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    The UN climate change negotiations in Tianjin, the fnal meeting beorethe high-level gathering in Cancun in November and December,

    concluded with mild progress, according to reports. It seems going

    into climate talks with a distinct lack o expectation can lead to a

    generally positive outcome.

    Thats not to say pessimism about Cancun will logically reignite the UN climate

    process. Until China and the US settle their dierences which isnt going to

    happen in the near term because o the US domestic political impasse concluding

    a new climate deal is unlikely.

    A question that has been asked by many people since last years chaos in

    Copenhagen, is whether or not the UN can still be the main orum to achieve

    concrete decisions or such an important issue as tackling global warming?

    The Copenhagen accord, or example, is a non-binding agreement. Its annexesnow include many pledges rom countries to reduce their greenhouse gas emissions

    that are not ofcially enshrined at the UN level. Many o these pledges include

    domestic targets or reductions in developing countries, such as Brazil, which is the

    ocus o this months special report.

    Some developed countries are already considering mechanisms outside the UN

    system. Japan, or example, has proposed a bilateral system or carbon crediting.

    This system is in its early stages o development and, whether or not it comes to

    ruition, may ultimately depend on the current UN process coming to a conclusion

    some time over the next two years.

    One o the reasons that Japan has moved orward with its own plans or a

    crediting scheme is rustration with the workings o the UN market-based

    mechanisms. And it seems the clean development mechanism (CDM) could get

    a whole lot more complicated i the executive board gets its way with increasingthe liabilities or project auditors. Really, why as a business would you bother with

    something that is as unpredictable as the CDM?

    Even outside o the CDM, one company profled in an early issue o Trading

    Carbon, and revisited in this issue, has orgone the route o carbon fnance or its

    plans or ocean iron ertilisation. It has not been helped by a slow regulatory process

    at the UN level this time the International Maritime Organisation London

    Convention (just or permits to work in sovereign waters). NGO opposition, on the

    ethical grounds, has also had an impact. As a result, the company has concluded

    that it cant wait or money to come through carbon fnance to und what it believes

    could have a signifcant impact on reducing carbon emissions.

    Carbon fnance has already slipped down the radar to become more and more

    a component o the wider category o climate fnance. I we want to prevent itslipping urther, complicating the rules is not the way orward especially as the

    role o auditors will become ever more important in the monitoring, reporting and

    verifcation required or any uture system o nationally appropriate mitigation

    actions (Namas). l

    COMMENT 01

    Trading CarbonManaging editor Andrew Allan

    EditorRobin Lancaster

    Deputy editor Susanna Twidale

    PublisherDan Rabey

    Art editorMatt Hadfeld

    ContributorsValerie Volcovici, Rory

    Carroll and John McGarrity

    Editorial enquiries

    T +44 (0)1943 605279

    T+44 (0)20 7017 2884

    Subscriptions and salesDan Rabey

    [email protected]

    T +44 (0)20 7017 2875

    Annual subscription 499

    Trading Carbon

    Point Carbon Thomson Reuters

    Second Floor

    102108 Clerkenwell Road

    London, EC1M 5SA

    United Kingdom

    T +44 (0)20 7017 2875F +44 (0)20 7253 7856

    Cover image Corbis

    A Point Carbon publication copyright 2010 All

    rights reserved. No portion o this publication may be

    photocopied, reproduced, scanned into an electronic

    retrieval system, copied to a database, retransmitted,

    orwarded or otherwise redistributed without prior written

    authorisation rom Point Carbon. Breach o these terms

    is illegal and punishable by fnes o up to 50,000 per

    violation. See Point Carbons Terms and Conditions at

    www.pointcarbon.com.

    ISSN 1756-1655

    Trading Carbon is printed on recycled paper

    Editorial Robin Lancaster, [email protected]

    November 2010

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    November 2010

    04 INSIDE

    Volume 04 |Issue 09 |November 2010

    www.pointcarbon.com

    contents

    12

    01 Editorial

    06 News

    10 On the move

    16 Opinion

    A simple plan

    Bruce Braine oers an idea thatcould get carbon cap-and-trade

    back on the US political agenda

    17 People

    James Atkins

    Susanna Twidale talks to the

    chairman o Vertis Environmental

    Finance about climate change and

    ootball

    18 Special report: Brazil

    Low-carbon leaderValerie Volcovici reports on

    the countrys eorts to cut its

    greenhouse gas emissions and the

    role carbon markets could play

    30 Clean development mechanism

    Risky business

    Susanna Twidale reports on the

    executive boards plans to make

    auditors more accountable or

    mistakes in the issuance o credits

    42 OpinionChoose lie cycle

    To measure a products carbon

    ootprint accurately, a lie-cycle

    assessment is needed, says

    Michael Delle Selve

    44 Data

    Cover story

    CrossfreA low-carbon economy is oten touted as a uture source o new jobs and

    innovation in countries where employment has been hit by the global economic

    crisis. However, some argue that eorts to fght climate change are too costly, and

    that they could put companies out o business and increase unemployment.

