At the longest climate conference on record, parties to the United Nations Framework Convention on Climate Change (UNFCCC) were able to make significant progress towards a global deal at COP17 in Durban, South Africa. By the end of the meeting, the Durban Platform for Enhanced Action was agreed to by 190 nations with the intention to “develop a protocol, another legal instrument or an agreed outcome with legal force under UNFCCC” to reduce greenhouse gas (GHG) emissions linked to climate change. While the Durban Platform should be signed and submitted no later than 2015, the actual implementation would not likely come into force until 2020. One of the most significant results of the Durban Platform was a redrawing of the 1992 OECD-based developing/developed country categorization. With no mention of the coveted phrase that nations have “common but differentiated responsibilities and respective capabilities,” all nations including those developing ones like China and India will be covered under a legally-binding agreement. For a comprehensive overview of The Durban Platform, take a few minutes to watch the coverage by EnergyNow…

Kyoto Protocol

In addition to a roadmap for a more comprehensive climate treaty, the EU and nine other nations also pledged to take new emission reduction targets under the Kyoto Protocol that will enter into force in 2013. While only ~15% of total global GHG emissions will now be covered, it was a very significant outcome that was crucial to call Durban a success. On the opposing side, both Japan and Russia have said they will not sign up to a second committment period while Canada has pulled out of Kyoto all together. The jury is still out on what Australia and New Zealand plan to do. It has yet to be determined whether the new targets will extend out to 2017 or 2020.

Green Climate Fund

Parties also agreed upon the structure for a new international Green Climate Fund (GCF) that will raise $100 billion a year by 2020. Leading up to this, the recommendations presented by the Transitional Committee set up at COP16 in Cancun were welcomed. While making progress on design issues of the GCF was important, delegates failed to find a way forward on actually capitalizing the fund. Along these lines, the suggestion to place a tax on international shipping emissions did not materialize at the negotiations due to opposition from U.S. and others.

Market Mechanisms

The fate of the Clean Development Mechanism (CDM) was secured at COP17 with the extension of the Kyoto Protocol thanks in large part to the European Union. In other related news, Carbon Capture and Storage (CCS) projects will now qualify for offset credits under the CDM. The other Kyoto project-based mechanism, namely Joint Implementation (JI), has not yet been extended beyond 2012. More broadly, parties agreed to define a new market mechanism (NMM) that will be central in a future climate treaty. Delegates will shoot to prepare recommendations at COP18 for NMMs such as:

-Sector-based crediting under the CDM
-Nationally Appropriate Mitigation Actions (NAMAs)
-Japan’s Bilateral Offset Crediting Mechanism (BOCM)
-Reduced Emissions from Deforestation and Degradation (REDD+)

REDD+

Well received by the private sector, parties agreed that “appropriate market-based approaches” to reduce emissions from deforestation and degradation (REDD) can in fact be developed. In other REDD+ news, it was decided that joint mitigation and adaptation approaches could be developed to support future projects. While making the role of markets explicit was significant, there was little progress on rules and measures in Durban to ensure the environmental integrity of a REDD+ mechanism.

For U.S. Special Envoy for Climate Change Todd Stern’s perspective on progress at Durban, here’s an extended interview conducted by Tyler Suiters from EnergyNow after the conference…

In an interview with Bloomberg News, Trevor Sikorski, head of environmental market research at investment bank Barclays Capital, presented a bearish outlook for carbon prices in the European Union Emissions Trading Scheme (EU ETS) through 2012. In recent weeks, the cost of carbon emissions in the EU ETS has been pushed down to a two and a half year low. This is primarily due to excess sales of pollution permits from countries like Greece that are looking to increase short term revenues and large influxes of UN certified offsets coming into the system.

The weakness of European production figures has also shuttered demand for carbon. Sikorski told Bloomberg that “we expect to see see very moderate pricing probably for another year or so before it starts to tick up.” This will have an effect on low carbon infrastructure projects being developed in the EU. For example, many utilities have been moving towards renewable energy generation to reduce their future carbon risk.

