1、State and Trends of theCarbon Market 2006Karan Capoor, Philippe AmbrosiWorld BankBased on World Bank-International Emissions Trading Association studyThe findings and opinions expressed here are the sole responsibility of the authors. They do not necessarily reflect the views of the International Em
2、issions Trading Association (IETA) or of IETA member companies, who cannot be held responsible for the accuracy, completeness, reliability of the content of this study or non-infringement of third parties intellectual property rights. The findings and opinions expressed in this paper also do not nec
3、essarily reflect the views of the World Bank, its executive directors, or the countries they represent; nor do they necessarily reflect the views of the World Bank Carbon Finance Unit, or of any of the participants in the Carbon Funds managed by the World Bank.The World BankSan Antonio 29 November 2
4、006MethodologyThis study is based on the following: Analysis of the World Banks confidential project database, IETA-led Survey of key market analysts, Interviews with market players, and,A review of published literature.Project database includes: More than 750 project-based transactions (ERPAs signe
5、d) Completeness of information 90% in all fields except onexact terms and price of transaction 60% Aggregate data on allowance markets From major exchanges and OTC sources Scientists believe that the earths atmosphere is warming at a faster rate than ever before and that this is partly caused by hum
6、an activities that release carbon dioxide and related warming gases into the atmosphere. Emissions from combustion of fossil fuels for energy, transport and industry, agriculture, land use and forestry Increased concentrations of GHGs and the rate of temperature change are projected to cause impacts
7、: Changing precipitation patterns affect water, agricultural output Higher sea levels affecting coastal zone development Warmer oceans impacting fisheries, coral reefs and tourism More frequent occurrence of extreme weather events Higher likelihood of spread of vector-borne diseases (malaria)Global
8、Climate ChangeResponse to Climate Change Countries, including the U.S., signed and ratified the 1992 Rio Climate Convention (UNFCCC) with objective to reduce concentrations of GhGs to a level required to prevent “dangerous” warming As a First step to meet the above objective, the Kyoto Protocol requ
9、ires industrialized countriesto reduce their overall GhG emissions by an average of 5.2% from 1990 levels in 2008-2012. No specific obligation on developing countries Industrialized country obligations: In some countries, emissions are up by 30% since 1990. How would such countries reduce emissions
10、by more than 1/3 by 2012 Shut down production by 1/3? Mandatory energy efficiency at any cost? Off-shore industrial jobs? Tax all energy consumption? In a globalized world economy this becomes an issue of trade competitiveness, especially for industrial sectors The KP allows “Flexible Mechanisms” fo
11、r Compliance OECD countries and companies regulated by them can meet part of obligations by “purchasing” carbon credits from projects overseas This creates an opportunity for resources to flow from OECD sources to support clean and sustainable projects in Niger and elsewhere Eligible Projects receiv
12、e a multi-year hard currency revenue stream -CARBON FINANCE for verifiably reducing emissions Currently carbon finance buys credits until 2012 or so. The sooner projects can be identified, the more years of revenue they can earnCarbon Finance: Concept Carbon projects can EITHER: “Mitigate” climate c
13、hange or reduce emissions. Examples: Project to generate energy from bagasse in the sugar industry for own needs and to displace emissions from expensive diesel generators. Surplus electricity to provide energy access for neighboring trading posts, clinics, schools and local communities currently us
14、ing diesel, fuelwood or kerosene Project to demonstrate improved operating performance of utility by reducing technical losses and improving service as a precursor to privatization, OR, Sequester carbon (Kyoto Protocol currently provides credit only for afforestation and reforestation activities). E
15、xamples: Communities planting and protecting trees on degraded lands, creating carbon assets in Kenya and using carbon revenues to supplement incomes Replanting on slopes of watershed. Carbon revenue helps secure other co-benefits e.g. reduced siltation and improved hydrologyMitigation and Sequestra
16、tion Hydroelectric power offsetting the need for coal- or gas-fired generation Extending grid to reach customers currently using diesel or kerosene Reducing Transmission and Distribution losses and creating effective capacity that offsets the need for new fossil-based generation Reducing CO2 by and
17、methane ( a potent greenhouse gas) by generating energy and bio-fuels from sugar industry by-products - bagasse and molasses Reducing methane by bio-digesting livestock wastes Extracting methane from landfills Extracting methane from composting organic waste in urban dumpsites Extracting methane fro