    Robin Lancaster examines both sides o the coin, and reports on the impact oclimate policy on jobs.

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    INSIDE 05

    24 Transport

    Looking or the sustainable road

    Holger Dalkmann and Anne

    Binsted discuss plans or a sectoral

    approach to reduce transport

    emissions

    26 North America

    A fght to the fnishNovembers elections could have

    a signifcant impact on regional

    climate change eorts in the US.

    Rory Carroll reports

    28 Joint implementation

    Bridging the gap

    Lennard de Klerk discusses ways to

    extend carbon trading in Ukraine

    and Russia post 2012

    32 TechnologyRed, amber and green lights

    Getting the frst programmatic

    clean development mechanism

    project approved was a learning-

    by-doing experience, says Dougal

    McInnes

    36 Montreal protocol

    In the ozone?

    Could a proposal to amend the

    Montreal protocol solve the HFC 23

    destruction project problem?

    John McGarrity reports

    38 Company profles

    Company heads revisited

    Robin Lancaster charts the progress

    o some o the start-up companies

    profled in Trading Carbon

    40 Climate fnance

    The next steps

    What structures are needed to

    supply the fnance required to

    deliver signifcant global emissionreductions? Asks Jorg Hass and

    Maria Blazogiannaki

    18 24

    26 28

    32 36

    November 2010

    Does anybody really believe these companies out of thegoodness of their black oil hearts are spending millions andmillions of dollars to save jobs? This is like Eva Braun writinga kosher cookbook Arnold Schwarzenegger, governor of California

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    November 2010

    06

    News

    www.pointcarbon.com

    The week-long UN climate talks in Tianjin, China

    closed on 9 October with countries citing limited steps to a

    global deal. The head o the UN Framework Convention on

    Climate Change (UNFCCC) rounded o the meeting, by

    saying the 194 countries had moved closer to working out

    what can be agreed at this years high-level climate summit

    in Cancun in November and December.

    We do have a drat decision text that can be submittedto Cancun. That is very concrete work o this week, said

    Christiana Figueres, executive secretary o the UNFCCC. She

    is aiming to get work completed on an adaptation ramework,

    a mechanism to allow technology transer between developed

    and developing nations, a new und or long-term climate

    nance and a pilot phase to reduce deorestation.

    Figueres wants countries to put more contentious areas,

    such as mitigation and long-term nance, on the back

    burner. But she admitted, that all issues remain on the table

    or urther work in Cancun.

    Several major parties to the UNFCCC, including the EU,

    agree that Figueres approach is the most eective way tocounter deadlock, but others maintain that all elements o a

    climate deal should be worked on simultaneously.

    To cherry-pick some issues and not nd a balance or

    all, that will not work, said Jonathan Pershing, US lead

    negotiator. We have made some very modest progress, but

    unortunately it has been quite limited, he said. The key

    issues o mitigation and how to report on those actions

    remain ar rom a resolution, he added.

    The Tianjin talks have been dogged by continued

    bickering between the US and China, which together emit

    almost hal o global greenhouse gas (GHG) emissions. Su

    Wei, a senior negotiator or China hit back at US calls or his

    country to agree similar emissions reduction commitmentsto major polluters in the industrialised world. (The US)

    has no measures or actions to show or itsel and instead

    it criticises China, which is actively taking measures and

    actions, he said.

    The UNs Figueres stressed that the US and China were

    committed to resolving their dierences and added that

    other parties were being more constructive. Most o the

    other countries have been moving orward with the text at

    hand, she said.

    Julie-Anne Richards, international policy coordinator at

    the Climate Action Network, a coalition o green groups,

    said parties had been constructive in eorts to direct thetalks towards a comprehensive legally-binding package

    to tackle climate change. Such an agreement is broadly

    expected to be nalised in South Arica in December 2011.

    We havent seen such a positive spirit o negotiation or

    years, she said, reerring to the developed country emission

    reduction commitments under the Kyoto protocol strand o

    the talks, to which the US is not a party.

