Carbon Markets Forestry Offsets & Avoided Deforestation
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C A R B O N C R E D I T S — O R I G I N A T I O N T O C O M M E R C I A L I S A T I O N Carbon Markets Forestry Offsets & Avoided Deforestation FAO Conference “The Future of Forests in Asia and the Pacific: Outlook for 2020” 16-18 Oct 2007 in Chiang Mai, Thailand Johannes Ebeling © 2007 EcoSecurities Group plc Carbon credits - origination to commercialisation Overview • Carbon Markets – Kyoto and Voluntary Carbon Markets • Forestry in Carbon Markets – Kyoto and the Clean Development Mechanism (CDM) – Voluntary Carbon Markets • Avoided Deforestation (REDD) and Future Climate Regimes • Avoided Deforestation (REDD) in the Asia-Pacific – Potential Benefits – Remaining Challenges © 2007 EcoSecurities plc Carbon credits - origination to commercialisation 1 Who we are EcoSecurities is a leading company in the business of sourcing, developing and trading carbon credits throughout the world. Our carbon credit portfolio is the largest in the industry and consists of over 450 projects in 36 countries with the potential to generate over 185 million carbon credits. ¾ 10 years experience in developing carbon forestry projects ¾ Core business CDM market ¾ Increasingly involved in voluntary markets ¾ Leading climate consultancy services © 2007 EcoSecurities plc Carbon credits - origination to commercialisation Where we are Dublin Tokyo* Oxford The Hague 2 Offices in China New York Bern* Kiev* - Beijing Rome* - Chengdu Portland Manila Los Angeles Madrid* Casablanca* Dubai Kuala Lumpur Mexico City Singapore* San Jose* Karachi* Jakarta Lima* Mumbai Johannesburg Rio de Janeiro Santiago de Chile Bangkok Headcount Offices and Representatives June 2005 27 employees 5 Dec 2005 72 employees 15 Aug 2007 280 employees 28 (*) No legal presence but EcoSecurities has entered into contracts with individuals to act as EcoSecurities representatives © 2007 EcoSecurities plc Carbon credits - origination to commercialisation 4 2 Carbon Markets © 2007 EcoSecurities plc Carbon credits - origination to commercialisation The Kyoto Protocol • Industrialised countries (“Annex 1”) committed to – Reduce emissions of greenhouse gases by 5% until 2012 (compared to 1990 levels) • Commitments can be reached domestically in member states or through “flexible mechanisms”: – Clean Development Mechanism (CDM): emission reduction projects in developing countries – Joint Implementation (JI) in other Annex-1 countries – Emissions Trading between Annex-1 countries • No binding obligations for developing countries (“Non- Annex 1”) – Developing countries can host CDM projects © 2007 EcoSecurities plc Carbon credits - origination to commercialisation 3 Parties to the Kyoto Protocol Annex I Non-Annex I Not ratified © 2007 EcoSecurities plc Carbon credits - origination to commercialisation Emission reduction projects (“carbon offset” projects) • Projects in developing countries (“Non-Annex 1”) that reduce emissions can sell CDM carbon credits to Annex-1 countries • Alternatively, projects can sell voluntary carbon credits to companies, individuals, and countries Carbon Credits An offset project reduces emissions Emission Actual target / cap emissions Carbon finance ($) Buyer Seller ( Annex-1 country / Company) ( Project in Non-Annex 1 country) © 2007 EcoSecurities plc Carbon credits - origination to commercialisation 4 Carbon markets • Slow growth of carbon markets until 2005 (only voluntary offsets & “pre-compliance”) • 2005 - Entry into force of Kyoto Protocol and EU Emissions Trading Scheme (EU ETS) create regulatory carbon markets • Established regulatory markets continue to grow • US$ 32 billon traded in 2006, of which • US$ 8 billion under Clean Development Mechanism (CDM), i.e. through projects in developing countries • Voluntary markets growing very rapidly • US$ 92 million in 2006 • Estimated close to US$ 200 million for 2007 Source: Point Carbon 2007 and WorldBank 2007 © 2007 EcoSecurities plc Carbon credits - origination to commercialisation Carbon markets • Project types: – Regulatory (CDM): Most projects in renewable energies (forestry marginal), highest volumes from large non-CO2 projects (industrial gases) – Voluntary: Forestry and renewable energy dominate, smaller project sizes, non-carbon benefits matter • Offset buyers: – Regulatory: Compliance buyers (companies, countries), intermediaries and traders – Voluntary: Any organisation or individual © 2007 EcoSecurities plc Carbon credits - origination to commercialisation 5 Forestry Projects under the CDM © 2007 EcoSecurities plc Carbon credits - origination to commercialisation CDM Forestry - The Basics • Eligible under the CDM is – the establishment of new forests on areas that were not forested in 1990 (in developing countries) • Not eligible under