While some believe adjustments to the system should be made to prop up prices, Sikorski thinks otherwise. He finished the interview by saying that it’s “probably better to live with some low prices at the moment than to introduce” greater uncertainty into the carbon market. Click below to watch the interview…

Climate Week NYC 2011 was held during September 19-26 in New York City with some of the world’s leading businesses and governments when it comes to green initiatives in attendance. For this third annual conference, widely publicized events were held throughout the week promoting the economic benefits of tackling climate change especially through public-private partnerships. Most notably, The Clean Revolution Campaign was launched at the opening ceremony creating a big splash in the media with top names like Michael Bloomberg and Tony Blair presenting. This three year initiative is being spearheaded by The Climate Group with the support of the United Nations and World Bank to promote the continued expansion of clean energy, clean technologies, innovative design and new business practices around the globe. The Clean Revolution “aims to inspire, catalyze and enable a group of the world’s most influential business, government and thought-leaders to take transformational action on climate change, creating a tipping point for the low carbon economy.” Not only will clean revolutionaries be charged with the task of reducing greenhouse gas emissions causing the systemic issue of global warming but they will also be the ones to catalyze sustained economic growth into the future. Will you be joining me in pioneering this movement? For your viewing pleasure, check out the video montage of the opening ceremony put together by Hub Culture below…

In conjunction with the release of its latest round of annual reports, the Carbon Disclosure Project (CDP) hosted a global forum on changing business practices in the face of climate change. The Forum, themed “Forging Sustainable, Profitable Business Growth,” was hosted by Paul Dickinson, Executive Chairman of CDP,and gathered leaders from around the world via video teleconference call to share best practices and lessons learned on the road towards a low-carbon economy. The CDP Global 500 2011 Report: Accelerating Low Carbon Growth was sent to the world’s top companies on behalf of 551 investors representing US$71 trillion in assets. Over the eight years that CDP has been sending out surveys collecting climate change information, it has become a critical ingredient in the shift to sustainable business practices. Watch a recording of the global forum below…

Video streaming by Ustream

Carbon cap and trade is coming to California! Despite some legal troubles faced by the state over the past six months, the central message of a recent workshop was that progress continues to be made on the design and implementation of the economy-wide cap & trade program for greenhouse gas (GHG) emissions. The carbon trading scheme is a core mechanism of the Global Warming Solutions Act of 2006 referred to as Assembly Bill 32 (AB32) which requires the state to reduce its climate change causing emissions back to 1990 levels by 2020. Despite the recent decision to move the start date of the program back to January of 2013, the California carbon market is really starting to take shape and will continue to do so especially over the next four weeks as the Air Resources Board (ARB) receives comments back on its final draft regulations. And, given the varied state of evolution of carbon markets around the world, all eyes are on California to see if an effective, efficient and controlled market-based system can be put in place that drives real reduction in GHG emissions.

I attended a workshop on California’s Cap & Trade Program hosted by the Climate Action Reserve (CAR) at the New York Stock Exchange. NYSE Blue, a subsidiary of NYSE Euronext that provides infrastructure to various environmental markets, provided the space as a co-sponsor of the gathering. Attending this event on Wall Street was a very real reminder that carbon still has the potential to become the largest globally traded commodity in the world. With a number of very competent market stakeholders in attendance including brokers, lawyers and project developers, the workshop provided a detailed overview and keen insight into the latest developments of the emerging GHG emissions market being spearheaded by the Golden State.

David Nussbaum, a Director at Evolution Markets, one of the leading carbon brokerage firms in the world, gave a detailed presentation on the dynamics of the California market. While the first compliance period for cap & trade will not officially go into effect until 2013, there are a number of environmental commodities associated with the program currently being traded on the market; namely California Carbon Allowances (CCAs), California Carbon Offsets (CCOs), Early Action Credits, and Potential Action Credits. Once the program is enforced, companies covered by the cap that discharge more than 25,000 metric tons of carbon dioxide equivalent (tCO2e) must obtain tradable permits or allowances equal to the amount of pollution they put into the atmosphere. However, as Mr. Nussbaum described, there is already market activity. As of July 21st, CCAs for example were being bid at $16.75/tCO2e which is significantly higher than the floor price of $10/tCO2e that will be enforced by ARB. The other main asset class in California’s cap & trade program are offset credits. As Joel Levin, the Vice President of Business Development at CAR, described at the workshop, carbon offsets are financial instruments that essentially certify “the absence of an odorless, colorless gas,” that contribute to climate change through the greenhouse effect outside of the sectors covered by the cap. As determined by ARB, companies will be allowed to meet up to 8% of their compliance obligation by purchasing these less expensive offset credits. The three other buckets of carbon products mentioned above are offsets sold at various prices depending on the likelihood of them being accepted for compliance in the California market.

