CO2 Credits

World CO2 Emissions

http://johnenglander.net/temp-co2-400kyrs

Sources: Rolling Stone Magazine, US

Department of Energy)

Mexican lemon imports prevents highway deaths

Pirate shortage causes global warming

Eating organic food causes autism

US Web searches for ‘Justin Bieber’ & adult tonsilitis cases

http://grungly.com/category/skeptic/

It’s not ALL bad news

CO2 Credit Markets

Terminology

• Carbon– CO2

• Carbon Allowance – How much CO2 you are allowed to emit

• Carbon Credit– Tradable certificate allowing the right to emit 1 tonne CO2

• Carbon Offset– Activity done elsewhere to ‘offset’ your CO2 emissions

• i.e. Planting tree farm, etc.

Carbon Offset Terminology

• Vintage: the year in which the carbon reduction occurs

• Source: the project or technology used in offsetting the

carbon emissions– change in land-use (e.g. improved farming practice)

– renewable energy

– energy efficiency improvement project

– etc.

• Certification: the systems and procedures that are used

to certify and register carbon offsets– Voluntary Carbon Standard

– CDM Gold Standard

– CCBS, issued by the Climate, Community & Biodiversity Alliance

– Social Carbon Standard, issued by Ecologica Institute.

Carbon Offset Examples

Project name Location Type Standards Created

2 x 3.5 MW Ullunkal Hydro Power Project in Kerala India Hydro VCS 11/2012

6 MW Wind Power Project in Tamil Nadu by REI Agro Limited India Wind VCS 11/2012

12.25 MW Bundled Wind Power Project in India India Wind VCS 11/2012

Hydro Power Plant 35,33 MW Turkey Hydro VCS 10/2012

Borneo Reforestation Malaysia Forests VCS 06/2012

Cookstoves Ghana Efficiency Gold 06/2012

Cookstoves Kenya Efficiency CDM, Gold 06/2012

Brazil Run of the River Brazil Hydro VCS 06/2012

Menegalli Brazil Fuels SC 06/2012

Gold Wind Turkey Wind Gold 06/2012

Lifestraw Kenya Efficiency Gold 06/2012

Kasigau Corridor Kenya Forests VCS, CCBS 06/2012

Malana Hydro India Hydro VCS 06/2012

Improved Household Charcoal Stoves Mali Efficiency Gold 02/2012

Brasil Mata Viva Brazil Forests - 12/2011

Gansu Nanyangshan Micro Hydro Power Project China Hydro Gold 09/2011

Keltepe Wind Farm Project Turkey Wind Gold 09/2011

Gansu Anxi Wind Farm China Wind Gold 09/2011

Yeka Improved Cook Stove Project Ethiopia Efficiency Gold 07/2011

Source: carboncatalog.org

Carbon Markets

• 2 Basic Markets

– Compliance market

• Credits are purchased by companies to comply with

emission caps

– $175.6B in 2011

– 10.2 billion metric tons of CO2e reductions

– Voluntary market

• Credits purchased by individuals or companies to offset

their own emissions

– $576M in 2011

– 95 million metric tons of CO2e reductions

Voluntary Market Trading

• North America

– Chicago Climate Exchange (CCX)• North America’s only voluntary, legally binding greenhouse gas (GHG) reduction

and trading system for emission sources and offset projects in North America and

Brazil.

• provided independent verification and traded greenhouse gas emission

allowances from 2003 to 2010

– Trading reached zero monthly volume in February 2010 and

remained at zero for the next 9 months• max $7.50/tonne in May 2008

• min 5¢/tonne in Sept 2009

– Ceased Operation in Nov 2010

• Rest of world

– European Union Emission Trading System (EU ETS)

Global Action for CO2 Reduction • Intergovernmental Panel on Climate Change (IPCC)

– Established 1988

– By World Meterological Organization (WMO), and

United Nations Environmental Program (UNEP)

• United Nations Framework Convention on Climate Change (UNFCCC)

– Treaty aimed at stabilizing greenhouse gases

– Entered into at Earth summit held in Rio de Janeiro, June 1992

• Kyoto Protocol (adopted 1997)

– Established legally binding commitments for reducing greenhouse gases• Benchmark 1990 emission levels

– Adopted for use in December, 2007

• Paris Agreement

– adopted by consensus on 12 December 2015

– 193 UNFCCC members have signed the treaty, 109 of which have ratified it.

