After significant delay and controversy, the European Commission (“EC”) once again has promised to connect the EU’s Community International Transaction Log (“CITL”) to the United Nation’s International Transaction Log (“ITL”) in the first half of October. The ITL will track the trade and transfer of all Kyoto Protocol units, including European Union Allowances (”EUAs”), which effectively become Kyoto Protocol Assigned Amount Units (“AAUs”) from 2008 to 2012. Until now, there has been no software link between the EU and UN schemes allowing delivery of the cheaper Certified Emission Reductions (”CERs”), a link expected nearly 18 months ago.
Market participants have criticized this failure widely, sparking major jitters, as December 2008 is a key delivery date for the 2008 vintage CER contract. The contract cannot be delivered without the connection, although most contracts allow settlement to roll over until the link is complete. The delay is also considered to have contributed to the volatile EUA and CER price spread, and more generally, reduced liquidity, transparency and confidence in the market.
The Australian Securities Exchange (ASX), Australia’s primary stock exchange which was formed when the Australian Stock Exchange and Sydney Futures Exchange merged in late 2006, has today announced a plan to start trading carbon futures in the third quarter of 2009. The futures contracts for renewable energy credits, natural gas, and coal would complement the ASX’s existing electricity futures market.It is expected that futures contracts for renewables will be offered by the end of the year, while contracts for gas in Victoria, electricity in New Zealand, and power station coal exports from Newcastle in New South Wales will commence in March or April 2009.
India’s National Action Plan on Climate Change (NAPCC) sets out eight focal points for the government’s sustainable development strategy through 2017. The NAPCC is likely to become a significant driver of new investment opportunities in the country’s renewable energy portfolio, and in solar generation in particular.
As the world’s second most populous country and second largest growing economy, India has unique challenges in developing an energy supply adequate to meet the country’s development needs, including providing electricity to the 44% of its population without grid access.
Project developers operating under the Kyoto Protocol’s Clean Development Mechanism (CDM) now face additional scrutiny after several major organizations agreed to adopt a new voluntary verification standard. Eligibility for the CDM is premised on the requirement that a project will not proceed without the financial incentives provided by the creation of salable emission reduction credits. In other words, if a project is financially viable without generating emission credits, it is not eligible for CDM participation. This concept is known as additionality - the benefits generated by CDM projects must be additional to any that would have occurred without CDM support.
Organizations that verify emissions reductions for CDM projects, known as Designated Operational Entities (DOEs), have expressed concerns over their ability to reject ineligible projects, as a means of protecting the integrity of the CDM. As a result, a group of major DOEs recently agreed to criteria that may significantly impact the approval process for projects that wish to issue Certified Emission Reduction (CER) credits. The criteria will be considered for official inclusion into the CDM process by the Executive Board of the CDM, likely later this year. Until then, it is a voluntary agreement between many of the major DOEs, but still impacts projects being proposed from July forward.
The Government today released its much-discussed green paper on the design features of its newly branded “Carbon Pollution Reduction Scheme” for commencement in 2010. This follows Professor Garnaut’s release of his draft report on the scheme earlier this month, and the Government’s commitment to unveil the key features of the scheme by the end of this year. It proposes the introduction of a broad-based cap and trade scheme with the following features:
Broad coverage: petrol in, reforestation opt-in
Broad coverage to include stationary energy, transport, industrial processes, fugitive emissions, waste and forestry, with agriculture likely to be incorporated by 2015. The points of liability primarily fall on large facilities and upstream fuel suppliers. The proposed threshold for direct obligations is 25,000 t CO2-e or more a year, which will capture approximately 1,000 Australian companies. The impact of the inclusion of the transport sector, a highly sensitive issue, has been softened by a transitional measure of fuel tax cuts on a cent for cent basis, to be reviewed three years after the scheme starts. There was also a question mark around forestry: the Government has dealt with this by proposing that reforestation be included on a voluntary “opt-in” basis while deforestation is not.
Emissions trading is a mechanism that provides countries, companies, and environmentally-conscious individuals with flexible cost-efficient means to meet greenhouse gas emission reduction goals. Emissions trading operates similarly to commodities markets, with purchase and sale contracts defining the rights and obligations of the parties and allocating risk. In a series of articles, ClimateIntel will discuss significant issues arising under these emission reduction purchase agreements.
Today, port authorities from around the world endorsed the World Ports Climate Declaration, in which they actively commit themselves to reducing greenhouse gas emissions and improving air quality. The endorsement came at the conclusion of a three-day conference hosted by the City of Rotterdam and sponsored by, among others, the C40 Climate Leadership Group, an alliance of the world’s largest cities committed to tackling climate change. According to the conference chairman, 55 ports endorsed a framework that will lead to “concrete international measures.”
Subjects that will be addressed by the ports include the development of a standard method for quantifying CO2 emissions from ships. The ports also plan to develop a global indexing system that will enable them to reward climate-friendly ocean going ships, and punish the polluters. The next follow-up meeting will take place in Los Angeles in November.
On July 8, the European Parliament voted to expand the European Union Emissions Trading Scheme (EU ETS) to cover aviation emissions as of January 2012. Based on a 2006 European Commission proposal, the approved legislation will require all commercial airlines, regardless of country of origin, to purchase and surrender carbon emissions allowances for all flights within the EU or departing from or arriving at EU airports. Total emissions for the civil aviation industry in 2012 will be capped at 97% of historical emissions, defined as average emissions from 2004-2006. The cap will decrease in 2013 to 95% of historical emissions, with the option of further tightening after 2013. Initially, the EU will provide 85% of permits for free and auction the other 15%; the percentage of auctioned permits may rise in subsequent years.
Today’s G8 Statement on Climate Change and the Environment commits member countries to a “goal of achieving at least 50% reduction of global emissions by 2050,” and embraces the need to “ensure an effective and ambitious global post-2012 climate regime,” but does not provide details on the types of “meaningful mitigation actions” that countries might adopt.
In recognition of the need for near-term political action on climate change, G8 members agree in the Statement to implement “economy-wide mid-term goals” on greenhouse gas emissions reductions. While recognizing the U.S. goal of stopping the growth of greenhouse gas emissions by 2025, the Statement is ambiguous on specific reduction commitments, and was criticized by some environmental groups as a “failure of responsibility.”
The Statement received additional criticism from the “G5″ nations for including strong language requiring emission reduction commitments from “all major economies” under a future global climate treaty. The requirement for a “global response…consistent with the principle of common but differentiated responsibilities” is considered to be a U.S.-driven push to increase pressure on countries like China and India in the post-Bali climate negotiations. Additional discussions on these topics are likely to take place during tomorrow’s Major Economies Meeting.
Following Australia’s recent ratification of the Kyoto Protocol, the Federal Government intends to unveil its emissions trading scheme (ETS) by the end of this year, for commencement in 2010. The key publications released to guide the development of the scheme, include the 2006 National Emissions Trading Taskforce’s report, the 2007 Prime Minister’s Task Group proposals, and the newly released Garnaut Review.
Professor Garnaut, an Australian National University economist asked by the Rudd Government last year to research the likely economic effects of an ETS, released his draft report on July 4, with the final report scheduled for release on September 30. Garnaut’s report outlines the following key issues:
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