As a key stakeholder in the California offset market, CAR is taking an active role in facilitating industry dialogues such as this past workshop. Their role is to develop high quality offset standards, manage offset verification and operate a transparent registry system. At this point, CAR is the only registry to have offset protocols permitted under ARB’s carbon market regulations. The project types that are currently approved and eligible for compliance are U.S. forestry, urban forestry, ozone depleting substances, and livestock methane. Case studies for three of the four of these project types were presented by developers at the workshop, including Scott Nissenbaum of Finite Carbon, who gave the attendees a clear sense for what is involved in developing forestry offset projects and how the associated emission reductions can be monetized.

There are a number of key factors to look out for in the coming months related to California’s cap & trade program which were highlighted at the workshop. Most notably, additional regulatory changes could come into play as well as the possibility of additional legal challenges. For Example, the fact that out-of-state power generators will be required to obtain carbon permits is still a contentious issue, and a few of the speakers mentioned the possibility lawsuits could be filed under the inter-state commerce clause. AB32 has already faced a number of life-threatening attacks such as last year’s Proposition 23 and the recent lawsuit by the Association of Irritated Residents, and it is unclear how successful future objections to the program’s implementation schedule would be. Politically, there is currently substantial support of cap & trade by both citizens and politicians, including the Governor of California Jerry Brown. For the participants at this workshop, and indeed most market participants, the strong belief is that it’s not a matter of ‘if’ but rather ‘when’ the market will really take root. CARB is expected to approve its final cap & trade regulations by October of this year, which should be a critical tipping point for companies to really start taking the emerging carbon price signal to heart.

Leaving New York City, I came across the infamous carbon counter put up by Deutsche Bank Climate Change Advisors. It was an apt reminder that humanity is racing against the clock to stabilize the amount of greenhouse gases in the atmosphere to approximately 450 parts per million to prevent a 2 degree Celsius rise in global average temperatures. With the amount of carbon dioxide in the atmosphere rapidly increasing as shown on the sign, the fact that California is moving forward with its market-based system to reduce GHG emissions is a promising sign that climate action is being taken in the United States despite it being put on the backburner on a national scale for the time being.

Slides:

• http://www.climateactionreserve.org/wp-content/uploads/2011/07/CAR-California-Carbon-Markets-July-2011-FINAL.ppt
• http://www.climateactionreserve.org/wp-content/uploads/2011/07/CAR-Workshop-in-NY-2011-07-26.pdf

The World Bank Institute (WBI) recently hosted a global dialogue on climate finance that brought together experts and practitioners from both developed and developing countries. The purpose of the dialogue was to explore different mechanisms for tracking, leveraging and directing international climate finance. As highlighted in the summary report, “the discussion focused on the financing challenges of the transition to a climate resilient low carbon economy, and how best developing countries could mobilise financial resources from a combination of bilateral, multi-lateral and private sector sources.” Christiana Figueres, Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC), provided detailed insight on efforts to meet the fast-start finance commitments of $30 billion between 2010-2012 and long-term finance of $100 billion per year by 2020 that has been pledged by developed nations. Most relevant to the upcoming conference of parties 17 in Durban, she talked about the transitional committee efforts to structure the Green Climate Fund (GCF) that will play a crucial role in managing the large sums of climate finance that will be raised by the UNFCCC. The other notable presentation was given by Neeraj Prasad, Managing Director of the WBI Climate Change practice, on how the World Bank has taken a leadership role in the area of climate finance and carbon markets. Specifically, his presentation gave a detailed breakdown of the climate investment funds that have played a crucial role scaling up finance for mitigation and adaptation activities. Below you’ll find the video compilation of the dialogue…

