A Layman’s guide…

toand lots more….

The team Abhishek Mago S- 1 Divy Kumar Saini N-16 Eshwar Subramaniam S-20 K. Beji George S-26 Neeraj Chowdhary S-37 Nitin Aggrawal N-32 Rakesh Kumar Jha N-46 Vinod Kumar N-67

We are going to talk about: Global warming

How / Why Danger?

What are we doing about it: IPCC COP’s

Kyoto Marrakech Accords Multilateral Carbon Credit Fund

Carbon credit(s) Mechanism Pricing Avenues for Earning Importance Financial Impact on Developing Countries

Contd…

We are going to talk about: What’s happening today

Copenhagen India perspective

The other view too little too late reality check

What it holds for us Some trivia

Contd…

CO2 Rising

CO2 levels

1830 0.028 %2007 0.038%

0.0005 % ^ annual

2100 0.085%

www.beckstrom.com

Long Term Trend

www.beckstrom.com

So what???

Green House Effect

Greenhouse Gases

CH4

CO2

PFCsHFCs

SF6

310x

11,000 x 12,000 x

19 x

CO2 Equivalent is Gold Standard

22,000 x

N20

What is Global Warming?

refers to an increase in mean average temperature of earth’s atmosphere.

is an aftereffect of over concentration of Green House Gases (GHGs) in atmosphere.

Temperature Rising

According to the NASA satellite data:

- “More than 2 trillion tons of land ice in Greenland, Antarctic and Alaska have melted since 2003″.

- “Water melting from Greenland in the past five years would fill about 11 Chesapeake Bays and the Greenland melt seems to be accelerating.”

“Climate Change 2007”,

the IPCC Fourth Assessment Report (AR4), is about to be released, stand by for a tsunami of doom.

Source: http://www.anenglishmanscastle.com/archives/004868.html

Other Global Problems

Ozone hole Acid Rain

What is Ozone? a colorless gas.

Chemically, ozone is very active; it reacts readily with a great many other substances. Near the Earth’s surface, those reactions cause rubber to crack, hurt plant life, and damage people’s lung tissues.

But ozone also absorbs harmful components of sunlight, known as “ultraviolet B”, or “UV-B”. High above the surface, above even the weather systems, a tenuous layer of ozone gas absorbs UV-B, protecting living things below.

Dobson Unit is the most common unit for measuring ozone concentration.

What is ozone hole? not technically a “hole” where no ozone is

present, but is actually a region of exceptionally depleted ozone in the stratosphere over the Antarctic that happens at the beginning of Southern Hemisphere spring (August–October).

is caused by chemicals called CFCs, short for chlorofluorocarbons.

total column ozone values of less than 220 Dobson Units were not observed prior to 1979.

a total column ozone level of less than 220 Dobson Units is a result of catalyzed ozone loss from chlorine and bromine compounds. For these reasons, we use 220 Dobson Units as the boundary of the region representing ozone loss.

Ozone Hole September 24,

2006

Acid Rain

Acid Rain

What is acid rain?

refers to what scientists call acid deposition. caused by airborne acidic pollutants and has

highly destructive results. one of the most important environmental

problems of all, cannot be seen. The invisible gases that cause acid rain usually come from automobiles or coal-burning power plants.

moves easily, affecting locations far beyond those that let out the pollution.

can have harmful effects on plants, aquatic animals, and infrastructure through the process of wet deposition.

We are going to talk about: Global warming

How / Why Danger?

What are we doing about it: IPCC COP’s

Kyoto Marrakech Accords Multilateral Carbon Credit Fund

Carbon credit(s) Mechanism Pricing Avenues for Earning Importance Financial Impact on Developing Countries

Blackle saves energy because the screen is predominantly black. "Image displayed is primarily a function of the user's color settings and desktop graphics, as well as the color and size of open application windows; a given monitor requires more power to display a white (or light) screen than a black (or dark) screen." Roberson et al, 2002

Per Capita Footprints

Where is it Coming From?

Prepared by Robert A Rohde Data source: Carbon Dioxide Information Analysis Center

Let’s Get Personal

Size Your Carbon Footprint

CALCULATE YOUR PERSONAL CARBON FOOTPRINT

Home sq. feet (00) ____ x .6 = _______

You drive kms (000) ____ x .4 = _______

You fly miles (000) ____ x .3 = _______

Your Total Tons ________

Question

How large is your personal carbon footprint?

1) 152) 253) 504) 100+ tons

The danger is real, but

WE

can control the situation….

Mission Po$$ible

!

Legislations have saved us before

Montreal Protocol

“Perhaps the single most successful international agreement to date has been the Montreal Protocol.”

