carbon credits ppt
TRANSCRIPT
Carbon Credits
Introduction What are GHG’s? What is Carbon Trading? Why are GHG’s traded? What are UNFCCC and Kyoto Protocol? What is CDM? What is CER? What are Emission Allowances?
GHG’s regulated by KP Carbon dioxide Equivalents (CO2e)
Global Warming Potential (GWP)
What is one unit of GWP?
Participants Annex I Parties: OECD countries+ EIT countries,
including the Russian Federation, the Baltic states and several Central and Eastern European States.
Annex II Parties: OECD members of Annex I excluding the EIT parties. required to provide financial resources to enable
developing countries to undertake emission reduction activities and to help them adapt to adverse effects of climate change
Non – Annex I: Developing countries – India and China is a part of non-Annex I. They are usually the net sellers of emission offsets.
International Carbon Map
Highlights:USA: Biggest Emitter
Australia changed positionThe EU and Japan ratified it: Biggest Buyers
Kyoto Mechanism The Clean Development Mechanism (CDM)
Earn and Trade Covers developing countries CERs
The Joint Implementation (JI) Earn and Trade Covers developed countries ERUs
International Emissions Trading Cap and Trade Only for developed countries AAUs
Types of Transactions Allowance Based
AAUs, EUAs prevalent under a cap and trade system
Project Based Projects are funded, conceptualized by
companies in developed countries and implemented in developing countries or financially more viable countries
Is covered by CDM and JI.
Trading in Theory
Tradable products under UNFCCC
Comparison between EUA, ERU and CER
Allowances v/s Credits
Contd…
Only 10% of excess emissions can be covered under EU ETS
Fungibility
The Process (Allowances) Cap and Trade
Cap = Limit on emissions Trade = trade for deficit/surplus and ensure you are
under Cap Trading Options:
Buy from fellow compliance participants having surplus Buy from offset projects (ie CDM)
Penalty In EU fine of Euro 100 per tonne of CO2e that is above
the cap In addition to this the exceeded emissions need to be
covered up in the subsequent year.
The Process (Credits) Earn and trade
Earn = Reduce carbon emissions through more efficient projects and get it certified by UNFCCC
Trade = Sell these certified reductions with buyers in need.
Principle of Additionality
Around the World
Who is Selling?
Source: Point Carbon
42,219
18,735
9,120
305,330
0 200,000 400,000 600,000 800,000 1,000,000
Asia Pacific
Latin America andCaribbean
Middle East
North AfricaMediterranean and
Eastern Europe
Sub Saharan Africa
At validation Correction request Reg. request Registered Rejected
Request review Under review Withdrawn Grand Total
889,341
Kt CO2e
By Volume (ktCO2e 2012)
Expected annual CERs from registered Projects (By Country)
Source: www.unfccc.int
No. of Projects (By country)
Inferences India has 32.42% of total projects but
generates 14.37% of total CERs
Korea which is No. 4 in terms of total CERs generated, lies at No.7 in terms of total number of registered projects.
Chinese projects are the most efficient. 198 projects generate 107,128,288 CERs.
Top Buyers RWE, ENEL and EDF Trading
are compliance buyers
Rest of the buyers are Carbon Credits intermediaries/
aggregators
Composition of Buyers (By Country)
Source: State of the Carbon Market
Macroeconomic Price Determinants Upward Price Pressures
Japanese buying from 07 to 08 EU demand Australian demand post ratification
Downward Price Pressures Canadian govt. rejection Increased registration of CER projects Major non CO2 mega projects (e.g $1 bn
Chinese HFC projects) Corporations with excess allocations not
trading yet
Price Signals Demand Side Signals
Gas – Coal Price Spread Oil Prices (Weak correlation) Weather Conditions Regulatory Conditions (case of EU) Economic Growth Rate
Supply Side Signals CER Supply
Long Term Indicators Potential supply of surplus AAUs from EIT
countries AAU prices in turn affects CER prices
EU allocation issues will be the biggest driver (Compliance levels from 10% to 5%) EUA already a benchmark for domestic prices
Contd… Prices influenced by COP
Provides positive or negative signals through their decision
Development of internal ETS akin to EU ETS
Prices of CERs at different stages of the project life cycle.
Indian Markets Introduced on the two leading commodity exchanges
MCX NCDEX
MCX CFI Futures Contract was introduced in the Indian markets on Jan 21, 2008
The NCDEX CER Futures Contract (CERNCDEX) in carbon credits was introduced on Apr 10, 2008.
Contract Specifications 1 MCX EUA Futures Contract = 200 tonnes of
CO2e = 200 EUAs Underlying asset: EUAs
1 NCDEX contract = 500 tonnes of CO2e = 500 CERs Underlying asset: CERs
Prices and Volume (Before Apr 2008)
Prices and Volumes (NCDEX Contract)
Prices and Volumes (after Apr 2008)
Notes Only Dec contract has been considered
because:
Only Dec contracts have significant liquidity. Both on the Indian as well as international markets
CERs traded only on the NCDEX. No contract for EUA
Conclusions MCX drives volumes upto 76000 tonnes of CO2e
or 76000 EUAs
NCDEX although a late starter managed to drive up the same volume in just 2 days.
After the launch of the NCDEX contract, MCX managed to trade just 5600 tonnes of carbon offsets from 10th April to 5th May.
During the same period NCDEX oversaw trading of 2,370,200 tonnes of carbon credits
Contd… Low volumes implies low volatility.
Unable to fulfill aim
Difference due to different underlying assets
EUA cannot be used, produced or held by Indians
Basis Risk, Hedging and Arbitrage opportunities
Risks Over-allocation of Allowances
Excess allowances meant target easily achieved
Volatility lead to speculation and profit trading
Regulatory impediments and hurdles
Lack of liquidity
Post 2012 uncertainty