– Commitments start in 2020

Kyoto Targeted Greenhouse GasesCO2e

GWP = Global Warming Potential

***

***

Participation in the Kyoto Protocol, as of December 2010

ratified by 191 countries

37 Annex I countries

Green = Countries that have signed and ratified the treaty

Dark Green: Annex I-developed countries that will pay compliance expenses for …

Light Green: Annex II- developing economies or economies in transition

Grey = Countries that have not yet decided

Brown = No intention to ratify.

Kyoto Status in 2013

• The 3rd compliance period of the Kyoto Protocol

started in 2013– now a voluntary agreement

• Lack of interest outside Europe for a binding treaty

– No commitment • Canada

• Japan

• Russian Federation

• New Zealand

• United States

Original agreement expired 31 December 2012

Current Kyoto Protocol Participation(commitment period: 2013–20)

EU Emissions Trading Scheme (EU ETS)

– What? internal market enabling companies to trade carbon

dioxide emission permits

• 78% of world trade

– Why? Kyoto Protocol

• To minimize the economic costs of its commitments to combat climate change

– Who? Applies to 10,000 energy-intensive plants across the EU

• 40% of the EU's total CO2 emissions.

• power generation, iron & steel, glass, cement, pottery and bricks

• buy and sell permits to emit carbon dioxide

– How? Fines

• Originally, a fine of €40 per excess tonne of CO2

• Fine increased to €100 in 2008

How EU ETS Works• Annual reporting of CO2 emissions

– Allowances issued in multi-year trading period to account for weather abnormalities

• Annual obligation to return allowances equal to emissions for

that year

• Credits may be sold or traded– Credits my be banked within each multi-year cycle

– Credits expire after each multi-year cycle

• Deficiencies met by purchasing EU or International credits

• Timetable

– Phase 1 (warm-up): 2005-2007

– Phase 2: 2008-2012

– Phase 3: 2013-2020

– Phase 4: 2021-2028

How Allowances Are Determined

• For each Phase, allowances determined by each

Member State– National Allocation Plan (NAP)

– During Phase 1, most allowances in all countries were given freely• Provided little incentive for innovation, renewables, etc.

– Phase 1: 2005-2007

– Phase 2: 2008-2012

• Phase III (January 2013) there is now a centralized

allocation of permits– Phase 3: 2013-2020

• NAP has been abolished

EU ETS Phase 32013-2020

• Single EU-wide Cap replaces national caps

• Auction is now default– Replaces free allocation

– 40% of allocations auctioned in 2013

• % will rise progressively

– Businesses have to buy an increasing proportion of

allowances or change practices

• Rewards performance

• Adds N2O and PFC’s (perfluorocarbons)

• Commercial airlines added– Flights between participating nations

Current price for European Union allowances: € 5.67 (Dec 2016 futures)

What Are The Results?

It’s Complicated

EU27 CO2 Emissions

from Energy Consumption

2,000

2,500

3,000

3,500

4,000

4,500

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CO

2 E

mis

sio

ns, m

illio

n t

onnes

9.6%

Reduction

Phase

1

Phase

2

Phase

3

http://www.eea.europa.eu/data-and-maps/data/data-viewers/emissions-trading-viewer

EU27 CO2eq Emissions

Phase 1 Phase 2 Phase 3

2020

EU27 GHG Emissions

Comparing Electricity Rates

Unemployment Rates

Q: What is going on with

CO2 Credit prices?

REDD: Reduce Emissions from Deforestation and Forest Degredation

i.e. Ecotourism, agriculture, etc.

IFM: Improved Forest Management

A/R: Afforeststaion and Reforestation

i.e. planting new forests and replanting old forests

A: There is a glut of offset credits

In a blockbuster study released Wednesday in Nature, a team

of 38 scientists finds that….

the planet is home to 3.04 trillion trees,

blowing away the previously estimate of 400 billion.