The Climate Registry (TCR) hosted an informative webinar last week entitled ‘Update from Europe: A Carbon Market in Progress’ which gave a brief history of the European Union Emissions Trading Scheme (EU ETS) and presented the future outlook of the program. Since 2005, European nations have been running its economy-wide cap and trade program that covers the energy and heavy industry sectors. With Phase III set to get underway in January 2012, the presentation by two leading figures behind the design and implementation of the EU ETS highlighted upcoming developments such as the inclusion of international aviation. Despite having its issues over the past six years, it’s still widely accepted that the carbon trading program is the core mechanism that the EU has at its disposal to achieve its ambition emissions reduction goals. Check out the TCR presentation below…

The Carbon Disclosure Project (CDP) recently released its first global report on greenhouse gas measurement, management, and adaptation to climate change in the world’s largest cities – including Berlin, Johannesburg, London, New York, São Paulo, Sydney and Tokyo. “Cities are on the frontlines in addressing global climate changes,” said New York City Mayor and C40 Chair, Michael R. Bloomberg. “This ground-breaking study provides critical data that will enable cities to make powerful decisions and track progress as they continue to address the impact climate change is having on their environment, their economy and their citizens.” The report written by KPMG was released at the C40 Cities Climate Leadership Group (C40)’s summit for mayors in Sao Paolo, Brazil. It marks an important milestone for getting cities more involved in confronting the risks and opportunities that arise in a carbon constrained world.

Policy makers, regulators, participants, and observers of the global carbon market gathered in Barcelona, Spain this past week for Carbon Expo 2011. This 8th annual trade fair and conference organized by the World Bank Carbon Finance Unit and International Emissions Trading Association is the largest gathering of stakeholders in the world of climate and carbon finance, emissions trading and carbon abatement technologies. At the event this year, the two most prominent market reports namely the State and Trends of the Carbon Markets and State of the Voluntary Carbon Markets written respectively by the World Bank and Ecosystem Marketplace in conjunction with Bloomberg New Energy Finance were released. Below are a few highlights taken from these comprehensive reports along with links to the full versions. The press briefing given by Christiana Figueres, Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC), at Carbon Expo has also been included below.

State and Trends of the Carbon Markets 2011

The major trends of the global carbon market highlighted in the report were as follows:

• “After five consecutive years of robust growth, the total value of the global carbon market stalled at $142 billion.”
• “The value of the primary Clean Development Mechanism (CDM) market fell by double-digits for the third year in a row, ending lower than it was in 2005, the first year of the Kyoto Protocol.”
• “The Assigned Amount Unit (AAU) market, which grew in 2009 with strong sovereign support, shrank as well in 2010.”
• “The market that had grown most in 2009—allowances under the U.S. Regional Greenhouse Gas Initiative (RGGI)—saw that year’s gains erased in 2010.”
• “The dominance of the European Union Allowances (EUAs) market became more pronounced than ever. EUAs accounted for 84 percent of global carbon market value in 2010. With the value of the secondary CDM transactions taken into account, the share of the carbon market primarily driven by the EU Emissions Trading Scheme (EU ETS) rose to 97 percent, dwarfing the remaining segments of the market.”

The report overview also highlights the notable events that affected the carbon market in 2010:

• “In the United States, there was not enough support to pass federal cap-and-trade legislation. The Japanese Basic Act on Global Warming, which passed in the Diet’s lower house, was halted when the government lost control of the upper house a few months later. Australia’s Senate failed to pass the Carbon Pollution Reduction Scheme and Australia’s government subsequently chose to freeze its plans for a domestic cap-and-trade scheme. Even the year’s rare good news, namely the Republic of Korea’s adoption of the Framework Act on Low Carbon Green Growth, turned sour when the government, facing internal opposition, decided in early 2011 to delay the implementation of its cap-and-trade scheme until 2015.”
• “At the global regulatory level, in mid-2010 the CDM Executive Board temporarily halted issuance of Certified Emission Reductions (CERs) from hydrofluorocarbon (HFC-23) projects over baseline concerns. As concerns revealed not to be substantiated, issuance resumed at the end of the year. Nonetheless, the European Commission soon thereafter proposed qualitative restriction in the EU ETS of carbon offsets related to CDM industrial gas projects. The proposal was adopted by the European Member States, which in January 2011 confirmed the ban of CERs from HFC and nitrous oxide (N2O) adipic acid projects starting, in 2013.”
• “Some of the most notable events in 2010 and early 2011 were unfortunately related to framework loopholes and criminal activities directed against the EU ETS. In addition to the “carousel” value-added tax (VAT) fraud that surfaced in 2009,5 the last 18 months witnessed the sale of recycled CERs, phishing attempts on Germany’s national registries and a series of subsequent cyber-thefts that undermined the European market,6 highlighting security shortcomings and increasing the urgency of stakeholders’ pleas to strengthen infrastructure.”

