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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 l.jpg

Carbon Markets, Institutions, Models

December 2004

USFS Workshop

Gary Bull, Faculty of Forestry, UBC

Oaxaca, Mexico


Objectives l.jpg
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 l.jpg
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 l.jpg
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


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Carbon market

Carbon Markets, Networks and Models


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Volumes Exchanges and Number Per Market Segment

Carbon Markets, Networks and Models


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Market Buyers

Carbon Markets, Networks and Models



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

Carbon Markets, Networks and Models


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Market Value (million US per year nominal) in million tCO

Carbon Markets, Networks and Models


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Share of Emission Reduction, in million tCOby Type of Project

Carbon Markets, Networks and Models


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Agricola Super Ltd, Chile in million tCO

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 l.jpg
Frameworks in million tCO

  • 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


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What the carbon markets could look like by 2006 in million tCO

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


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Influence of Government (to date) in million tCO

  • 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


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FOREST GROWER in million tCO

VERIFICATION AGENT

RISK MGM’T AGENCY

NATIONAL CARBON OFFICE

EMISSIONS CLEARING HOUSE

UNFCCC

National Carbon Framework

Carbon Markets, Networks and Models


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Responsibilities of the National Carbon Office in million tCO

  • 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


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FOREST GROWER in million tCO

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


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Stage 1: Design And Evaluation of the Forest Project in million tCO

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


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6. Establish and manage the forest carbon project. in million tCO

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


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Risk Management Agency in million tCO

  • 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 l.jpg

    FOREST GROWER in million tCO

    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


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    FOREST GROWER in million tCO

    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

    -


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    EMISSIONS CLEARING HOUSE in million tCO

    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 l.jpg
    Project Area in million tCO

    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


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    FSOS Analysis Framework in million tCO

    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


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    FORECAST Carbon Curves in million tCO

    >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 l.jpg
    Carbon Calculations in FSOS continued… in million tCO

    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 l.jpg
    Financial Analysis in million tCO

    Scenario 4: No Discounting

    Carbon Markets, Networks and Models


    Conclusions l.jpg
    Conclusions in million tCO

    • 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 l.jpg
    Further Information in million tCO

    • 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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