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Carbon Markets, Institutions, Models. December 2004 USFS Workshop Gary Bull, Faculty of Forestry, UBC Oaxaca, Mexico. Objectives. State and evolution of the market for carbon Institutional frameworks Carbon – land use models. What is a carbon market?.

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carbon markets institutions models

Carbon Markets, Institutions, Models

December 2004

USFS Workshop

Gary Bull, Faculty of Forestry, UBC

Oaxaca, Mexico

objectives
Objectives
  • State and evolution of the market for carbon
  • Institutional frameworks
  • Carbon – land use models

Carbon Markets, Networks and Models

what is a carbon market
What is a carbon market?
  • There is no single carbon market, defined by a single commodity, a single contract type or a single set of buyers and sellers.
  • What we call “carbon market” is a loose collection of diverse transactions through which quantities of greenhouse gas (GHG) emission reductions are exchanged.
  • Information is limited, especially on prices, since there is no central clearinghouse for carbon transactions. As such, it is difficult to compare prices/quantities over whole market.

Carbon Markets, Networks and Models

how to look at this market
How to look at this market
  • By commodity traded
    • Project-based GHG emission reductions (ERs), created and exchanged through a given project or activity
    • GHG Emission Allowances, as defined, or expected to be defined under international, national, regional or firm-level regulationsExamples: UK trading system, BP or Shell internal trading
  • By volumes
    • Wholesale: Large transactions, usually > 1 MtCO2eExamples: most projects to date
    • Retail: Deals are in the ’000s of tonsExamples: Carbon-neutral events, non-carbon intensive corporations,etc.
  • By types of contracts(e.g. spot, forward, options, swaps)
  • By timeframes(most contracts: 10-14 years; some 50+ years)

Carbon Markets, Networks and Models

carbon market
Carbon market

Carbon Markets, Networks and Models

volumes exchanges and number per market segment
Volumes Exchanges and Number Per Market Segment

Carbon Markets, Networks and Models

market buyers
Market Buyers

Carbon Markets, Networks and Models

location of project by type of buyer jan 2003 may 2004 in million tco 2 e
Location of Project by Type of Buyer (Jan 2003 – May 2004) in million tCO2E

Carbon Markets, Networks and Models

market value million us per year nominal
Market Value (million US per year nominal)

Carbon Markets, Networks and Models

share of emission reduction by type of project
Share of Emission Reduction, by Type of Project

Carbon Markets, Networks and Models

what a deal looks like
Agricola Super Ltd, Chile

400 000 tons annual reduction

$20 million technology investment to reduce methane

10 years gives 4 million ton credit

Transalta, Canada

Releases 30 million tons CO2E annually

Not sure what its obligations are under Kyoto

So purchased 1.75 million tons CO2E for 9 million $US

What a deal looks like?

Carbon Markets, Networks and Models

frameworks
Frameworks
  • Are they necessary?
    • Yes
  • What is the experience so far?
    • Lots of mistakes are made
    • Bureaucrats can botch it badly and have frequently ignored the market players
  • How do we build one?
    • Start with a diagram of stakeholders

Carbon Markets, Networks and Models

what the carbon markets could look like by 2006
What the carbon markets could look like by 2006

Regional Markets- EU

International Pre-Compliance

National market Denmark

National MarketUnited Kingdom

US Market

Retail Market

SUB-NATIONAL MARKETS

Massachusetts

NSW

New Hampshire

National Markets –Japan, Canada, Australia

Carbon Markets, Networks and Models

influence of government to date
Influence of Government (to date)
  • can kill or establish markets
  • can make the operation of markets very expensive or reasonably priced
  • will likely share in the risks if it is carbon sequestration
  • bureaucrats are resistant to the use of markets by nature
  • can be buyers of carbon credits

Carbon Markets, Networks and Models

slide16

FOREST GROWER

VERIFICATION AGENT

RISK MGM’T AGENCY

NATIONAL CARBON OFFICE

EMISSIONS CLEARING HOUSE

UNFCCC

National Carbon Framework

Carbon Markets, Networks and Models

slide17

Responsibilities of the National Carbon Office

  • Provide public relations and extension services
  • Conduct broad scale forest inventory
  • Maintain national carbon registry
  • Oversee risk management agencies
  • Accredit verification agents
  • Oversee emissions trading

Carbon Markets, Networks and Models

slide18

FOREST GROWER

VERIFICATION AGENT

RISK MGM’T AGENCY

NATIONAL CARBON OFFICE

EMISSIONS CLEARING HOUSE

UNFCCC

Responsibilities of the Forest Grower

  • Stage 1: Design and Evaluation of Project
  • Stage 2: Project Implementation

Carbon Markets, Networks and Models

stage 1 design and evaluation of the forest project
Stage 1: Design And Evaluation of the Forest Project

1. Develop project proposal.

2. Preliminary carbon yield projections.

3. Define and measure the ‘business-as-usual’ baseline.

4. Project evaluation and registration.

5. Locate suitable trading partner.

Carbon Markets, Networks and Models

stage 2 project implementation inventory and management
6. Establish and manage the forest carbon project.