Full Report: State and Trends of the Carbon Markets 2011

State of the Voluntary Carbon Markets 2011

• “In 2010, suppliers reported a total volume of 131.2 MtCO2e transacted in the global voluntary carbon markets. Compared to the 98 MtCO2e transacted in 2009, volumes grew by 34% to exceed historic “over-the-counter” (OTC) and overall transaction volumes as tracked in our previous reports. The Over the Counter (OTC) market last year transacted 127.9 MtCO2e, or 97% of global market share.”

• “In 2010, the volume-weighted average price of credits transacted on the voluntary OTC market fell slightly to $6/tCO2e from $6.5/tCO2e in 2009, due to a handful of large, low-priced trades – among other reasons.”

• “The value of the voluntary carbon markets [were estimated] to be at least $424 million in 2010, which means it remained stable compared to 2009 as the voluntary carbon market derived most of its value from similarly priced OTC transactions in both years.”

• “In 2010, land-based projects supplied the largest volume (28 MtCO2e) of credits transacted in the OTC market where conservation efforts and international politics directed attention to projects that reduce emissions from deforestation and forest degradation (REDD). REDD projects alone generated 29% of credits transacted in the voluntary market.”

• “In 2010, the OTC market added six new countries to its roster of project locations, extending voluntary carbon finance to a total of 45 countries. North America maintained its top spot among project locations to originate 35% of transacted OTC volume – 94% of which was generated in the US.”

• “In 2010, suppliers reported that 63% of transacted credits were or will be registry-issued – up from roughly half of credits transacted in 2009.”

Full Report: State of the Voluntary Carbon Markets 2011

Following is a video of the press briefing given by Christiana Figueres at Carbon Expo where she talks about the state of the global climate negotiations highlighting the financial instruments that the UNFCCC is working to develop including the design and capitalization of the Green Climate Fund:

Related Articles:
-Global Carbon Trading Stalls, but Voluntary Market Offers Bright Spot (GreenBiz)
-Voluntary Carbon Market Surges, Global Carbon Trading Stalls (Envionmental Leader)

Climate Change Capital and Nortan Rose Group recently hosted Deputy Prime Minister of the United Kingdom, Nick Clegg MP, and Director-General of CBI, John Cridland, for an event focused on Green Growth. This was a monumental gathering as the Deputy Prime Minister laid out details for how the U.K. government would quickly create an effective and permanent Green Investment Bank (GIB)- the first green national development bank in the world – that will work over the long term to deliver a low carbon transformation of the economy while achieving balanced growth. The GIB is set to start lending by April 2012 with GBP 3 Billion initial capitalization. In addition, the British government has said it will allow the bank to borrow upwards of GBP 15 Billion from April 2015 onwards for further low-carbon investment. The full length recording of the speeches from the guests mentioned above as well as a short panel discussion moderated by James Cameron of CCC including Q&A is presented below.

The GIB will undoubtedly play a central role to mobilizing the incredible amount of capital required to fund low carbon infrastructure, renewable energy and other carbon reduction projects like energy efficiency. These projects will be necessary for the U.K. to meet it’s aggressive national GHG reduction target. In recent weeks, the U.K. made the official announcement that it will look to achieve a 50% reduction in GHG emissions below 1990 levels by 2025. The GIB is yet another example of how the U.K. is playing a pioneering role in establishing a full spectrum policy approach to shifting towards a prosperous low-carbon economy.