    During the Tianjin talks, the EU, along with Australia,

    Norway and Switzerland have said they are aiming or

    the Cancun package to include a pledge to a second Kyoto

    commitment period, Richards added.

    The EU and others are seeking to rebuild the trust o

    developing countries by showing they are prepared totake on new targets post 2012 under the current Kyoto

    ramework. This is because they realise the US is unlikely

    to be part o a legally-binding agreement without domestic

    legislation in place. Something that will not happen in the

    near term.

    Developing countries have been reluctant to take climate

    action o their own, because they ear rich nations will

    backtrack on the 1997 pact, which remains the only legally-

    binding international commitment to limiting GHG

    emissions.

    We have seen some progress (in Tianjin), but it has been

    uneven, said Peter Wittoek, the lead negotiator or Belgium,which holds the rotating EU presidency. The bloc wants

    pledges made by rich and poor countries alike anchored

    in an agreement at Decembers climate summit as part o a

    balanced package o measures to be taken.

    UN talks end with modest progress

    Executive secretary o the UNFCCC Christiana Figueres

    speaks at the opening session o the UN talks in Tianjin

    JA

    SONLEE/REUTERS

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    November 2010

    08

    www.pointcarbon.com

    The European Climate Exchange (ECX), Europes most

    liquid carbon bourse, plans to launch a utures contract in

    carbon credits rom joint implementation projects. The

    London-headquartered online exchange said on 11 October

    that it would host trading in emissions reduction units(ERUs) rom 8 November.

    The plans will be roughly along the lines o the

    contracts or secondary certied emissions reductions rom

    clean development mechanism (CDM) projects, which ECX

    rst oered or trading in 2008, the exchange said.

    The main contract or credits rom JI which together

    with the CDM make up the project-based fexible

    mechanisms o the Kyoto protocol will be a December

    uture or the relevant year. The contract size will be one loto 1,000 ERUs, with positions reported on a daily basis.

    ECX becomes the second exchange to oer ERUs on the

    secondary market, ater Amsterdam-based exchange Climex

    last year launched a secondary market in JI credits.

    Green Exchange said on 11 October that units o Credit

    Suisse, Goldman Sachs, JP Morgan, MF Global, Morgan

    Stanley and Newedge have been approved to join the

    exchanges rst clearing member, BNP Paribas Commodity

    Futures. This will entitle the members to clear their

    customers deals on the exchange and will take eect rom

    24 January 2011.

    The bourse will begin to operate as a standalone exchange

    rom that date, breaking rom the New York Mercantile

    Exchange (Nymex), where its derivative products are

    currently listed.

    Green Exchange oers December-expiring utures

    contracts or EUAs and UN certied emissions reductions

    (CERs). The exchange is oering a ee-ree holiday or

    all products until 1 January and plans to list a daily EUA

    uture rom 1 November, which will run on the Nymex

    platorm until the business is ully transerred. It also oers

    options products and contracts or US markets the Regional

    Greenhouse Gas Initiative and the Climate Action Reserve.The OTC market accounts or about 31 per cent o all

    EUAs traded, with approximately 1.2 billion changing hands

    through brokers out o 3.9 billion traded, so ar, this year.

    Clearing has been a booming industry in the past two

    years, as traders focked to exchanges to clear deals because

    o increased ears about counterparty risk prompted by the

    nancial crisis. Competition is sti, with Bluenext, European

    Energy Exchange, Nord Pool and Green Market all seeking

    to take market share in the lucrative clearing business. But,

    while the exchanges also oer screen trading and clearing

    services to bolster revenue, LCH Clearnet does not.

    EU emissions trading scheme (ETS) clearing services

    provider LCH Clearnet handled 16.2 million allowances

    (EUAs) in September. The company, which launched in July

    2009, has now become the second largest provider ater the

    European Climate Exchange (ECX) o cleared services in

    the over-the-counter (OTC) European carbon market. But

    competition or clearing services is set to hot up, with carbon

    utures platorm Green Exchange announcing that six rms

    will become clearing members in 2011.

    The ECX remains by ar the largest provider o OTC

    cleared services or utures contracts handling almost 90

    million EU allowances over the course o September and justover 1 billion since the start o the year. LCH Clearnet has

    cleared more than 100 million, so ar, this year, taking a 10 per

    cent market share in the utures market.

    OTC transaction fow is a signicant proportion o the

    emissions markets, said Phil Brown, chie executive ocer

    o Climate Markets, which promotes LCH Clearnet products.