 -Kofi Annan, Former Secretary General of the United Nations

Montreal Protocol

Treaty originally signed in 1987 & amended in 1990 & 1992.

Stipulates that CFCs ,CCL4,methyl chloroform are to be phased out completely.

Developed nations- cfcs phase out mandatory till 1996.

Developing nations- can continue to produce & purchase CFCs for use till 2010 & methyl chloroform till 2015.

Montreal Protocol If international agreement is adhered to, ozone

layer expected to recover by 2050

Multilateral fund was established for its implementation.

Atmospheric conc. Of cfcs have leveled off or decreased. Conc. Of HFCs has increased substantially.

Reports of smuggling of CFCS from underdeveloped nations, but overall compliance has been high.

Currently calls for a complete phase out by 2030.

US Acid Rain Program The Acid Rain Program is a market-based

initiative taken by the United States Environmental Protection Agency in an effort to reduce overall atmospheric levels of sulfur dioxide and nitrogen oxides, which cause acid rain

The program is an implementation of emissions trading that primarily targets coal-burning power plants, allowing them to buy and sell emission permits (called "allowances") according to individual needs and costs

45

Phase I: units cut SO2 emissions by 50% below 1980 levels by 2010 (10 M tons).

Est. 1990, legally binding in 1995.

Grandfathering (baseline period 85-87).

Limited auctioning (3% of total allowance).

Banking allowed. Penalty $2,000/ton.

Phase II units started on 01/01/ 2000.

US Acid Rain Program-Highlights

46

Highlights (2) Significant emissions reductions achieved by 2004

(7 M. tons according to EPA).

Banking > 7.5 M. tons by 2004.

Trading > 15 M. tons in 2004.

Estimated cost-savings (relative to C&C):$1 billion / year.

Reduced human risk of premature mortality:(EPA reports a 40-to-1 benefit to cost ratio).

Acid Rain Acid Rain Declines Because of Successful SO2 Reductions Market

www.beckstrom.com

Period The paradigm Key outcomes1: Before 1990 Framing the problem 1979: First World Climate Conference

1988: Toronto Conference; Establishment of IPCC

1989: High level political conferences

1990: Second World Climate Conference; First Assessment Report of IPCC

2: 1991-1996 Leadership articulated 1992: Climate Change Convention

1995: COP-1 -- Berlin Mandate; AIJ

1996: Second Assessment Report of IPCC

3: 1997-2001 Conditional leadership 1997: COP-3 -- The Kyoto Protocol

2000: Third Assessment Report of IPCC

2001: COP-7 -- The Marrakech Accords

2001: US withdraws from Kyoto

4: 2002-2007 Leadership competition …....: US initiates many agreements

2005: Kyoto enters into force

2007: COP-13-- Bali Roadmap

5: Post 2008 Developing countries taking lead?

2008: Global recession starts

2009: COP-15 -- Copenhagen agreement?

The Developments so far

1997: COP-3 -- The Kyoto Protocol

Work in progress… Intergovernmental Panel on Climate Change

(IPCC) United Nations Framework Convention on Climate

Change (UNFCCC) North & South agree to mitigate climate change

before “it is too late” Agree that they have “Common but

Differentiated responsibilities”. Kyoto Protocol which in details describe how the

GHGs can be reduced entered into force on 16th February 2005.

IPCC

As an intergovernmental body the IPCC is open to all member countries of the World Meteorological Organisation (WMO) and the United Nations Environment Programme (UNEP). Its activities are guided by the mandate given to it by its parent organisations WMO and UNEP and governed by principles agreed by the Panel. The work-programme of the IPCC is decided by the Panel in plenary Sessions.

51

Kyoto - Multiplier Effect

-7% = O

•Em

issio

ns

•Time

-7% = -30%

X

Commitments: General

All Parties to the Protocol are subject to a set of general commitments that mirror those of the Framework Convention.

These include:

Taking steps to improve the quality of emissions data.

Promoting environmentally-friendly technology transfer.

Supporting climate change education, training and public awareness.

Cooperating on international climate observation.

Commitments: Specific

At the real heart of the Kyoto Protocol lies its set of legally-binding emissions targets for industrialized countries. These emissions targets amount to a total cut, among all Annex I Parties, of at least 5% from 1990 levels by 2008-2012.

Kyoto Protocol

It relies on market based flexible mechanisms to reduce GHGs emissions to mitigate GW.