18、m disposal of sewage sludge Capturing methane leaks from gas pipelines, tankers, coal mines Capturing N20, a powerful greenhouse gas, from fertilizer production Sequestering CO2 by tree planting, small plantations, land restorationTypes of Carbon ProjectsStructure of the Market 2006Allowance Markets
19、Project-Based TransactionsUK ETSEU Emission Trading SchemeChicago Climate ExchangeNew South Wales CertificatesJI and CDMVoluntaryAfrica share doubles Current and expected transactions likely to equal 2005 volumes Average contract prices up across all market segments Pricing so far linked to EUAs how
20、 long will this last? When will demand from California, U.S. markets emerge?Elements of Carbon MarketsEU-ETS, RGGI et al Highly Credible targets and comprehensive coverage Adding sectors/gases covered can enable strong reduction targets. What level of reductions will EU ETS-II require? Longer-time h
21、orizons with shorter-term milestones Regulatory certainty and time horizon required for making investments California law has 2020 and 2050 targets; EU until 2012. ETS-3 for 2017? Flexibility Encourage early reductions and allow banking within and across periods U.S. RGGI has ability to extend compl
22、iance period for market by one year U.S. RGGI allows 6 offset types with “prescriptive” rules, price “triggers” Australian proposal allows offsets for avoided deforestation and CCS EU-ETS currently limits access for afforestation and most LULUCF Regimes allow for linkage to offsets from mandatory re
23、gimes. Will they discount them or limit the volumes allowed? Market transparency through quarterly reporting Final Rule of U.S. RGGI requires quarterly performance reports Strong enforcement and penalties for non-compliance EU-ETS has strong rules and Commission says it will enforce themMDemand Dyna
24、mics: EU-ETSSelective IETA survey of market analysts shows a 90% probability for Ph 1 to be long and 80% probability that EUA hot, dry July; EUA spot 10 Submitted NAPs2: Ph II EUAs Ph I Eastern countries generally caps Some countries propose to cover gases beyond CO2 or additional sectors Proposals
25、to limit imports of CERs/ERUsrange from 7% to 50% (supplementarity)How will EU Commission respond?101520253035Jan-06Feb-06Mar-06Apr-06May-06Jun-06Jul-06Jul-06Aug-06Sep-06EUA price (/tCO2)Spot price (Pnxt)Dec 08 (ECX)Linkage between marketsPhase I EUA market is potentially long; faces price risk. Exp
26、ectations for Phase 2 contribute to volatility as 08 vintages trade spotCER/ERU prices have broadly correlated with EUAs? Will this continue? Will price for project assets withstand EUA volatility?Will they respond to signals across markets i.e. Regional U.S. market, California? Will CERs be priced
27、independently of EUAs over time?Project-based Credits:Prices increase and volumes stabilize0501001502002503003504001998 1999 2000 2001 2002 2003 2004 2005 Q1-Q3 06Annual Volume of Project-based Transactions(MtCO2-eq)US$ 4.99 /tCO2eUS$ 7.25 /tCO2eUS$ 10.30 /tCO2eCER I $ 10.50ERU $ 7.98Market Share: B
28、uyersPrivate firms from EUJan. 2005 to Dec. 2005(share in volume)Jan. 2006 to Sep. 2006UK14%Europe-Baltic Sea8%Canada1%USA1%Australia1%New Zealand2%Japan43%Unsp.2%Italy1%Spain5%Netherlands11%Other Europe11%Other Europe10%Netherlands4%Spain3%Italy19%Unsp.5%Japan8%USA1%Europe-Baltic Sea5%UK45%Market S
29、hare: SellersChina faces price risk. Expectations for Phase 2 contribute to volatility as 08 vintages trade spotCER/ERU prices have broadly correlated with EUAs? Will this continue? Will price for project assets withstand EUA volatility?Will they respond to signals across markets i.e. Regional U.S.
30、market, California? Will CERs be priced independently of EUAs over time?Demand Dynamics: EU-ETSSelective IETA survey of market analysts shows a 90% probability for Ph 1 to be long and 80% probability that EUA hot, dry July; EUA spot 10 Submitted NAPs2: Ph II EUAs Ph I Eastern countries generally cap
31、s Some countries propose to cover gases beyond CO2 or additional sectors Proposals to limit imports of CERs/ERUsrange from 7% to 50% (supplementarity)How will EU Commission respond?101520253035Jan-06Feb-06Mar-06Apr-06May-06Jun-06Jul-06Jul-06Aug-06Sep-06EUA price (/tCO2)Spot price (Pnxt)Dec 08 (ECX)E
32、lements of Carbon MarketsEU-ETS, RGGI et al Highly Credible targets and comprehensive coverage Adding sectors/gases covered can enable strong reduction targets. What level of reductions will EU ETS-II require? Longer-time horizons with shorter-term milestones Regulatory certainty and time horizon re
33、quired for making investments California law has 2020 and 2050 targets; EU until 2012. ETS-3 for 2017? Flexibility in compliance Encourage early reductions and allow banking within and across periods U.S. RGGI has ability to extend compliance period for market by one year U.S. RGGI allows 6 offset t
34、ypes with “prescriptive” rules, price “triggers” Australian proposal allows offsets for avoided deforestation and CCS EU-ETS currently limits access for afforestation and most LULUCF Regimes allow for linkage to offsets from mandatory regimes. Will they discount them or limit the volumes allowed? Market transparency through quarterly reporting Final Rule of U.S. RGGI requires quarterly performance reports Strong enforcement and penalties for non-compliance EU-ETS has strong rules and Commission says it will enforce themMFull report available atwww.carbonfinance.orgThank you