the CDM are – Conservation of existing forests – Sustainable management of existing forests • Non-permanent credits (temporary CERs) – Unlike any other CDM project type © 2007 EcoSecurities plc Carbon credits - origination to commercialisation 6 State of forestry CDM Very delayed start • First (and so far only) CDM reforestation project registered in 2006 (in China) • Restrictions for use of forestry credits in certain countries and trading schemes However • A lot of recent activity • 30-50 projects in the CDM pipeline Æ Overall very slow progress and many apparent hurdles © 2007 EcoSecurities plc Carbon credits - origination to commercialisation Forestry in the Voluntary Carbon Markets © 2007 EcoSecurities plc Carbon credits - origination to commercialisation 7 Forestry in the voluntary carbon markets • Larger scope for forestry than under CDM – No restrictions on “eligible” activities – Less formalised requirements and less bureaucracy (so far…) • Voluntary forestry projects were the first carbon offset projects ever • Reforestation has been dominant voluntary offset type – High appeal of sector, concept easy to communicate © 2007 EcoSecurities plc Carbon credits - origination to commercialisation Forestry in the voluntary carbon markets • Voluntary markets are not standardised and relatively intransparent – No broadly used standards (Ù CDM) – Quality and price of credits vary greatly (0.5 to 45 US$) • General trend towards more stringent criteria and verification – Non-credible offsets are reputational risk for companies – Several initiatives to develop standards for “Verified Emission Reductions” (VERs), CDM is benchmark for high quality © 2007 EcoSecurities plc Carbon credits - origination to commercialisation 8 Forestry in the voluntary carbon markets • However, forestry offsets also received considerable criticism – General critique of offsets often directed at forestry – Some poor quality projects (e.g. non-permanence issue) • General outlook is good & there are indications of increasing buyer interest – Quality assurances will be key (credible standards!) © 2007 EcoSecurities plc Carbon credits - origination to commercialisation Avoided Deforestation (REDD = Reducing Emissions from Deforestation and Degradation) © 2007 EcoSecurities plc Carbon credits - origination to commercialisation 9 Avoided deforestation • Deforestation is largest source of emissions in developing world – 2nd largest source globally after fossil-fuel use! • Tropical deforestation not covered by current climate regime (13 million ha per year) • Negotiations to include „Reducing Emissions from Deforestation and Degradation“ (REDD) in UN framework post-2012 © 2007 EcoSecurities plc Carbon credits - origination to commercialisation Avoided deforestation / REDD • Host country would receive compensation based on lowering deforestation emissions – Probably carbon credits • Crediting probably at national level – But projects are likely to play a key role © 2007 EcoSecurities plc Carbon credits - origination to commercialisation 10 How is REDD different from the CDM? • REDD is similar to reducing emissions from fossil fuels – reduces emissions (sources) by not converting or degrading forest – Ù creating sinks by sequestering carbon • Payment for REDD can start as soon as reductions have occurred – No need to wait for trees to grow • “Projects” probably mainly at national level • The market for REDD is likely to be much bigger – Potential market for REDD may be between US$ 2-31 billion (if average emission reductions from deforestation are between 10 - 50 % and carbon prices between US$ 7-20 /t CO2) – This is much higher than the US$ 1.5 billion currently available to forestry in developing countries through ODA © 2007 EcoSecurities plc Carbon credits - origination to commercialisation How is REDD different from the CDM? A/R CDM (sequestration) REDD (emission reduction) © 2007 EcoSecurities plc Carbon credits - origination to commercialisation 11 Avoided Deforestation (REDD) in the Asia-Pacific © 2007 EcoSecurities plc Carbon credits - origination to commercialisation Avoided deforestation in AP - Great opportunities …. • Could become huge market and funding source for forest conservation and management (US$ 2-31 billion annually) • Several of biggest potential winners are in the AP region – Indonesia, PNG, … • Several pilot initiatives & funds focus on the region • REDD is at top of agenda during Kyoto negotiations for post-2012, e.g. Bali in December • Great potential for co-benefits – e.g. biodiversity and sustainable development © 2007 EcoSecurities plc Carbon credits - origination to commercialisation 12 Avoided deforestation in AP …. but some challenges remain • Setting fair and realistic baselines for crediting – What about increasing forest cover? E.g. Vietnam, China • Governance challenge