    We have worked hard with the brokerage community and

    major clients to develop an ecient, cost eective and risk

    reducing clearing service. Our open interest continues to

    steadily grow along with our market share and customer

    base, he added.

    ECX to launch JI contracts

    REUTERS/ChRISTINNEMUSChI

    Competition orclearing services hots

    up in EU ETS

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    10 NEWS

    www.pointcarbon.com

    On the move

    Sven Kolmetz has been appointed project portolio director

    at climate change fnancing company Climate Bridge. He

    was previously head o the carbon department at emissions

    reduction project auditor Tuev Sued. His knowledge, skills

    and leadership will be invaluable as we develop our existing

    portolio o projects and also as we seek to source new

    (clean development mechanism) CDM projects in China

    and around the world, said Climate Bridge chie executive

    ofcer (CEO) Alex Wyatt. Climate Bridge has a portolio o

    more than 150 emissions reduction projects in both the

    voluntary and compliance carbon markets across the globe.

    James Emanuel has joined US agricultural group Archer

    Daniels Midland Investor Services in its London ofce ashead o environmental markets. Emanuel was previously

    a director at environmental market products broker

    CantorCO2e.

    The Carbon Disclosure Project has appointed Paul Simpson

    as CEO. He was previously chie operating ofcer at the

    London-based not-or-proft organisation, which gathers

    emissions data rom businesses around the world.

    Yvo de Boer, ormer executive secretary o the UN

    Framework Convention on Climate Change, has been

    appointed to the board o the Carbon Market & InvestorsAssociation. He is joined by Abyd Karmali,London-based

    managing director at Bank o America Merrill Lynch, who

    has been re-elected and will serve as president or the

    next two years. Matthew Whittell, chie fnancial ofcer

    at Climate Exchange, and Mike Bess, head o policy and

    strategy at emission reduction project developer Camco

    International, have also been elected to the board.

    Denise Sheehan (above) has been appointed executive

    director o the Climate Registry. She will replace Dianne

    Wittenberg, who has led the North America-based registry

    since it began in 2007. Sheehan was previously vice-

    president o government

    and regional aairs

    at the registry and

    has also worked

    at the New York

    state Department

    o Environmental

    Conservation.

    Wittenberg will

    continue to work

    with the registry and

    has been appointed

    director emeritus.The registry aims

    to set consistent

    and transparent

    standards

    to calculate, veriy and publicly report greenhouse gas

    emissions into a single registry in North America.

    Mark Grundy (below) has let his role as vice president in

    corporate and social responsibility at pubic relations frm

    Edleman to take up the post o director o communications

    at Carbon War Room (CWR). CWR is a group o

    entrepreneurs, including Richard Branson, who aim to

    develop market-based solutions to climate change. Grundy

    will be based in the organisations New York ofce.

    New Zealands Agriculture Minister David Carter has set

    up an agriculture emissions trading scheme advisory

    committee. Chaired by ormer MP and chie executive o

    the countrys ood and grocery council, Katherine Rich, the

    committee also includes representatives rom industry,

    research groups and the Maori population. This high

    calibre committee will lend weight to understanding

    agricultures role in the emissions trading scheme leading

    up to its planned implementation in 2015, Carter said.

    Lena Ruthner has joined consultancy AEA Group as a

    specialist consultant. She will primarily be working on EU

    and international projects in the felds o energy and climate

    change and will be based in the companys London ofce.

    Ruthner was previously programme manager, international

    policy at The Climate Group in London.

    Natsource managing director Dirk Forrister is to leave the

    company ater 10 years. He will remain as a consultant or

    the US-based environmental asset management frm or the

    next ew months and will then pursue other opportunities

    in the climate and clean energy space.

    Brokerage Carbon Desk opened a new ofce in Geneva on1 October. Three members o sta will take care o the

    desk, including two new hires, yet to be announced, and

    options traderJason Ward, who currently works in the

    London ofce.

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    T

    here is no denying that climate change policies

    provoke strong reactions rom both proponents

    and detractors. You only have to look at the debatesthat took place in the US over Congressional

    climate plans or in Australia over the stalled plans or a

    carbon pollution reduction scheme (CPRS) to see the eort

    put into critiques or praise. Not to mention the continuing

    discussions about the level o support or industries covered

    by the EU emissions trading scheme (ETS).

    One issue that is always at the centre o climate policy

    debates is the impact on employment. And the jobs

    question has become even more paramount given the

    economic crisis still acing much o the world. Many o the

    arguments against the introduction o a carbon constraint

    highlight the negative eects on already ragile economies.At the same time, there are also people o the opinion that

    moving to low-carbon economies could a have positive

    eect on job markets.

