UNFCCC Secretariat

SDM programme

Market and policy developments

Agenda item 2.2 Paragraph 4 of the annotated agenda

CDM EB 90

Bonn, Germany, 18 – 22 July 2016

2

• To provide the Board with the most recent

information regarding market and policy

developments.

• No specific decision-making expected

Purpose

3

Key messages

Carbon pricing mechanisms continue to gain popularity

as key policy tools in climate change mitigation (set to

cover over 30% of global GHG emissions).

Carbon Pricing Leadership Coalition calling for 50%

coverage by

Flexible mechanisms:

• decreasing relevance of offseting in several

jurisdictions (focus on domestic measures; robust carbon

price is desired)

• Increasing competition:

• Other flexible mechanisms (jurisdiction-specific)

• Other means to mobilize the abatement potential (e.g.

direct carbon finance)

4

Key messages

• Many emerging needs for CDM-like instrument

• Mobilization of abatements in uncapped sectors

(demand: national / international / sectors / etc.)

• Evaluating impact of climate finance

• Increasingly clear that different uses of the CDM have

different needs of CDM building blocks and KP derived

rules:

• Need to focus on needs of emerging/prospective users

5

Kyoto compliance as source of CER demand:

exhausted

• UN offsets issued to date: ~2.4 billion

- 2.0 billion purchased for compliance

- 0.4 billion available = remaining CP1 demand

CDM: current market situation

• CP1 compliance: the CDM (with JI) achieved

its role

• CP2 compliance: enough supply (0.9 Gt)

expected

New pools of demand emerging:

small in proportion to supply potential

6

European CER Demand

EU ETS installations converted 22.66 million

CERs to EUAs for 2015 compliance (~100

million remaining in demand until 2020)

Norway’s CER demand for 2013-2020 is

estimated at 60 million (with 20 million still to

buy) but demand may increase due to rising

emissions

Switzerland confirmed that two-fifths of NDC

will be achieved through use of international

credits

Fuel importer offset obligation will allow

international credits post-2020

7

EU

2030 climate target unchanged:

At least 40% domestic cut (1990 basis) no use of international units

27% renewable energy;

27% energy efficiency

Going beyond the 40% target: supported by several EU

member states (Germany, Austria, Portugal & Luxembourg)

but opposed by others (Italy, Hungary, Czech Republic, Latvia

& Bulgaria)

EU ETS Forestry offsets considered (supported by Poland,

Finland and Ireland)

EU ETS Pricing Corridor: proposed by France currently

lacking broader support

8

North America

Ontario: Announced plans to introduce a

provincial cap-and-trade programme linked to

the California-Quebec market

Manitoba, Newfoundland and Labrador:

Announced carbon pricing proposals

EPA CPP: Clean Energy Incentive Program to

allow early action credits to supply mass-based

or rate-based carbon markets under the CPP

Oregon: Considering a market-based measure

for climate change including whether to join WCI

or RGGI

9

Latin America and the Caribbean

• Peru: Government informed that it will implement

carbon tax in the country, it now already in

development phase.

• Jamaica: exploring to introduce carbon tax with

the support from IMF in order to reduce the use

of fossil fuels, as country spends 9% of the GDP

with fossil fuel imports

• Chile: preparing to have a MRV system and

carbon tax in place. Expanding frontiers:

cooperation with Canada and Alianza del Pacifico

for sharing MRV and carbon markets

• Mexico: no further developments related carbon

tax or ETS since the last update

10

Africa

• South Africa released (for public

comments) on 20 June the draft rules

for governing the use of offsets under

its national carbon tax, which is

expected to be introduced still this year

• All sectors are to be covered, but

excludes HFC, N2O and renewable

energy projects

• It is to rely on the existing standards:

CDM, VCS and Gold Standard, but

provides a scope to use local standard

11

Asia

Chinese National ETS:

• Expected to start in 2017 by merging 7

pilot ETSs with detailed transition plan

• Reporting of GHG historical data 2013-

2015 for the covered sectors

companies with high energy

consumption to be listed as potential

candidates for inclusion in national ETS

• Growth of CCER scheme:

500 projects registered, 27Mt issued

Price: USD2-5/tCO2e (depending on pilot ETSs)

Quantitative limits on usage: 5-10% (depending on pilot ETSs)

12

Asia

JCM

• Signed with 16 countries, 13 projects registered

• Expected to issue 100 MtCO2e by 2030 to scale

up ambition

• First issuance of JCM credits in May 2016 (40

tCO2e – 31 from Japan and 9 from Indonesia)

Draft Climate Action Plan

• Committed to 80% reduction by 2050 (not

specify base year)

• Aims to limit coal’s share of power generation to

26% while 40 new coal-fired plants planned

• Careful consideration of ETS

13

Asia

KETS

• Completed initial year of operation:

Most emitters achieved compliance despite

its comparatively high unit price (USD15)

At least 11.8 million CERs cancelled and

converted

• Changes made:

Doubled the amount of borrowing allowances

2020 target replaced by 2030 NDC target in

Green Growth Act

• Potential additional changes:

Use of international offset units to alleviate

future shortages and rising price of KAUs

increase CERs demand (20-25Mt per year)

14

Asia

Thailand

• Exploring to introduce ETS with PMR’s support

to achieve its NDC pledge (20% below BAU in

2030 = 111MtCO2e)

• ETS to be launched in earliest 2020

Vietnam

• Exploring to introduce ETS for steel sector with

PMR’s support to achieve its NDC pledge (8%

below BAU in 2030 = 55MtCO2e)

• Plans to introduce NAMAs in the steel and

waste sectors from 2018

• ETS to be launched in earliest 2020

15

Pacific

• Australia: Both sides of politics are proposing

markets-based approaches for addressing

climate change with future access to

international credits

• Expected demand ~20 million per year

• New Zealand: New rules will require 1-to-1

surrender for ETS (previously 1 units for every

2 emissions) but restricted to domestic units

that are currently over-supplied

16

Other developments

International aviation: Represents 1.3% of global

emissions and expected to increase 300% by 2050

• A basket of measures to achieve CNG2020:

17

Other developments

• Expected post-2020 offset demand from GMBM

18

Other developments

• High-level meeting on GMBM (11-13 May):

Negotiated draft Assembly resolution text on

GMBM

• Relevant outcome:

GMBM as Carbon Offsetting Scheme for

International Aviation (COSIA)

Phased implementation of the COSIA

Adoption of emissions unit criteria by 2018

CDM and Art 6 mechanism as recommended

offsetting programmes under COSIA

Further development of aviation-related

methodologies

19

Other developments

• Represents 3% of global emissions and

expected to increase by 50-250% by 2050

• 69th Marine Environmental Protection

Committee (MEPC) (April 2016)

International Chamber of Shipping (ICS)

proposed “Intended IMO Determined

Contributions” for international shipping

Agreed to forward to the 70th MEPC in

October 2016 the proposal to set sector-

wide emissions target

Agreed on mandatory system for

collecting ships’ fuel consumption data as

the first step

20

Climate finance

• GCF has approved US$ 257million to

fund 9 projects (5 adaptation, 2

mitigation and 2 cross-cutting)

• 1 of the 9 is a CDM project, a solar

plant in Chile

• Three countries received funding from

PMR to set up MRV systems: Peru

(US$ 3M); Jordan (US$ 3M); Sri Lanka

(US$ 350,000)