422 trees for every person on Earth.

http://www.nature.com/news/global-count-reaches-3-trillion-trees-1.18287

Major investments in forestry offsets…

Coal Consumption is rising as glut of carbon off sets drives carbon price down

…which allow more, cheaper

coal to be used

EU EST Current Status

May, 2015: the European parliament and member state representatives reached an

agreement on a far-reaching reform of the European emissions trading scheme

(ETS).

ETS is the centrepiece of the EU's 2030 climate and energy policy framework.

An effective carbon pricing system incentivises energy efficiency and low-carbon

production.

Because of the economic crisis, there needed to be an overhaul of the ETS.

The slow-down in industrial activities has led to a massive surplus of CO2

allowances,

resulting in very low CO2 prices €5 - €6 per tonne of CO2 emissions

original aim was to price emissions at €30 per tonne.

Problem: CO2 Credit Market is now flooded

Government Solution: Take control with ‘Market Stability Reserve” (MSR).

a market-based correction mechanism to stabilize CO2 prices by

automatically reducing the offer when there are too many CO2

allowances on the market.

in case of a shortage, more allowances are put on the market.

The MSR will start operating as of 1 January 2019.

Rationale: to put the EU in a leading position for the UN COP21 Climate

Conference in Paris where an international climate agreement was

negotiated.

The real question (for me) is

not whether I believe CO2

trading is really doing any

good…

…it is how I can make some

money at it!

Tomasz Szczygielski

Carbon Offset Practical Example

Three Project Sites

Deep Soil Mixing/Stabilization

Binder

CO2 to

Produce

Binder

Binder

Cost

Binder

Cost

Portland

Cement

0.9 tons

CO2/ton

$110/ton €147/tonne

Fly Ash 0 $11/ton €14.7/tonne

Portland Cement vs. Fly Ash Binder

The Bottom Line

Binder Savings

Tonnes

CO2

Savings

CO2

Credit

Price

CO2 Credit Value

2008-2012 €0.47M $0.63M 567,838 €3.67 €2.08M $2.79M

2013-2020 €1.49M $2.0M 1,800,000 €5.60 €10.08M $13.52M

Total €1.96M $2.63M 2,367,838 - €12.16M $16.31M

U.S.-China Joint Announcement on Climate Change

and Clean Energy Cooperation

What was actually agreed to?

China Commitments

• To peak its CO2 emissions before 2030

• Expand total energy consumption coming from zero-

emission sources to around 20 percent by 2030

– 800-1,000 gigawatts of nuclear, wind, solar and other

zero emission generation capacity by 2030

• more than all the coal-fired power plants that exist in China today

• close to total current electricity generation capacity in the United

States.

Reduce CO2 emissions by 30% below 2005 level by 2030

• Heavy-Duty Engines and Vehicles

Issue the next phase of fuel efficiency and greenhouse gas standards for medium-

and heavy-duty vehicles by March 2016.

• Energy Efficiency Standards

Reducing carbon pollution by 3 billion metric tons cumulatively by 2030 through energy

conservation standards

• These measures will also cut consumers' annual electricity bills

by billions of dollars.

• Economy-wide Measures to reduce other Greenhouse Gases

Cut methane emissions from landfills, coal mining, agriculture, and oil and

gas systems through cost-effective voluntary actions and common-sense

standards emissions equivalent to 700 million metric tons through 2025.

• Power Sector

US Commitments

Clean Power Plan

Requirements for Kentucky*

CO2 Rate

lbs/net MWhr

CO2 Emissions

short tons

Reduction

from 2012

2012 2166 91,372,076 ---

Interim 1:2022-

2024

1643 76,757,356 24.1%

Interim 2: 2025-

2027

1476 69,698,851 31.9%

Interim 3: 2028-

2029

1356 65,566,898 37.4%

Final: 2030 1286 63,126,121 40.6%

*as of August 3, 2015

Source: http://www3.epa.gov/airquality/cpptoolbox/kentucky.pdf

Kentucky Electrical Generation,

Reference Case without Additional Environmental Regulations

Kentucky Electricity Price Forecast

Which side are you on?

Remember….

…they’re watching