Emission trading (trading of allowances between Annex I governments)

Clean Development Mechanism (CDM) (projects in Non-Annex I countries with participation of Annex I countries)

Joint Implementation (JI) (projects between Annex I countries)

Carbon Credits - also Known as…

Emission reduction unit (ERUs), Certified emission reduction (CERs), Assigned amount unit (AAUs) Removal unit (RMUs) Voluntary emission reduction (VERs)

Generating Carbon Credits G

HG

em

issi

ons

TimeProject commissioned

“With project” emission level

“Without project” emission level Carbon

credits

Project based emission reductions need to be calculated and verified 1 reduced Ton of Carbon Dioxide equivalent = 1 Carbon Credithereafter they can be sold on the open market.

57

Marrakech Accords(Decision 4/CP.7)• The Marrakech Accords is a set of agreements

reached at the Conference of the Parties 7 (COP7) meeting in 2001 on the rules of meeting the targets set out in the Kyoto Protocol.

• Decides to adopt the framework for meaningful and effective actions to enhance the implementation of Article 4.5 of the Convention

• Decides to establish an expert group on technology transfer

Marrakech Accords

Detailed definitions and rules for each element of the Kyoto Protocol

Agreement on compliance process and penalties, final decision on “binding” nature of compliance delayed until after ratification

Includes use of sinks (forest, cropland, and grazing land management, and revegetation are eligible activities)

No quantitative cap on the use of flexible mechanisms (emissions trading, CDM, joint implementation)

59

Multilateral Carbon Credit Fund Established by the European Investment Bank (EIB) and the European

Bank for Reconstruction and Development (EBRD).

Participants: Six countries and six private companies

Belgium (Flanders), Finland, Ireland, Luxembourg, Spain, Sweden

Abengoa (Spain), ČEZ (Czech Republic), Gas Natural (Spain), Endesa (Spain), PPC (Greece), and Union Fenosa (Spain).

Total of €165-million for 3 zones across Central Europe and Central Asia (€150 mln for projects, €15 mln for Green Investment Schemes)

MCCF helps Participants to meet their mandatory or voluntary greenhouse gas emission reduction targets by purchasing carbon credits (EAUs, CERs, ERUs and AAUs) from projects financed by the EBRD and/or EIB

The negotiation, contracting and monitoring of carbon credit transactions outsourced to private “Carbon Managers”

Objectives of the MCCF Procure quality, low-cost credits from

Countries in Transition (CEE and CIS)

Increase investment flows in low-carbon technologies

Support the development of emission trading

Promote dissemination of best practices through policy dialogue

Added Value of the MCCF

A multilateral initiative Political weight and clout Capacity for engaging Governments (Policy Dialogue) Risk mitigation through size and diversification

Benefits from EBRD-EIB involvement Political comfort Quality of emission reduction projects and size of pipeline Unique knowledge of, and presence in, the region Experience from Dutch JI Fund (EBRD) Experience with managing multi-donor funds (EBRD)

Region has largest potential for low-cost credits Vast opportunities for JI and CDM projects Surplus AAUs in Russia, Ukraine, etc

Types of projects which can be handled Renewable energy projects, fuel switch, energy efficiency,

waste processing, etc.

We are going to talk about: Global warming

How / Why Danger?

What are we doing about it: IPCC COP’s

Kyoto Marrakech Accords Multilateral Carbon Credit Fund

Carbon credit(s) Mechanism Pricing Avenues for Earning Importance Financial Impact on Developing Countries

Kyoto again

Protocol put a cap on emissions

Developed countries that have exceeded the levels can either cut down emissions, or borrow or buy carbon credits from developing countries.

Such a credit can be sold in the international market.

The trading can take place in open market.

Carbon Offset is a financial instrument aimed at a reduction in

greenhouse gas emissions. are measured in metric tons of carbon dioxide-

equivalent (CO2e) and may represent six primary categories of greenhouse gases.

One carbon offset represents the reduction of one metric ton of carbon dioxide or its equivalent in other greenhouse gases.

has gained some appeal and momentum among consumers who have become aware and concerned about the potentially negative environmental effects of energy-intensive lifestyles and economies.

The Kyoto Protocol has sanctioned offsets as a way to earn carbon credits.

Carbon Credits sometimes called “cap & trade regimes”

wherein participants can emit a set amount of carbon dioxide over the course of a given time period.

emit less than that, they can sell their remaining credits to those unable to get emissions down to the capped level;

CO2 producers unable to meet the limits and unable to buy credits are penalized.

Caps go down over time.

Carbon Tax is an environmental tax on emissions of carbon dioxide

(CO2). can be implemented by taxing the burning of fossil fuels—

coal, petroleum products such as gasoline and aviation fuel, and natural gas—in proportion to their carbon content.

If CO2 emissions are not released into the atmosphere on combustion of fossil fuels, e.g., carbon capture and storage, then a carbon tax will not apply.

increases the competitiveness of low-carbon technologies, such as renewables, compared to the traditional burning of fossil fuels.

