WR Carbon Credit Market Report

8/13/2019 WR Carbon Credit Market Report

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Carbon Credit Industry ReportBy Willow R ivers Wealth


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Introduction

e carbon industry is expected to be one of the worlds biggest traded commoditiesin the next 10 -20 years, if not the biggest and the carbon boom, or dot.com equiva-lent is still to come. e US announced its intention in early 2009 to join the carbonrace and has already drafted a bill that will have far reaching global effects.

When and if the US comes online (hopefully at some stage in the next 3-5 years) itwill instantly become the worlds largest carbon market.ose who get in early willbe able to reap the rewards over the coming years.

In order to preserve a high probability of keeping global temperature increase be-low 2 degrees centigrade, current climate science suggests that atmospheric CO2concentrations need to peak below 450ppm. We are currently at 395ppm and risingfaster than at any time in the past 400,000 years, at a rate of 2ppm each year.

is requires global emissions to peak in the next decade and decline to roughly 80%below 1990 levels by the year 2050 (Baer and Mastrandrea, 2006). Such dramaticemissions reductions require a sharp move away from fossil fuel, significant improve-ments in energy efficiency and substantial reorganisation of our current economicsystem. e transition to carbon offsetting is an increasingly popular means of takingaction. By paying someone else to reduce GHG emissions, the purchaser of a carbonoffset aims to compensate for or offset their own emissions.

Individuals seek to offset their travel emissions and companies claim climate neu-trality by buying large quantities of carbon offsets to neutralize their carbon

footprint or that of their products.e concept of carbon credits was initiated at theKyoto Protocol of 1997. is placed a monetary value on the cost of polluting the airand therefore a price on preventing pollution or removing the pollution from the air.ese credits are an intrinsic component of preserving the environment by reducinggreenhouse emissions and fighting climate change.


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| III

Table of Content

Carbon Markets . . . . . . . 1

Understanding Carbon Credits . 2

Market growth s . . . . . . . 3How To Get Carbon Credit . . 4

How Are Carbon Credits Sold . 5

Credit Standards . . . . . . . 6

Why Use e CCBA . . . . . 7

e Future . . . . . . . . . 8


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iv |


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Section 1: Carbon Markets

Carbon offset markets have been promoted as animportant part of the solution to the climate crisisbecause of their economic and environmental ef-ficiency, they key aims are to:

additional, permanent, and verifiable greenhousegas (GHG) reductions, while limiting unintendednegative consequences.

ficient way.

project hosts.

participation by new actors sectors and groups.

tive and comprehensive national and internationalsolutions.

broader climate protection actions and policies.

measures.

A recent New York Times article described carbontrading as one of the:

fastest-growing specialties infinancial services

and companies are scrambling to get

a slice of a market now worth about $30 billion and

that could grow to $1 trillion within a decade.e article, entitled,

In Londons Financial World, Carbon Trading isthe New Biging, continues:

Carbon will be the worlds biggest commodity mar-

ket, and it could become the worlds biggest marketover all,.


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2 | Carbon Credit Industry Report

Section 2: Understanding Carbon Credits

Carbon Markets do not trade in the same way oilor copper does. What changes hands is the rightto emit a certain volume of CO2, the intention isto put a price on emissions which up until nowhave been cost free.e second is to allow trades inpermits to encourage those that can cut emissionsare incentivized to do so.

the worlds first large-scale emissions trading pro- in 2005, covering around 12,000 installations in 25countries and 6 industrial sectors.

Shortly after in 2006 the Voluntary Carbon Marketcame into existence.is quickly tripled in size in2007 total transactions now reach a volume of 65million tons of carbon dioxide equivalent (Mt-CO2e) with a market value of $331 million.isgrowth has been driven primarily by demand fromcompanies, organisations and individuals wishing tooffset their direct and indirect emissions of green-

house gases (GHG).

e chart below demonstrates the difference inOffset Trading Volumes in the Kyoto and in theVoluntary Markets (Source: Capoor, 2007; Hamil-ton 2007)


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CARBON CREDIT INDUSTRY REPORT | 3

Section 3: Market Growth

e carbon markets are growing rapidly. Withmore than 20 billion traded in 2006 (Capoor& Ambrosi, 2007), e overall carbon marketcontinued to grow in 2008, reaching a total valuetransacted of about $126 billion USD (86 billion)at the end of the year, doubling its 2007 value.

Approximately $92 billion USD (63 billion) ofthis overall value is accounted for by transactions of management, arbitrage, raising cash and profit-taking purposes. e second largest segment of thecarbon market was the secondary market for certi-fied carbon markets which is already a substantial

economic force and will likely grow considerablyover the coming years.

Supply and Demand

volume of voluntary carbon transactionswill rise from 65 MtCO2e today to 560MtCO2e by 2012;

casts a more restrained but still substantialexpansion of the market to 220 MtCO2,also by 2012.

penhagen in December should new policies put further financial penalties on

global emitters including the emergingmarkets of China and India.


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Section 4: How do projects get carbon credits?

it wind, solar, reforestation, or any other carbonemissions reduction strategy has to go through astrict and rigorous third party validation and cer-tification to make sure the project can justify andquantify the amount if CO2 it intends to reduce.

Project Design

monitoring methodology,

the project design document (PDD).

Project Concept

project is conducted to assess the technical

feasibility,

and operational costs, expected returns,

Based on the results of the feasibility study, theproject owner wil l decide whether or not to con-tinue development of the potential CDM project.

Methodology

that a project developer needs to followto establish a project baseline and tocalculate emission reductions and to monitor the parameters used to estimate actualemission reductions.

specific project type, a project developercan submit a new methodology for approval to the CDM Methodology Panel.

Project Design Document (PDD)

describes the CDM project activity indetail and forms the basis for all futureplanning and administrative procedures.

technology and explains the methodologyused to define the baseline scenario, toconfirm additionality and to calculate

emission reductions.

toring of all relevant technical parametersincluding, how monitoring procedureswill be established, how measurementswill be made, quality will be controlled, and records will be stored and ac

cessed.

of emission reductions achieved by theproject.

contributes to sustainable development.


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CARBON CREDIT INDUSTRY REPORT | 5

e CDM Project Cycle WWF 2008


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Section 5: How Are Carbon Credits Sold

ere are many companies that sell carbon creditsto commercial and individual customers who areinterested in lowering their carbon footprint on avoluntary basis.

ese carbon offsetters purchase the credits from aninvestment fund or a carbon development companysuch as Carbon Impactsor e Carbon Advisorywho have aggregated the credits from individualprojects.

e quality of the credits is based in part on thevalidation process and sophistication of the fund ordevelopment company that acted as the sponsor tothe carbon project.is is reflected in their price.

Retirement: a VERs life goalA carbon credit in the voluntary market does notfulfill its lifes goal of offsetting another GHGemission until it is retired by a supplier or finalbuyer. When an entity purchases carbon credits tooffset GHG emissions, the carbon credit is thenretired and cannot be sold again. More and more,these retired offsets are being stored in retirement

registries.e tracking of retired credits is impor-tant because it represents the impact of the marketfrom an atmospheric perspective and the funda-mental demand behind the market.e number oftimes a credit was transacted before

retirement, was around 3.9 in 2007, now only 25%

Documents

WR Carbon Credit Market Report