the cdm: a review of its development and status of the carbon markets dr. oscar coto
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The CDM: a review of its development and status of the
carbon markets
Dr. Oscar Coto
II National CDM Workshop
Belize
August 2011
Topics
1. Responses to climate change and the CDM
2. Current trends in the CDM
3. Status of the carbon markets and expectations
Source: CC Sinthesys Report IPCC (2007)
Increase on key parameters
Relevant subject
Responses based on international and local levels, efficient and effective, with equity
both in
Mitigation as well as Adaptation
Responding to Climate Change
• Long and complex international negotiations
• UNFCCC in 1992
• The Kyoto Protocol in 1997
• On-going negotiations and dilemmas
Looking back in time … mitigation responses
Carbon Financing
• Area of environmental financing
• Explores implications of living in a carbon constrained world, emissions of GHG carry a price due to externalities
• Apply to emission reductions projects and associated transactions under the carbon markets
The Kyoto Protocol
High historical relationship between carbon markets and
political decisions
Carbon Markets
3main markets in existence
Voluntary emission reduction certificates
Emission allowancesProject based emission reductions
certificates
Carbon markets: how do they work?
ChicagoClimateExchange New South Wales
Certificates.12
Carbon Markets
CDM2.7
EU ETS Allowances
118.5
Voluntary.34
SecondaryCDM
17.5
JI.35
.05
-59% +18%
Assigned Amount Units
2.0
RGGI
2.2
-33%
+1000%
+626%
(US$ billions)
Projects
Allowances
General historic trends
• 2010 stalls for the first time• Domination of european systems
The Clean Development Mechanism (CDM)
¿Then, What is it?
• Global effort to resolve an issue of public interest through application of a market based mechanism
• Supply of CERs located in the developing world can be bought by developed countries for their assumed compliance
• Based on principles of cost effectiveness for the develop world and contribution to sustainable development in the developing world
• Aiming at contributing to the objectives of the UNFCCC (stabilization of GHG concentrations
• Several types of implications
Number of projects into the CDM stream / per month (2004-2009)
Recent trends 0
- 5
5 -
10
10
- 2
5
25
- 6
0
60
- 1
00
10
0 -
50
0
50
0 -
10
00
10
00
- 5
00
0
50
00
- 1
00
00
> 1
00
00
0
500
1000
1500
2000
2500
Number of projects with in different size intervals
ktCO2 per year
Nu
mb
er
of
pro
jec
ts
Q1
-04
Q3
-04
Q1
-05
Q3
-05
Q1
-06
Q3
-06
Q1
-07
Q3
-07
Q1
-08
Q3
-08
Q1
-09
Q3
-09
Q1
-10
Q3
-10
Q1
-11
0
10
20
30
40
50
60
70
New project in Latin America entering the pipeline each quarter
Latin America
Brazil
Mexico
Pro
ject
s
Current situation of the CDM(August 4th, 2011)
Who´s selling CDM CERs?
CDM sectors
CDM trends
• Decreases over the last 2 years (lower demand, regulatory uncertainty, competition)
• Still important activity in project formulation
CER price continues to be indexed to the European signals
CER post 2012 high quality vintage
6-7 Euro
CER futures with a medium risk
7-8.5 Euro
CER futures with low risk 8.5-10 Euro
CER registered CDM projects
10,5-11 Euro
CER spot market 9.33 Euros
CDM CER prices
Source CDM Highlights, GIZ (July 2011)
The future of the carbon markets
Uncertainties Dependencies Expectations
At the project level …
Carbon revenue is an additional source of earnings
Relationship between
investment and net present
value of carbon contract for
different types of projects
(World Bank experience)
Carbon revenues and project returns
What is going on with the CDM?
• Regulatory decisions out of COP 16 in Cancun
• Expectations from market players
Decisions related to CDM
• Regional distribution• Integrity of the CDM and its requirements• Objectivity, efficiency of the CDM and its
requirements• Enhance transparency of the CDM• Out reach• Simplification and standardization• Inclusion of CCS in CDM (Decision 7/CMP.6)
Expectations from market players
Plans for CDM Involvement in 2011
Interest in investing in LDCs, SIDs, PoAs
Concluding Remarks
• Continued interest but challenging issues
• Attention to regulatory developments
• Act now !! if you have a sound project
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