Unlike a cap system with grandfathered permits, a carbon tax raise revenues. Carbon taxes provide price certainty on emissions, while a cap provides quantity certainty on emissions.

Clean Development Mechanism (CDM) The Clean Development Mechanism of the Kyoto Protocol

defines a series of steps necessary to develop certified emissions reductions (CERs):

Project Design

Project Validation

Host Country Approval

Registration with the CDM Executive Board

Implementation and Monitoring

Verification/Certification and Issuance of CERs

Sale of CERs Read more at

http://www.co2biz.info/carbon-credit-trading/cdm/

How it works?

By selling the emission reductions from a project to a Annex I party additional cash flows can be realised.

Emission cap

Actual emissions

Buyer

Carbon Credits

Carbon value

Annex I party Emission reduction project

The CDM project reduces the carbon emissions

in the CDM country

Carbon Credits - benefits provide an additional source of revenue;

improves the return on their investments;

boost the economic feasibility of projects;

and

accelerate project implementation.

Impact on the IRR of The Project

IRR BenchmarkProjectreturn

excludingCDM revenue

Projectreturn

includingCDM revenue

CDM cash flow

The gap betweenthe project return and the required

return oninvestment threshold

The CDM cash flow increases the IRR of the project making it more interesting for investors. (2%-100%, diversification, offshore revenue

stream)

12 %

15 %

16 %

Baselines is a scenario in which one provides supporting

evidence about what the emission of greenhouse gases would be until 2012 without this investment.

compare this baseline with the lower emission that will be achieved through this investment.

difference between baseline & lower emission is the amount of saleable carbon credits.

In the case of JI projects one can only sell the reduction achieved between 2008 and 2012 and not what is achieved in the previous years or years after.

Louis Redshaw, founded carbon emissions trading In 2004, met with five investment bankers to discuss

the possibility of trading carbon dioxide as a means to reduce harmful greenhouse gases into the air

Barclays Capital was the only bank interested in his venture

Currently, this market is worth more than $30 billion and is expected to grow to $1 trillion within the next ten years

Investment banks are expanding carbon business rapidly

Hedge funds and some private equity funds, as well as emerging niche investments banks are now pursuing carbon emissions trading very seriously. 

Carbon Emission Trading

The concept of Carbon Credit trading seeks to encourage countries to reduce their GHG emission, as it rewards those countries which meet their targets and provides financial incentives to others to do so

Surplus credits (collected by overshooting the emission reduction target) can be sold in the global market

One credit is equivalent to one tonne of carbon dioxide emission reduced. CC is available for companies engaged in developing renewable energy projects that offset the use of fossil fuels.

Carbon Emission Trading

Key Price determinants

Risk allocation Creditworthiness & experience of project sponsor Viability of underlying project Contract structure (e.g. upfront payments incur

discount, penalties for non-delivery, ability to pay penalties)

Cost of validation & potential certification Host country support & willingness to cooperate Additional environment and social benefits

CE Trading – Market Trends The amount of carbon dioxide equivalent (CO2e)

being traded globally in 2009 would value at USD 157 billion.

The global carbon market that has been growing by 105 per cent and 84 per cent in 2007 and 2008 respectively.

India is expected to be one of the top three largest players in the Carbon Credits market by 2010 end where business is estimated to grow by US$ 5 billion.

The average annual Certified Emission Reduction (CERs) from registered projects during July 2008 to February 2009 grew by 20.92 per cent from 218,345,930 to 264,022,976 respectively.

$ 60 Billion was the size of the global carbon credit market in 2007.

The average price paid to offset one tonne of CO2 or equivalent GHGs rose 49% from 2006 to 2007.

The percentage of projects sourced from Asia nearly doubled, from 22% in 2006 to 39% in 2007.

More than 3.6 million CER’s registered. Of the 93 CDM projects registered, 23 are from

India. Almost 50% of projects in the pipeline are from

India. Over 75% of India’s CDM potential lies in the

energy sector. By 2012 Indian companies are expected to

generate at least US$ 8.5 billion

CE Trading – Market Trends

http://www.co2biz.info/carbon-credit-trading/market-trends/

Rising prices - benefits

1. it will provide signals to consumers about what goods and services are high-carbon ones and should therefore be used more sparingly.

2. it will provide signals to producers about which inputs use more carbon (such as coal and oil) and which use less or none (such as natural gas or nuclear power), thereby inducing firms to substitute low-carbon inputs.

3. it will give market incentives for inventors and innovators to develop and introduce low-carbon products and processes that can replace the current generation of technologies.

4. and most important, a high carbon price will economize on the information that is required to do all three of these tasks.

Through the market mechanism, a high carbon price will raise the price of products according to their carbon content.

Current CER pricing