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Market Mechanisms to support INDCs in the context of the future climate accord
Thirty-seventh meeting of the Joint Implementation Supervisory Committee
Date: 29 September 2015
Philipp Hauser
Co-Chair Project Developer Forum
29 September 2015 2
Agenda
Energy, human development and GHG emissions
Global principles for closing the mitigation gap
Smart policy combination to promote transformational
change
Flexible mechanisms for domestic GHG abatement and
global cooperation
Conclusions
29 September 2015 3
Global climate policy failed by (m)any means
Source: IPCC 5th assessment report – WG III
+ 1,3% p.a.
1970-2000
+ 2,2% p.a.
2000-2010
+5%
29 September 2015 4
Countries have huge differences in development needs
Source: UNDP and World Bank Data Bank (2011)
Australia
Brazil
Chile China
Colombia
Costa Rica
Denmark
Finland
Germany
India Indonesia
Japan
Jordan
Kazakhstan
Mexico
Morocco
Netherlands
Norway
Peru
South Africa Spain
Sweden
Switzerland
Thailand
Tunisia
Turkey
Ukraine United Kingdom
United States
Vietnam
400
4,000
40,000
0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00
Po
wer
co
nsu
mp
tio
n (
kW
h p
er
cap
ita)
on
lo
g s
cale
Human Development Index (HDI) Size of bubbles ~ GDP/capita
Capita specific Power Consumption, GDP & HDI on log scale
29 September 2015 5
The uneven challenge to meet 2˚C
What do we need to bridge the gap?
Energy causes 66% of global emissions & non-OECD account for 100% of growth;
The current policy scenario will lead to a temperature rise > 6oC scenario;
Cancun pledges, if fully implemented, translate into a 3.5oC scenario;
The 450 (ppm) scenario requires additional investments of $11.6 trillion;
Most of the reductions and capital expenditures are required in non-OECD
countries as they account for 90% of population and energy demand growth.
Source: IEA 2011 World Energy Outlook.
29 September 2015 6
In a policy driven scenario to achieve 450 ppm, carbon prices in:
• OECD will converge to $120/t in 2035;
• BRICS is to rise from $10/t in ‘20 to $95/t in ‘35.
Cost is time dependent and increasing: Each US$ investment delay will cost
4.5 US$ investment in 2020.
Though no direct link between markets expected before 2035, all systems
will have access to credits (indirect linking), leading to price convergence
If all countries begin immediate mitigation, establish a single global
carbon price and use of all technologies, economic costs will be limited to
0,06% reduction in annual consumption growth until 2100 (IPCC 5th AR WG III)
“If we do not change course, by 2017, 100% of the permissible
energy sector emissions will be locked in.
Maria van der Hoeven - Executive Director IEA
GDF SUEZ ENERGY INTERNATIONAL – Climate Change & Investment – 15/11/2013
The challenge ahead according to the WEO 2011
29 September 2015 7
Energy Security & unconstrained economic growth
Minimum ST-Cost
Social & Environmental
Costs & Benefits
Importance of a global carbon market
– OECD perspective:
Mitigation requires gradual reform
of infrastructure
Mitigation costs to be contained by
substituting depreciated assets
with new technologies
Mitigation potential is insufficient
when compared to emission growth
of non OECD countries
OECD needs time for smooth
transition and asset rotation
Non OECD needs immediate
incentives for clean growth
Perspective and objectives of emerging countries:
29 September 2015 8
Perspective and objectives of emerging countries:
Energy Security & unconstrained economic growth
Minimum LT - Cost
Global Climate Compliance
Social & Environmental
Costs & Benefits
Importance of a global carbon market
– OECD perspective:
Mitigation requires gradual reform
of infrastructure
Mitigation costs to be contained by
substituting depreciated assets
with new technologies
Mitigation potential is insufficient
when compared to emission growth
of non OECD countries
OECD needs time for smooth
transition and asset rotation
Non OECD needs immediate
incentives for clean growth
Carbon
Markets
29 September 2015 9
Different regulations co-exist and
have to be made compatible to
ensure economic efficiency.
Where an ETS applies, the policy
overlap will determine the explicit
price level.
Smart regulation and good
enabling environments will lower
the cost of mitigation
Fossil fuel incentives cause
distortion and increase in price
level.
Carbon Price regulation in reality: A combination of policies
Regulatory
framework
Taxes &
Incentives
Carbon
Price
29 September 2015 10
How to use existing tools & minimize cost
CTCN and bilateral organizations are available
to support host countries on request
According to economic theory each market failure
requires a specific instrument.
