AN INTRODUCTION TO CARBON MARKETS

AN INTRODUCTION TO CARBON MARKETS

IATA & IETA WORKSHOP, NAIROBI

14-15 FEBRUARY 2017

WWW.CLIMATECARE.ORG

CLIMATECARE

• Based in Nairobi, UK and India• Works with corporate and government partners to develop and

implement their carbon management strategies • Develops carbon reduction projects, specialising in community energy

access programmes that deliver sustainable development alongside emission reductions

• IATA’s carbon offset partner for the IATA Voluntary Offset Program • Current Co-Chair of ICROA – the international voluntary carbon market

industry alliance promoting best practices • Strategic Partners of Gold Standard for Global Goals

WHAT IS A CARBON CREDIT?

A carbon credit is a tradeable instrument which represents either:

• A permit which gives the holder the right to emit one tonne of carbon dioxide or equivalent greenhouse gas (tCO2e) into the atmosphere

or

• A certificate from a project that represents the removal or avoidance of one 1 tCO2e from the atmosphere

THE CARBON MARKETS

As well as 2 distinct carbon credit types (Permits and Project-based credits), there are 2 distinct types of carbon market.

ComplianceMarkets for carbon credits created by the need to comply with a regulatory act. In a Cap-and-Trade emissions reductions market, actors buy and sell carbon credits to comply with the cap or limit imposed on their emissions.

VoluntaryCarbon market that functions outside of compliance markets. Enabling businesses, governments, NGOs, and individuals to voluntarily offset their emissions by purchasing carbon credits.

THE DIFFERENT TYPES OF CARBON CREDITS

Market Compliance Voluntary

Credit Type Permits to Pollute Project- Based Emission Reduction Credits

Project-Based Emission Reduction

CreditsDescription A ‘certificate to pollute’ one

tonne of CO2e. Number issued corresponds to the

emissions cap of the trading scheme

A carbon credit of 1 tonne generated from an

emission reduction project

A carbon credit of 1 tonne generated from an emission reduction

project

Issued by National Governments/Agencies

Certification body recognised by the

Compliance Scheme

e.g. UN Clean Development Mechanism (CDM),

California Climate Action Reserve

Independent certification bodies

e.g Verified Carbon Standard (VCS), Gold

Standard

Examples European Union Allowance (EUA)

Certified Emission Reduction (CER)

Verified Carbon Unit (VCU), Gold Standard

Verified Emission Reductions (GS VER)

CARBON CREDITS FROM PROJECTS

CORSIA will require airlines to offset through project based credits – although the eligible types of projects, project locations and verification standards are still to be determined by ICAO

Common Project Technologies

Source: Ecosystem Marketplace

CARBON CREDIT STANDARDS

Source: Ecosystem Marketplace

CURRENT GLOBAL LANDSCAPE

Source: IBRD/World Bank 2016

MARKET HISTORY

Source: IBRD/World Bank 2016

ICAO projections of the emissions to be offset (left) and the costs of CORSIA (right)

FACTORS AFFECTING FUTURE SUPPLY AND DEMAND

ICAO’S FORECAST DEMAND

Figure 1: ICAO projections of the emissions to be offset (left) and the costs of CORSIA (right)

FACTORS AFFECTING FUTURE SUPPLY AND DEMAND

KEY DECISIONS/ISSUES THAT WILL AFFECT SUPPLY FOR CORSIA

1. What type(s) of carbon credits will be eligible for CORSIA? a) Existing standards: UNFCCC or Voluntary Market credits?b) Will individual projects have to be accredited?

2. What will be the role of project-based carbon credits in the Paris Agreement? a) All countries make reductions under Paris. Can project developers

sell reductions to airlines?3. Will project developers be able to unlock enough carbon finance to

incentivise them to develop new projects or to operate existing projects? a) Developers have to see demand (and often actual contracts) in order

to either develop their project or carry out “carbon asset development”

4. Will the aviation industry take a role pre-2026 to support the carbon market and ensure adequate supply?

TOM MORTONDirectorE: [email protected]

www.climatecare.org@ClimateCare

THANK YOU!