon market This is consistent with current activities in the region Pathway for the future 2

3 Definition: What is Linking Carbon Credits? A procedure that allows the transfer and use of an emission reduction credit or emission allowance that has been developed in accordance with a regulatory system A in a different regulatory system B. Uni-directional linking: The transfer occurs always from regulatory system A into a system B (i.e. CDM CERs may be converted into EUA; but not the reverse). Bi-directional linking: The transfer occurs in both directions from A to B and from B to A (i.e. green-e: RECs can be converted to VERs; and certain VERs can be converted to RECs. For these certain VERs there is a bidirectional linking). Indirect linking: A unit from regulatory system A (i.e. CER) is converted into a unit from system B (EUA) which is used for compliance in a jurisdiction that does not recognize a unit from system A but a unit from system B. 3

4 Driving Force for Linking Different countries develop their own domestic procedures under cap-andtrade or baseline-and-credit rules to manage a domestic target. Because of competitiveness concerns, countries will link their domestic carbon markets to ensure that their industries are subject to similar cost impacts imposed by climate mitigation policies. Every product has a carbon footprint. Some producers have to pay for part of that footprint, others not. Linked carbon markets are a flexible method to ensure equitable burden and level-off competitive impacts of climate change regulation. Countries need to agree to a common set of procedures in their domestic programs to facilitate linking (i.e. common design features in relation to baseline setting avoiding of double counting, GHG accounting and MRV). Shared definition of what constitutes a verified emission reduction unit. 4

5 Why Linking? The Durban Outcome Encourages Bottom-up Approaches "Parties are invited to submit what they think are nationally appropriate mitigation actions, low emission development strategies". Notes that "Parties may, individually or jointly, develop and implement various approaches, including market instruments, to promote mitigation actions". The Durban decision emphasizes though that such approaches "must be environmentally credible". (avoid leakage & double counting, ensure co-benefits) In other words: International negotiations (UNFCCC) lose relevance BUT authority is devolved to domestic policy and bi/multilateral links Development of alternative, non-un systems that may be difficult to link up, but as demand, scale and scope of market grow, in order to contain costs and ensure fungibility of carbon credits, there is a Driving Force for Linking UN process will recognize what Parties put together: it follows the development of such approaches, it does not lead their design. 5

6 Why Linking? The Voluntary Market Evolved Similarly Towards Homogeneity and Liquidity In the early days of the voluntary market, sellers of carbon credits had their own standards, i.e. in 2005, we tracked no less than 35 standards Liquidity was limited, buyer interest was limited. Standards were not linked and units were not compatible. Buyers were confused and the market was not transparent. Seller credibility (i.e. NGO status) and project-level due diligence were key deciding factors, making transactions costly. Key market participants agreed to set up 3 rd party standards (GS, VCS) to create a 3 rd party standard to correct these inefficiencies, leading to a drastic expansion of market activity (bringing in many new buyers and suppliers). Linking VCS to CDM also brought substantial new supply to the voluntary market and increased overall carbon market efficiency. VCS quickly gained substantial market share because it offered liquidity. VCS also recognizes other standards, adding to market liquidity. 6

7 Why Linking? National Approaches and Ongoing Integration Efforts Korea has developed KVER to create a pre-compliance and early action system. Japan has developed JVER to facilitate technology export promotion. Thailand is developing TVER to incentivize small-scale action, urban approaches and start a domestic market. Japan is now reaching out to get bilateral and multilateral recognition of its program (concern about double-counting). Korea s program is competing with the voluntary market. Thailand is discussing one-directional recognition of VCS (VCU from projects in Thailand could receive TVER label). 7

8 Pathway National programs begin to recognize VCS as an eligible unit under their national programs Developers can use established VCS procedures to quantify their carbon assets and receive domestic recognition. Two countries that seek to cooperate on mitigation actions (i.e. for green procurement or regional trading) and seek to recognize the domestic national program of the other country and both recognize the VCS as eligible standard for emission reductions in their own jurisdiction can then start to also recognize VCU that originated in the other country. VCS becomes a bridge-builder to connect two domestic programs. By relying on a 3 rd party, issues related to sovereignty (i.e. related to market oversight) can be addressed efficiently. The implementation of this approach could be straight-forward, efficient and fast. 8

9 Thank You South Pole Carbon Asset Management Ltd. Manuel Cocco Contact Information: English speakers Ingo Puhl Thai speakers Patathai Tonsuwonnant i.puhl@southpolecarbon.com p.tonsuwonnont@southpolecarbon.com