CDM & JI are globally coherent steps to build
an international carbon market.
Development Banks & Green Climate Fund can
bridge financial barriers.
NAMA policies with international support need
to improve clean investment environment
Pricing external costs &
benefits
Inefficient Capital Markets
Lack of enabling environment
Sound MRV for GHG emissions and emission
reductions ensure global comparability
Quantify external cost and
benefits
Lack of access to technology
and organizational knowledge
29 September 2015 11
Focus on clean expansion and efficiency of existing infrastructure.
Major share of GHG mitigation is related to avoided emission growth.
How to measure avoided emission growth?
Early action avoids building-up of future GHG liabilities, requires
financing of large capital requirements.
Developing countries offer great opportunities for cost effective GHG
mitigation, investments and technology transfers.
Developed countries cannot be expected to finance all GHG mitigation that is
available and needed in developing countries
Domestic Carbon Tax or Cap & Trade can generate demand for domestic
credits, set minimum price for investors and satisfy demand for net mitigation.
CDM is regulated by DNA and UNFCCC recognition suggests fungibility.
JI offers the concept of generating emission credits in capped environments
Conservativeness of CDM ensures that crediting is reflected on Inventories.
GHG mitigation in developing countries Principles and concepts
29 September 2015 12
ETS for operational efficiency in
existing assets
Domestic CDM to finance clean
expansion
Existing assets such as fixed sources or
transport subject to tradable Cap or Tax
Crediting clean infrastructure outside of
existing installations attracts investments
Non abatable emissions
can be managed &
compensated
Complementary performance
based mechanism
orients best mitigation
BENEFITS
• Mitigate impact on energy cost and inflation and protect consumers.
• Promote early action as investors will anticipate and balance their portfolio
• Ensure (Inter)-national recognition of early action and MRV of results
• Attracts investments and promotes economic expansion
• Promote indirect linking to attract international carbon finance
CDM/JI as domestic offset mechanism Economic Benefits
CER
$
29 September 2015 13
Atlantis Accounting 2030
1990 emissions 100 MT
Target: 50 MT
Inventory 2030 70 MT
Domestic CERs -2 MT
Domestic use CERs +2 MT
CER+ purchase -20 MT
Balance 0
Shire Accounting 2030
Baseline “150” MT
INDC Target: 120 MT
Inventory 2030 100 MT
Mitigation w,o. MRV “-10” MT
CER -40 MT
Domestic use CER +20 MT
CER+ Sale +20 MT
Balance 0
Illustrating indirect linking in post 2020 regime CDM/JI can link domestic and international demand
2030
100%
50%
70%
2030
-25%
-40%
CER/$
29 September 2015 14
Problem: Capital Intensity and long term maturity of clean infrastructure is the
biggest barrier to green growth and a risk to our climate.
Urgency: Early action needed to avoid fossil fuel lock-in.
Solution: Transformational change now, requires global cooperation and use of
existing mechanisms to address all market failures at once.
Role of JI/CDM : Offer comparable & solid MRV & flexible mechanism,
i) in support of national policies (NAMA, etc.)
ii) in complement to Carbon Financing (RBF)
iii) for domestic offsetting and indirect linking between countries to ensure
transformational investments and a move towards an incrementally global
carbon market.
Important CDM reforms and elements of the Paris accord:
1) Recognize KP mechanisms & results under the future climate agreement.
2) Open access to & promote early action by all parties, IMO & ICAO.
3) Reduce costs & bureaucracy to attract use by developing countries.
4) Establish due tracking and accounting of units.
5) Due crediting and debiting on the basis of national inventories.
Conclusions and suggestions for discussion
29 September 2015 15
A global vision to orient domestic action Building a global carbon markets from bottom up action
RGGI
29 September 2015 16
Thank you for attention
Project Developer Forum (PD Forum) is a collective voice of
companies and practitioners that are developing and financing
greenhouse gas emission reduction projects in all regions of our
globe.
Our knowledge and experience with global carbon market, climate
finance instruments, country specific policies and NAMAs, make PD
Forum a unique platform and stakeholder for discussions around
the reform and creation of policies and mechanisms to mitigate
climate change
See our members at: www.pd-forum.net
Philipp Hauser
Tel +55 21 3974 5443
GDF SUEZ Energy Latin America
