Carbon Trading Overview | Emissions Trading | Kyoto Protocol

Howard Jeandenis

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The Speaker Kyoto, past and present Basics of Carbon Trading Geopolitical Factors and Impact Is carbon trading “green”? Outlook for the Industry Conclusion

BS in Economics-Finance, MBA in Global Business – Bentley U. Banking, Finance, commodities exp. Part of a team which established a U.S. Carbon trading desk Founded Green Competitive Advantage LLC

UNFCC creates Kyoto Protocol Why? Growing consensus that greenhouse gases were caused by human activity Sets binding targets for industrialized countries 181 Countries ratified this agreement

Commit to reduce 5% below 1990 levels

37 Industrialized countries commit (whom represent 64% of global emissions) First Kyoto Commitment Period, 2008 – 2012 (The United States did not ratify/commit)



Global Warming Potential 1

% of total emissions 77%

Carbon dioxide


Nitrous Oxide Sulfur Hexafluoride

N20 SF6

310 23,900

8% <1%

Fluorocarbon gases

HFC‟s & PFC‟s

150 to 11,700 (HCF23)


Greenhouse gases trap heat in atmosphere Atmospheric C02 content has risen from preindustrial to post-industrial drastically Unknown variables – future temp increases, atmospheric concentrations, local and international effects, damages and costs

We must do something about this!

Carbon emissions Trading
Clean development mechanism (CDM) Joint Implementation

Program to create projects in developing countries 3,500 Projects worldwide Annex 1 entity finances the project while the Non-annex performs the project

% of Projects

Asia Latin America

Africa East Europe

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Reforestation Waste Handling Alternative Energy Fugitive Emissions from Fuels Agricultural Processes Energy Efficiency Industrial (N20, and HFC)

Cap and Trade Emissions Allowances and Offsets EU ETS, Japan, Canada, Australia

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Identify Sectors Determine total emissions and sources Issue Allowances (offset provision) Companies abate, trade, or hold The cap is lowered in subsequent periods (making allowances scarcer and forcing reductions) Assess the results

Permit to emit one metric ton of CO2e A tradable environmental commodity Assigns an economic value to pollution Proposed solution to offset climate change?

Emitter Bank Trader

Comprehensive Cap and Trade Covers 27 Member States Cap was 2.2 bn tCO2/year (covers 46% emissions) Sectors – Power and Heat, refineries, metals, minerals, pulp and paper

Dependence on Legislation (compliance) Issues (additionality, over-allocation, etc..) Voluntary Market

Main drivers - weather, fuel prices, economic growth Policy and Regulation Issues The price of carbon must be sufficiently high to encourage companies to switch to clean technologies







$0.00 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 EUA Price


EUA Price

Liebermann Warner Bill AB 32 Law passes, Low carbon fuel standard Pre-compliance period anticipating a Law

Pre-compliance activity Regional greenhouse gas initiative Midwestern greenhouse gas accord Western Climate Initiative

Strong support by democratic candidates in 2008, but this slowed due to Senate opposition National Carbon Law never passed EPA

Source Electricity and Heat Industry and Transportation Forestry Waste Agriculture

% of total emissions 43% 29% 20% 2.5% 5.5%

Voluntary, 400 Members, cover 6 major ghgs Commit to 6% reductions by 2010 Price Trend – (highest) $7.50 - $0.10 (lowest) Due to inactivity and controversy Closed in July 2010, now defunct

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Cap and Trade starts in January 2012 North American participants (U.S. and Canada) Size is half of the EU-ETS (focus on California) Includes nat gas + liquid transportation fuels 1st comp. period – 700 million tons/year 2nd comp. period – 1.4 billion tons/year

Abate emissions internally Buy Surplus emissions allowances Buy CER‟s – offsets Pay high penalty for non-compliance

16 14 12 10 8 6 4 2 0

Emissions Cap Emissions Cap

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IPCC UNFCC Kyoto Protocol First Emissions trading Scheme U.S. Carbon Law rejected Kyoto Commitment Period

1988 1992 1997 2005 2008-2009 2008 - 2012

Emissions Levels – 1995 -2005 Emissions during first Kyoto Period Analysis of Causes: Recession, abatement through sustainability, new technologies..

C02 (ppm)
400 390 380 370 360 C02 (ppm)

340 330 1990 2000 2001 2003 2011

(US) Burning fossil fuels costs $120 Billion/year in health care for premature deaths caused by air pollution

Kyoto targets lead to average rises of 26% in electricity prices in Italy, UK, Germany, Spain


% of GDP

Absolute Euros










United Kingdom



Effectiveness of reductions require collaboration President Bush vs. the world Bali Action Plan and Roadmap Will developing countries (BRIC) emissions swamp global emissions efforts…?

High level talks in „06- „07 Called discussion of high emitting nations Meetings in Hawaii Jan „07, Paris Apr ‟07 End result – No agreement on concrete targets, focus was on cutting trade barriers to clean technologies

Inconvenient Truth – Gore Clinton Foundation – LEED Platinum International Green Superstar – Gore Clinton Global Initiative - Clinton

“Change we can believe in” Announced Energy, Climate change and Environment Plan One million advanced vehicles by 2015 Obama Announced that EPA would implement GHG reduction program in 2013

New Fuel economy standards causing on average $3,000 savings per consumer 1,000 miles of scenic rivers and millions of acres of wilderness preserved by Omnibus Public Lands Act

9 Billion investment in clean energy 1/3 reduction in Oil imports by 2025 Electricity from Clean sources increase from 40% to 80% by 2033

Coal States (Unless CCS) Oil and Gas (want their subsidies) Climate Change Deniers Proponents of other social causes

EU –committed, seeks action from others Canada – follows U.S., has a trading scheme, significant source of emissions (tar sands) U.S. – unwilling to ratify protocol but increasingly active, waiting on China

Japan- committed, however not excited about post Kyoto without U.S./China G77 – Developing countries are active but reluctant to compromise their growth BRIC (Brazil/Russia/India/China) – Very active but have their issues

Additionality is controversial

Results  Environmental impact of projects  Footprint of the participants Yes??/No????

The COP (Conference of Parties) announced long term collaboration on emissions reductions

NAMA‟s (nationally appropriate mitigation actions) REDD (Reductions emissions from deforestation and forest degradation)

UN Secretary Ban ki moon “A comprehensive legally binding agreement could be out of reach”

Xie Zhenhua (negotiator from China) was strategically coy Many parties were talking of delaying an agreement until 2020

Green Climate fund was discussed, this would provide support to developing countries GCF could be key as it attempts to mobilize 100 billion in funds by 2020 Hopes for continuation of Protocol are in doubt

Melting of Ice Glaciers and Ice Sheets in Greenland and Antarctica Low level coastal regions at risk – Vietnam, Bangladesh, Tuvalu, India, china, Vanuatu, Philippines, Indonesia

Sea Level Rise projected to increase from 20th century rate (15-20 centimeters/year) Warming Ocean, average global temp to rise about 4 degrees by 2100 Reduced Albedo leading to advanced solar radiation absorption

Ocean Acidification Marine ecosystems at risk - 1,000 of species need calcium carbonate Atmospheric CO2 concentrations need to stay less than 450ppm

Global Carbon Price is clouded in uncertainty “There is not enough investment” from Bankers, Traders Renewable Energy is becoming new focus Carbon Tax is an alternative

Post Kyoto Period is coming Investors are looking for strategies that drive revenues instead of adding costs to doing business Sustainability in the workplace…

Howard Jeandenis Green Competitive Advantage LLC

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