Overview of Carbon Markets

SIO Fall 2007 Environmental Science and Policy Forum

Mitigation and Adaption in a High CO2 World

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Melanie McCutchan MPIA Candidate 2009 UCSD IR/PS

October 23, 2007

OutlineCarbon Markets• Regulatory• Voluntary

EU ETS and Lessons LearnedMarket Prices for Carbon

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Carbon MarketsRegulation Based

Existing• Clean Development Mechanism (Kyoto)• European Union Emission Trading Scheme (EU

ETS)• Australian Carbon Trading Scheme• United Kingdom ETS

Under Development• California - Global Warming Solutions Act• NE States - Regional Greenhouse Gas Initiative

Under Debate• “Cap & Trade” Bill in Senate

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Carbon Markets

Voluntary Emission Reduction Markets

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Keidanren Voluntary Action Plan

Over the Counter (OTC) Market

Chicago Climate Exchange

Market Growth

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Source: World Bank. State and Trends of the Carbon Market 2007. p. 3

EU ETS Linked to Kyoto Protocol

Developed Nation (Annex 1) Targets• GHG Emissions to 1990 levels by 2000• 5% reduction by 2008-2012

Kyoto Expires 2012New negotiations now under way in Bali

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European Union Emission Trading Scheme (EU ETS)

Trading began 2005 Covers:• Electric Power and Major Industrial Sectors

• 45% of EU C02e emissions

Allowances with some AuctioningPhase I 5% Phase II 10%

National Allocation Plans

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Source: Parliament of the United Kingdom at http://www.publications.parliament.uk/pa/cm200607/cmselect/cmenvaud/70/7004.htm10/18/2007

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Source: World Bank. State and Trends of the Carbon Market 2007. p. 12

Effects of the EU ETS Market

• Some reduction 1-4% of EU’s 2005 Emissions(Ellerman and Buchner 2006)

• Price signal resulted in internal abatement(Point Carbon 2007)

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Lessons from the EU ETS Market

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Challenges

Allocating allowances• Technical• Political

Creating an appropriately constrained market

Price of CarbonPhase II EU ETS Market $20-$25/tCO2e

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Sources: For EU ETS Phase II Price: World Bank. State and Trends of the Carbon Market 2007. p. 3For CCX Auction: CCX Press Release at http://www.chicagoclimatex.com/market/pdf/CER_Auction_Results_2007.pdf

Chicago Climate Exchange Auction

Carbon Credits from Wind Farm in

India $22/tCO2

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$8.70/metric ton .8 metric tons

The Future Price of Carbon

Depends on a number of unknowns:– New International Agreements–Market Rules

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Links Carbon Markets:

European Union Emission Trading Scheme

ec.europa.eu/environment/climat/emission.htm

Chicago Climate Exchange

www.chicagoclimateexchange.com

Keidanren Voluntary Action Plan

www.keidanren.or.jp/index.html

Further Reading:

World Bank: “State and Trends of the World Carbon Markets 2007”

carbonfinance.org/docs/Carbon_Trends_2007-_FINAL_-_May_2.pdf

"Business is getting down to cutting carbon, but needs more

incentives to make much difference to climate change"

www.economist.com/specialreports/displayStory.cfm?story_id=9217992 

“Recommendations for a Greenhouse Gas Cap and Trade System for

California” (page 4-6 executive summary)

www.climatechange.ca.gov/documents/2007-06•  

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