Building a global carbon market

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Building a global carbon market

• The European Unions vision
• Artur Runge-Metzger
• Head of International Climate Negotiations,
  European Commission
• In-session workshop on means to reach emission
  reduction targets,
• AWG 5.1, Bangkok, 1-3 April 2008

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The EUs global vision 2 degrees objective
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Mitigation by industrialised countries

• Common but differentiated responsibility take
  the lead and make most of the effort
• EU commitments
• 20 unilaterally by 2020
• 30 in context global deal
• 60-80 by 2050
• Carbon market as a key tool
• Binding and effective rules for monitoring and
  enforcing commitments

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Mitigation in developing countries

• Reaching development objectives will be
  imperative mitigation and adaptation
• Reduce growth of emissions asap, and absolute
  reductions after 2020

• Toolbox
• No commitments for least developed countries
• Sustainable development policies
• Enhanced CDM
• Performance-based funding
• Sectoral approaches
• Quantified emission limits

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Building a global carbon market

• The carbon market cost-effective and flexible
  mitigation tool and source of finance for low-GHG
  technology development
• EUs aim progressive development towards global
  carbon market
• Countries take part according to different
  responsibilities and capabilities
• Backed by ambitious mitigation commitments in
  line with 2 degree objective
• Build on existing mechanisms, link schemes and
  develop new mechanisms

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The role of the carbon market (I) 27 Gt CO2e
emission reduction potential below 40/ton CO2
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The role of the carbon market (II) No. 1 6-7
Gt CO2e Harvest all low hanging fruits by 2020

• Each Parties opportunity responsibility mainly
  in household, buildings, transport
• Exchange good practice in policy design e.g.
• Abandon energy subsidies (fossil fuels 130
  billion p.a.)
• Domestic company-based emissions trading
• Set energy efficiency standards, building codes,
  labelling schemes, 1-Watt-Initiative
• Ban the bulb CFL, LED
• Progressive taxation
• Address potential cash flow issues, e.g. targeted
  loan schemes (e.g. refurbishment of existing
  power plants)

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The role of the carbon market (III) No. 2 10
12 Gt CO2e carbon market will be the main
driver

• Domestic emissions trading schemes to set carbon
  price for private sector.
• Less developed countries strengthened CDM to
  drive technology transfer and economic
  transformation
• Complementary approaches needed to address
  sectors not covered by the carbon market, other
  barriers and possibly to scale up finance
• Advanced developing countries move beyond
  offsetting, new mechanisms to incentivise
  increased mitigation contributions
• Carefully watch demand and supply!

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The role of the carbon market (IV) No. 3 10
12 Gt CO2e promote high-end options

• Promote co-operation for research and technology
  development (e.g. joint ventures, PPP)
• Subsidies for demonstration, e.g. NZEC
• Direct subsidies for deployment of clean
  technologies, e.g. GEEREF, export credits, PPP,
  concessional IFI loans
• Reduce tariffs for advanced GHG-efficient
  products and services
• Promote regulatory approaches gaining energy
  security/clean air benefits e.g. mandatory
  standards (cars, appliances), fuel taxes,
  portfolio standards (e.g. renewable energy, CCS)

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Clean Development Mechanism (I)

• CDM has delivered real and measurable benefits
  and generated a multi-billion dollar market (28
  billion in 2007)

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Continuity for the CDM post-2012

• EU Commission proposal would allow 2.63 Gt (1.4
  Gt in the EU ETS, 1.23 Gt MS use) of CERs to be
  used until 2020 independent of an international
  agreement
• Includes ongoing projects registered before 2012
  and projects established post-2012 in LDCs
• EU first to provide certainty for CER use
  post-2012 no one else does so far!
• About one third of the necessary reduction effort
  towards 20 target from CDM/JI - other two thirds
  ensure real emission reductions in Europe
• Unlimited access to CDM/JI under the 20 target
  would lead to drop in CER price to 4 and
  increase of EU domestic emissions to about 4
  above 1990 contradicts EU objectives of climate
  policy leadership and energy security.
• Substantial increase as part of Copenhagen
  agreement EU Commission proposal would allow
  half of the additional effort (1.2 Gt extra
  totalling 70bn of transfers, i.e. 6bn
  annually) to be met by CDM/JI or new mechanisms.

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Clean Development Mechanism (II)

• Reform of CDM for post-2012 needs to address the
  following concerns
• strengthen environmental integrity ensure real
  and additional emission reductions (key to
  offsetting mechanism)
• address possible perverse incentives resulting
  from (low-cost) CDM
• review current institutional set-up and
  procedures (Article 9)
• Strengthen CDMs contribution to technology
  transfer and economic transformation in less
  developed regions
• Need to move beyond offsetting for advanced
  developing countries will be key for post-2012
  explore new approaches, e.g. baseline/credit,
  sectoral approaches

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CDM some proposals

• More executive and supervisory role of EB,
  including delegation of decision-making and
  strengthened professional support staff
• Revision of CDM decision-making procedures,
  including strengthening the basis and
  transparency of decision-making
• Assessment of roles and responsibilities of DOEs
• Increased use of technology benchmarks for
  baseline setting and additionality testing
• Dialogue with host countries on how to strengthen
  contribution to SD and tech transfer
• More differentiated approach to CDM will help
  improve regional distribution

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Joint Implementation

• JI has delivered benefits, but not yet realised
  its full potential
• Role for JI post-2012 stimulating international
  collaboration and channeling investment and
  technology towards certain mitigation
  opportunities and sectors, which otherwise lack
  access to the global carbon market
• JI allows for institutional learning about
  market-based approaches and a transitional step
  before wider application of cap-and-trade
• Need to discuss JI post-2012 and explore new
  concepts
• May need to continue with a two-track approach
  with internationally supervised procedure (track
  2) for countries that still lack institutional
  and legislative framework for JI track 1
• Explore synergies and parallels with revision of
  CDM for track 2 procedure, e.g. on simplifying
  and streamlining institutional set-up and
  procedures and strengthening environmental
  integrity
• Explore new concepts such as programmatic JI

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Shared vision of a low-carbon future Annex I
Offsetting is not enough
IPCC 2007, WGIII, ch. 13

• How can the carbon market build on measurable,
  reportable and verifiable mitigation action by
  developing countries?
• What means of support are needed in addition to
  the carbon market?
• In which way can the carbon market most
  effectively contribute to sustainable development
  and technology transfer? What is needed in which
  countries and which sectors?

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Need to explore new mechanisms to incentivise
enhanced mitigation e.g. no-lose sectoral
crediting mechanism
Source Ecofys
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Conclusions

• Significant role of the carbon market already
  today should be strenghtened post-2012. An
  environmentally more effective CDM should
  continue to play a role
• Offsetting is not enough carbon market offers
  promising potential if we succeed in developing
  new tools that build on differentiated
  contributions by developing countries
• Carbon market is part of the solution but not a
  panacea needs to be combined with other tools
  to further technology cooperation, financial
  flows and investment

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Thank you!