An Introduction to Carbon Markets

AN INTRODUCTION TO CARBON MARKETS

IATA & IETA WORKSHOP, NAIROBI

14-15 FEBRUARY 2017

WWW.CLIMATECARE.ORG CLIMATECARE

• Based in Nairobi, UK and India • Works with corporate and government partners to develop and implement their carbon management strategies • Develops carbon reduction projects, specialising in community energy access programmes that deliver sustainable development alongside emission reductions • IATA’s carbon offset partner for the IATA Voluntary Offset Program • Current Co-Chair of ICROA – the international voluntary carbon market industry alliance promoting best practices • Strategic Partners of Gold Standard for Global Goals WHAT IS A CARBON CREDIT?

A carbon credit is a tradeable instrument which represents either:

• A permit which gives the holder the right to emit one tonne of carbon dioxide or equivalent greenhouse gas (tCO2e) into the atmosphere

• A certificate from a project that represents the removal or avoidance of one 1 tCO2e from the atmosphere THE CARBON MARKETS

As well as 2 distinct carbon credit types (Permits and Project-based credits), there are 2 distinct types of carbon market.

Compliance Markets for carbon credits created by the need to comply with a regulatory act. In a Cap-and-Trade emissions reductions market, actors buy and sell carbon credits to comply with the cap or limit imposed on their emissions.

Voluntary Carbon market that functions outside of compliance markets. Enabling businesses, governments, NGOs, and individuals to voluntarily offset their emissions by purchasing carbon credits. THE DIFFERENT TYPES OF CARBON CREDITS

Market Compliance Voluntary

Credit Type Permits to Pollute Project- Based Emission Project-Based Reduction Credits Emission Reduction Credits Description A ‘certificate to pollute’ one A carbon credit of 1 tonne A carbon credit of 1 tonne of CO2e. Number generated from an tonne generated from issued corresponds to the emission reduction project an emission reduction emissions cap of the project trading scheme

Issued by National Certification body Independent Governments/Agencies recognised by the certification bodies Compliance Scheme e.g Verified Carbon e.g. UN Clean Development Standard (VCS), Gold Mechanism (CDM), Standard California Climate Action Reserve Examples European Union Allowance Certified Emission Verified Carbon Unit (EUA) Reduction (CER) (VCU), Gold Standard Verified Emission Reductions (GS VER) CARBON CREDITS FROM PROJECTS

CORSIA will require airlines to offset through project based credits – although the eligible types of projects, project locations and verification standards are still to be determined by ICAO

Common Project Technologies

Source: Ecosystem Marketplace CARBON CREDIT STANDARDS

Source: Ecosystem Marketplace CURRENT GLOBAL LANDSCAPE

Source: IBRD/World Bank 2016 MARKET HISTORY

Source: IBRD/World Bank 2016 FACTORS AFFECTING FUTURE SUPPLY AND DEMAND

ICAO’S FORECAST DEMAND

ICAO projections of the emissions to be offset (left) and the costs of CORSIA (right) FACTORS AFFECTING FUTURE SUPPLY AND DEMAND

KEY DECISIONS/ISSUES THAT WILL AFFECT SUPPLY FOR CORSIA

1. What type(s) of carbon credits will be eligible for CORSIA? a) Existing standards: UNFCCC or Voluntary Market credits? b) Will individual projects have to be accredited?

Figure2. What1: ICAO will projections be the role of of the project emissions-based to becarbon offset credits (left) and in thethe costs Paris of CORSIA Agreement? (right) a) All countries make reductions under Paris. Can project developers sell reductions to airlines? 3. Will project developers be able to unlock enough carbon finance to incentivise them to develop new projects or to operate existing projects? a) Developers have to see demand (and often actual contracts) in order to either develop their project or carry out “carbon asset development” 4. Will the aviation industry take a role pre-2026 to support the carbon market and ensure adequate supply? THANK YOU!

TOM MORTON Director E: [email protected]