Green Financing: Carbon Markets 2011 US-China Green Development Symposium

Green Financing: Carbon Markets2011 US-China Green Development Symposium

Bruce Usher

Executive-in-Residence

Co-Director, Social Enterprise Program

Columbia Business School, New York City

June 10, 2011

Columbia Business School

A negative externality occurs when a decision has costs to individuals or groups other than those making the decision. In other words, the decision-maker does not bear all of the costs from his or her own action. This will result in an outcome that is not socially optimal.

Climate Change: Defining the Problem

2

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Carbon Markets: The Kyoto Protocol (2001)

3

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Carbon Markets: The EU Emissions Trading System (2005)

(EUAs)

EU (-8%)

EU ETS

UK

Germanyh France Spain …

Utility A Utility B Utility C Utility D …

Columbia Business School 5

Carbon Markets: Linking the EU Emissions Trading System and the Kyoto Protocol (2005)

(EUAs)

EU (-8%)

EU ETS

UK

Germanyh France Spain …

Utility A Utility B Utility C Utility D …

Linking Directive

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Yes!

6

Carbon Markets: Success of the CDM

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Carbon Markets: Success of the EU ETS

Growth in trading Volumes EU ETS emission permits–Jan 2005 to Oct 2007

Source: Point Carbon

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Lessons Learned

from the CDM and EU ETS Carbon Markets?

8

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CDM Lesson #1: Markets change behavior

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CDM Lesson #2: Contract integrity is critical

Credit Buyer eg European Utility“Focal Point”

Renewable Energy Projecteg Chinese Wind Developer

System Administratoreg CDM Executive Board

Verifiereg Swiss auditor

$

Credits Project audit

Verification Report

10

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Yes!

Oh no…

11

CDM Lesson #3: Markets require stable, long-term policies

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CDM Lesson #4: Markets need to be efficient

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EU ETS Lesson #1: Long-term policies change investment patterns

13

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EU ETS Lesson #2: Linking markets increases liquidity

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What is the Future

of Carbon Markets?

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Future of Carbon Markets: EU ETS has long-term support

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Future of Carbon Markets: CDM has the Linking Directive

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Future of Carbon Markets: US has no support

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Future of Carbon Markets: Predictions

EU ETS will remain stable through 2020, with modestly increasing trading volume

Kyoto Protocol will not be extended past 2012, but CDM market will remain in place past 2012, with stable

to lower trading volumes US carbon market will not develop until after 2014 at

the earliest

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Green Financing: Carbon Markets2011 US-China Green Development Symposium

Bruce Usher

Executive-in-Residence

Co-Director, Social Enterprise Program

Columbia Business School, New York City

June 10, 2011