The Global Carbon Market:

Status & UNDP’s Strategy

Robert Kelly
Regional Coordinator, CDM Capacity Development,
Southern & Eastern Africa
robert.kelly@undp.org

Presentation 1, Addis Ababa, May 8th, 2008

Agenda

The big picture

Misconceptions about the CDM

UNDP’s carbon strategy

A final thought

1 1
There are over 45 carbon markets – but 3 principal regimes

Kyoto Mandatory Regime Non-Kyoto Mandatory Voluntary Regimes

Regimes
UNFCCC
UNFCCC
New
New South
South
Wales
Wales
(Australia)
(Australia)
Chicago
Chicago Climate
Climate
Kyoto
Kyoto Protocol
Protocol Exchange
Exchange (CCX)
(CCX)
Individual
Individual US
US
States
States
CDM
CDM (East
(East Coast,
Coast,
Non-Annex
Non-Annex 11 California,
Linking California, Retail
Retail Market
Market
Countries
Countries
Directive Oregon)
Oregon)
(Developing
(Developing
Countries)
Countries)
European
European Union
Union
Joint
Joint Trading
Trading Scheme
Scheme
Implementation
Implementation (EU-ETS)
(EU-ETS)
Annex
Annex 11 Countries
Countries

2 2
The EU Emissions Trading Scheme dominates the market
Joint
Joint
Implementation
Implementation
New
New South
South $141 Chicago
Chicago Climate
Climate
$141 million
million Exchange
Wales
Wales Exchange
$225
$225 million
million $38
$38 million
million

Clean
Clean Development
Development
Mechanism
Mechanism (CDM)
(CDM)
$5.3 billion
$5.3 billion
EU
EU Emissions
Emissions
Trading
Trading
Scheme
Scheme
$24.4
$24.4 billion
billion

EU-ETS
EU-ETS && NSW
NSW
markets
markets trade
trade
allowances.
allowances.

CDM,
CDM, JI
JI &
& CCX
CCX are
are
project-based.
project-based.

3 3
What is the voluntary carbon market?

• Companies practising corporate social responsibility, seeking

positive public relations and ‘testing the waters’

• Green-minded consumers – ‘carbon neutrality’

• NGOs – circumventing CDM restrictions and costs

• Some voluntary markets (notably the Chicago Climate

Exchange) do have project guidelines and rules

• But many voluntary-sector project designs are unique – agreed

by buyer and seller

4 4
Why use the voluntary carbon market?

• More flexible – greater range of project-types and

methodologies permitted

• Lower-cost – less onerous project design and monitoring

requirements

• Less bureaucratic – typically lacks the paperwork and delays

associated with CDM

• Less rigorous – ‘additionality’ and carbon benefits may be more

questionable

5 5
What’s the catch?
28 Carbon Credit Prices, 2006
26
24
22
20
US$ per tCO2e

18
16
14
12
10
8
6
4
2
0
Voluntary CDM JI Secondary
(VER) (CER) (ERU) CER

6 6
The voluntary market is much more receptive to ‘bio-carbon’
Methane Other
Other
Projects In The Methane
3%
3%
3% 3%
Voluntary
Market Energy
Energy
efficiency
efficiency
5%
5%

Forestry
Forestry
Industrial
Industrial 36%
36%
gas
gas
20%
20%

Renewable
Renewable
energy
energy
33%
33%

7 7
The Kyoto Protocol provides the basis for the CDM market

Kyoto Protocol
The Protocol creates legally binding obligations for 38
industrialized countries to return their emissions of
greenhouse gases to an average of 5% below their 1990 levels
by 2012

Marrakech Accords
Define the principles of the Kyoto Protocol’s flexible
mechanisms: the Clean Development Mechanism (CDM),
Joint Implementation (JI) and Emissions Trading (ET)

8 8
The role of the Clean Development Mechanism (CDM)

Advantages for developed

countries:

Developed CDM allows relatively low-cost &

countries can politically acceptable
developed countries
reduce emissions
anywhere in the to generate ‘carbon
world credits’ (Certified
Emission
They can count Advantages for developing
these reductions Reductions, CERs)
countries:
towards their own in developing
targets countries inward investment,
environmental & technology
benefits

9 9
How a CDM project generates carbon credits

Carbon
Carbon credits
credits (CERs)
(CERs)
represent the difference
represent the difference
Greenhouse gas emissions

between
between the
the baseline
baseline and
and
actual
actual emissions
emissions

Project
Project start
start

Historical Trend Time

1010
Agenda

Carbon trading – what, why and how

Misconceptions about the carbon market

UNDP’s carbon strategy

A final thought

1111
Four misconceptions…

1 The CDM is all about climate change

1212
Actually, the CDM is ‘climate neutral’
Annex 1 country
buys CERs

Acquired CERs
are added and
national
CERs generated emissions cap
by CDM projects increases

Actual
greenhouse gas
emissions

‘Business as usual’
emissions

1313
The CDM is all about development

ODA Technology
Transfer
GEF
Poverty Sustainable
Reduction Development
PES Environmental
Benefits
CARBON

Carbon finance represents a supplementary source of funding for some

projects – and a means of catalysing development

1414
Four misconceptions…

1 The CDM is all about climate change

2 The CDM is too difficult

1515
In 3 years, the CDM has sparked a $5 billion/year market

Number of Projects in the CDM Pipeline,

January 2005 – March 2008 3,265
3,035
2,838
2,593
Compound
Compound Monthly
Monthly 2,285
Growth
Growth Rate
Rate == 11%
11%
1,885
1,759
Approximately
Approximately 33 billion
billion
CERs 1,495
CERs by
by 2012
2012 1,311
1,141
883
749
647
554
440
275
118 171
67 83

Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May July Sep Nov Jan Mar
05 05 05 05 05 05 06 06 06 06 06 06 07 07 07 07 07 07 08 08

1616
But sub-Saharan Africa is struggling…
Number of CDM Projects In Selected
Countries (March 2008)
(Registered projects & those at validation)

• 4 countries (China, India, Brazil and South

Korea) account for 70% of CDM projects and
80% of CERs through to 2012
2
• Sub-Saharan Africa accounts for 2% of
registered projects and 5% of CERs through 1
to 2012
0 0
• 88 non-Annex 1 countries have yet to benefit Kenya Tanzania Mozam- Ethiopia Zambia
from any registered CDM project activity bique

1717
Four misconceptions…

1 The CDM is all about climate change

2 The CDM is too difficult

3 Sub-Saharan Africa offers few CDM opportunities

1818
The CDM is about more than just heavy industry…

Clean energy
• Use of renewables (e.g. hydro power) to supply electricity to the
grid, to local communities and to commercial facilities

• Use of biomass residues for energy generation / cogeneration –

e.g. bagasse from the sugar industry, coffee husks from the
coffee industry, etc.

Wind power Run-of-river hydro Bagasse Timber residues

1919
The CDM is about more than just heavy industry…

Waste management
• Capturing the methane from animal waste, human waste
(sewage), agricultural waste (biomass) and urban landfills

• Can be combined with electricity generation to produce a

second stream of carbon credits

Animal waste Sewage / wastewater Landfill

2020
The CDM is about more than just heavy industry…

Bio-carbon
• Forestry plantations – e.g. restoration of mangrove forests

• Agro-forestry – e.g. shade crops, nitrogen capture in soils

• Bio-fuels – e.g. bio-ethanol from molasses, bio-diesel from palm oil

Forestry Agro-forestry Bio-fuels Transport

2121
China’s registered CDM projects
Other, 3%
Coal Mine Methane, 5%
Biomass Energy, 5%
Industrial Gas (HFCs), 6% Wind Power
37%
Landfill Gas, 6%

Energy Efficiency, 7%

Hydro Power Approximately

Approximately$915$915
152
152registered
registeredCDM
CDM 31% million
millionin
incarbon
carbon
projects
projects revenue
revenueperperyear
year

2222
Four misconceptions…

1 The CDM is all about climate change

2 The CDM is too difficult

3 Sub-Saharan Africa offers few CDM opportunities

4 CDM capacity development = lots of workshops

2323
Kelly’s Law of CDM Capacity Development

CDM capacity development

=
lots of workshops

2424
Violating Kelly’s Law

Workshops are necessary…but they are a means to an end

Virtuous Circle of Project Development

Enhanced
Enhanced
Capacity
Capacity capability
capability to
to CDM
CDM carbon
carbon
Development
Development + develop
develop + projects
projects
projects
projects

+
Learning By Doing & Replication Effect

2525
Agenda

Carbon trading – what, why and how

Misconceptions about the carbon market

UNDP’s carbon strategy

A final thought

2626
UNDP’s objective

Objective for
MDG Impact of Carbon Projects

UNDP

Current
CDM Market

Geographical & Sectoral Diversity of Carbon Projects

2727
UNDP’s two-pronged carbon strategy

Capacity Development
Creating an ‘operational’ CDM framework in participating countries –
an environment in which functioning public institutions are able to
effectively interact with the private sector to jointly develop carbon
projects.

MDG Carbon Facility

Provides support to project developers – through provision of a
comprehensive package of services to assist private-sector project
developers with the preparation and implementation of carbon
projects.

2828
CDM capacity development in southern / eastern Africa
• 6 participating countries:

– Ethiopia
– Tanzania
– Kenya
– Zambia
– Mauritius
– Mozambique

• Regional coordination, with in-country activities devolved to

National Project Coordinators

• Co-implementation arrangement with UNEP

• The project will be aligned with Government strategy and fully

‘joined up’: cross-Ministry participation

2929
How do we build national capacity to engage with the CDM?

Workshops, tutorials, technical support, awareness-raising,

PIN & PDD development, scoping studies…
…for the DNA, government ministries & agencies,
consultants, trade bodies, academics, project developers, etc.

Constant in-country presence – not fly in, fly out

Dual agency implementation – mutual strengths

Regional-level assistance and resources

3030
MDG Carbon Facility

UNDP MDG Carbon Facility Fortis

CDM Activities

Project Carbon
Development Banking
Services Services

Project
Proponents

www.mdgcarbonfacility.org

3131
Agenda

Carbon trading – what, why and how

Misconceptions about the carbon market

UNDP’s carbon strategy

A final thought

3232
A final thought…

The Kyoto Protocol mandates a 5% reduction in

greenhouse gas emissions from developed countries
• In the space of 3 years, this has led to the creation
of a CDM market worth $5 billion per year

A post-Kyoto agreement (post-2012) will have to mandate

a global reduction in greenhouse gases of approximately
50%
• The economic challenges – and opportunities – will
be enormous

3333
 End

Robert Kelly
Regional Coordinator, CDM Capacity Development,
Southern & Eastern Africa

robert.kelly@undp.org

3434