Global GHG Market Update

Global GHG Market Update

Daniele ViolettiTeam Leader

Registration and Issuance UnitSustainable Development Mechanisms Programme

UNFCCC

Carbon Forum America 2008

February 26 - 27, 2008San Francisco

Global GHG Market Update|

• Structure of the global GHG market

• Recent developments and trends

• Overview of the CDM market

• Price drivers: the CER case

CONTENTS:


Structure of the global GHG carbon market

Global GHG market

VoluntaryMarkets

Compliance Markets

KyotoKyotoMarketsMarkets

New South WalesGHG Abatement

SchemeEU ETS

ChicagoClimate

Exchange

UKETS

CDM ->CERs

JI ->ERUs

AAUs + RMUs EUAs VERsNGACs CCLAs

International Emissions Trading Scheme


Recent Developments and Trends

Annual Volumes and Values of Transactions on the Main Allowances Markets

Source: State and Trends of the Carbon Market 2007, World Bank, IETA.

EU ETS still the largest allowance-based GHG market in terms of number of participants and trading activity.



Annual Volumes and Values of Transactions on the Project Based Markets

Source: State and Trends of the Carbon Market 2007, World Bank, IETA.

• CDM experienced a strong growth throughout 2007.

• JI entering the stage this year.



• International Emissions Trading (IET) poised to become the predominant segment once all national registries are connected to the ITL.

• So far three national registries are fully connected (Japan, Switzerland and New Zealand).

• National and regional initiatives striving in most of the developed world and are expected to accept “Kyoto units” to certain extent.



• National and regional initiatives to establish domestic GHG markets are well underway in different countries/states:– Australia: New South Wales GHG Abatement

Scheme– Norway: emissions trading system– Japan: Keidanren Voluntary Action Plan– New Zealand: NZ Emissions Trading Scheme– US North-eastern states: Regional Greenhouse

Gas Initiative (RGGI)– US: Chicago Climate Exchange



• Voluntary GHG market has also seen strong performance based on:– National/regional/domestic initiatives– Corporate social responsibility (CSR) issues

• Most analyst remain optimistic about the growth potential for this sector.

• CDM units (CERs) have been used for voluntary offsetting purposes, which provides more depth to this market segment.


Overview of the CDM market

945 registered CDM projects1.17 billion CERs expected from existing registered projects to the end of 2012

(assumption: no extension of crediting periods)

To date: > 2,900 projects (including registered projects)> 2.6 billion CERs expected to the end of 2012

In pipeline:

Map and statistics accessible at http://cdm.unfccc.int/

Figures as of February 20, 2008.



• CDM the largest CO2 project based offset system in the world

– 945 registered projects by mid February 2008– approx. additional 2000 projects in pipeline– 49 countries– 118,775,101 CERs issued (certified emission reductions)– 2.6 billion CERs expected to end of 2012

• The mechanism has a legal basis in the Kyoto Protocol– Run by Executive Board (EB) answerable to KP Parties– EB back-stopped by UNFCCC secretariat with support for:

• Registration and issuance• Accreditation of third-party validators• Methodologies for emissions baseline setting and monitoring



0

114 100 39

471530

183

750940

685

1,600

1,900

909

2,800

2,600

0

500

1000

1500

2000

2500

3000

May 2005 (SB22) December 2005(COP/MOP1)

May-06 May-07 Feb-08

Registered project activities Projects in the pipeline Projected CERs

No

. o

f P

roje

cts

/

CE

Rs

be

fore

20

12

(m

illio

ns

)



• CDM projects that entered pipeline in 2006 expected to result in USD 25 billion in capital investment

(almost double the USD 14 billion in total investment leveraged through GEF in the climate change area since it started)

• CDM renewable energy and energy efficiency projects registered in 2006 expected to result inUSD 5.7 billion in capital investment

(about triple the ODA support for energy policy and renewable energy projects in the same countries. Almost as much as private investment in renewable energy and energy efficiency (USD 6.5 billion in 2006) in the same countries)

Condensed from the report of the CDM Executive Board to the COP/MOP 2007 <http://unfccc.int/resource/docs/2007/cmp3/eng/03p01.pdf>, page 4.


* Assumption: All activities deliver simultaneously their expected annual average emission reductions

** Assumption: No renewal of crediting periods









Price drivers – Evolution of the CER Price (secondary market, in EUR)

0

2

4

6

8

10

12

14

16

18

20M

ar-0

7

Mar

-07

Apr

-07

Apr

-07

May

-07

May

-07

Jun-

07

Jun-

07

Jun-

07

Jul-0

7

Jul-0

7

Aug

-07

Aug

-07

Sep

-07

Sep

-07

Oct

-07

Oct

-07

Nov

-07

Nov

-07

Nov

-07

Dec

-07

Dec

-07

Jan-

08

Jan-

08

Feb

-08

Source: Reuters – TFS Energy


Price drivers

• The Secretariat observes a strong confidence on the CDM across the carbon market.

• CERs have consolidated as a reliable carbon asset class.

• Price of CERs still heavily indexed to the EU ETS through the linking directive, though further demand from Japan has introduced more volatility.

• Increasing interest in CERs for voluntary offsetting purposes may constitute another price driver in the future.

• Primary and secondary CDM markets have gained more depth by the launch of auction services offered by different carbon exchanges.


THANK YOU!!!

Registration and Issuance Unit

Sustainable Development Mechanisms

UNFCCC

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