7. Design sampling system.

8. Conduct forest carbon inventory.

9. Submit forest inventory data to the registry and schedule independent verification.

Stage 2 : Project Implementation- Inventory and Management

Carbon Markets, Networks and Models

slide21

Risk Management Agency

  • Assess risk of the project
  • Provide ‘Risk Rebate’ in proportion to
      • risk evaluation and level of risk protection specified by grower
  • Provide a range of insurance products

Carbon Markets, Networks and Models

slide22

FOREST GROWER

VERIFICATION AGENT

NATIONAL CARBON OFFICE

EMISSIONS CLEARING HOUSE

UNFCCC

Verification Agent

RISK MGM’T AGENCY

  • Obtain license to approve credits by the NCN
  • Conduct independent audits - all inventories
  • Submit official verification report to NCN

Carbon Markets, Networks and Models

slide23

FOREST GROWER

VERIFICATION AGENT

RISK MGM’T AGENCY

NATIONAL CARBON OFFICE

EMISSIONS CLEARING HOUSE

UNFCCC

Emissions Clearing House

  • Obtain brokerage license from the NCN
  • Interface with Registry Data

Determine no. of ‘carbon credits’; track carbon transactions

  • Conduct trade of carbon

Carbon Markets, Networks and Models

-

international institutions

EMISSIONS CLEARING HOUSE

NATIONALCARBONOFFICE

PERMANENT COURT OF ARBITRATION

INDEPENDENT THIRD PARTY CERTIFICATION MECHANISM

UNFCCC

CONFERENCE OF THE PARTIES (COP)

International Institutions

Carbon Markets, Networks and Models

project area
Project Area

Lignum IFPA

Area:

610 000 ha (1 549 400 acres)

Current Harvest:

900 000 m3

Biogeoclimatic Zones: AT, BG, ESSF, ICH, IDF, MS, SBPS, SBS

Major Tree Species: Black Cottonwood, Trembling Aspen, Douglas-fir, Sub-alpine Fir, White Birch, Lodgepole Pine, Engelmann Spruce

Red-listed Species: American White Pelican, Peregrine Falcon, Prairie Falcon, Brewer’s Sparrow, Yellow Breasted Sparrow, Lake Whitefish, Giant Pygmy Whitefish

Carbon Markets, Networks and Models

fsos analysis framework
FSOS Analysis Framework

Growth/Yield

Operability

Silviculture

Costs/Revenues

Forest Cover

Carbon Pool Curves

Road Networks

Development Plans

Wildlife Habitat

Water Quality

Visual Quality

Biodiversity

Special Management Zones

MANAGEMENT

INPUT DATA

Habitat Creation Patch Objectives Block Size Targets Old Growth Management Age Class Goals Carbon Flow Targets Profit/Product Maximization

Priority Weightings

Simulation or Optimization

Non-Spatial Reports

Spatial Reports

Treatments

Forest Structure

Carbon Markets, Networks and Models

slide27

FORECAST Carbon Curves

>2,000 Yield Curves

Forest Cover

Area

Age

125,000 Polygons

FSOS

Operability

Roads …

>200 Layers Defining Management Objectives

Block Size Targets

Patch Size Targets

Carbon Markets, Networks and Models

carbon calculations in fsos continued
Carbon Calculations in FSOS continued…

Harvested

Total Biomass = 0

Carbon In Litter = 78.7

Carbon in SOM = 49.6

Forest Polygon

#103

Age = 100

Not Harvested

Total Biomass = 64.1

Carbon In Litter = 16.6

Carbon In SOM = 52.3

For each period:

Total Carbon In Biomass = (Carbon In Biomass)

Total Carbon In SOM = (Carbon In SOM)

Carbon Markets, Networks and Models

Total Carbon In Litter = (Carbon In Litter)

financial analysis
Financial Analysis

Scenario 4: No Discounting

Carbon Markets, Networks and Models

conclusions
Conclusions
  • Markets are real and they are growing
  • Forest and trees should play a role
  • For markets to move from projects to trading you need a national framework (and policy)
  • Framework design will be a critical determinant in deciding who wins and loses.

Carbon Markets, Networks and Models

further information
Further Information
  • International Carbon Accounting Framework
  • http://www.joanneum.ac.at/iea-bioenergy-task38/workshop/canberra.pdf (pp. 167-194)
  • International Third Party Certification
  • http://www.iiasa.ac.at/Publications/Documents/IR-01-055.pdf
  • Contact: Dr. Gary Bull
  • [email protected]

Carbon Markets, Networks and Models

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