    On 28 September, or example, Cal Dooley, president

    and chie executive ocer o the American Chemistry

    Council (ACC), called or a delay in the introduction o US

    Environmental Protection Agency (EPA) rules to control

    greenhouse gas (GHG) emissions rom stationary sources,

    such as industrial acilities and power plants. This will

    orce the postponement o planned investments in new

    industrial acilities, meaning ewer jobs will be created and

    existing jobs will be lost, he said.

    Dooley and the ACC werent alone. They were one o 16US industry organisations calling on Congress to suspend

    EPA action. Among other things, in a letter to key Senators,

    they ear that the regulations would divert capital that

    might otherwise create jobs. The letter ended by saying a

    moratorium on the GHG rules will be a necessary tool to

    allow Congress to establish the appropriate policy to control

    greenhouse gas emissions.

    In July, Dooley had also opposed Senate proposals or a

    utility-based carbon cap-and-trade scheme; proposals that

    did not reach a foor vote. One o his concerns was that the

    trading system could stife job creation. The intention here

    is not to suggest that the council or the other organisationsare simply anti global warming legislation Dooley said

    back in July 2009 that the ACC is totally and absolutely

    committed to a policy that will address climate change. But

    it does highlight that worries over employment are at the

    oreront o the discussion on controlling GHG emissions,

    and not just in the US.

    The August general election in Australia saw the rulingLabor party hang on to power, albeit through the support

    o independents and the Greens. The victory brings climate

    policy and carbon pricing back on the political agenda

    in the country, ater the ailure o the previous Labor

    government to pass a bill establishing the CPRS. Industry

    representatives have been quick to respond.

    Due to the trade exposed nature o our economy, a

    carbon price will be detrimental to our international

    competitiveness, export jobs and economic expansion

    activities, Greg Evans, economics and industry policy

    director at the Australian Chamber o Commerce and

    Industry (ACCI) in Canberra, told Trading Carbon.In a letter to the Australian Financial Review on 4

    October, Evans said expectations that a move to a low-carbon

    economy in the country will be accompanied by signicant

    economic opportunities ... is nave and misleading.

    He cited as his reasons lack o genuine competition in

    Australias energy markets, reliance on subsidies or

    renewables, higher transmission costs and the expensive

    nature o gas-red generation in the country, among others.

    For some, the concerns listed above come as no surprise.

    It is always the same argument rom industry, said

    Belen Balanya, ounder and researcher at Corporate

    Europe Observatory (CEO), a Brussels-based research and

    campaign group. I youre trying to regulate emissions

    or the environment, it means competition in jobs to

    industry, she said. CEOs main ocus in this area has been

    on the EU ETS. The arguments work quite well with EU

    decision makers and governments to deend their nationalindustries, she added.

    In a May report, CEO criticised several industries covered

    by the scheme or what it called scaremongering about

    job losses. This lobbying had helped companies to receive

    13COVER STORY

    Robin Lancastertries to fnd a clear picture o the impacto climate policy on jobs

    CORBIS

    A carbon price will bedetrimental to export jobs andeconomic expansionGreg Evans, Australian Chamber o Commerce & Industry

    November 2010

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    COVER STORY

    www.pointcarbon.com

    ree allocations o EU allowances (EUAs) above what they

    required in the rst two phases o the ETS (20052007 and

    20082012), it said. Continued industry lobbying, using

    threats o relocation, could mean that the third phase o

    the scheme (20132020) would ensure that the ETS will

    remain a way o providing signicant subsidies or some o

    Europes worst polluters, the paper added.

    Phase three o the EU ETS will see a shit away rom

    almost universal ree allocations o allowances to industry.

    But some businesses, which have been designated trade

    exposed to competitors outside the EU trading system

    will continue to receive some ree allowances rom 2013

    through a benchmarking system. The system is based on

    the average perormance o the 10 per cent most ecient

    installations in 20072008 or each sector. The European

    commission has identied more than 160 such sectors.

    One industry designated as trade exposed by the

    commission is cement. A 2008 report by the Boston

    Consulting Group a global management consultancy or Cembureau, which represents the European cement

    industry, estimated that the sector would be decimated

    without continued ree allocations in phase three.

    According to the report, a price o 25 ($35) a tonne o

    carbon dixoide (t/CO2) in 2020 would mean about 35,000

    direct job losses and 80 per cent o Europes cement industry

    relocating outside the region. A 35/t price would result in

    approximately 40,000 direct job losses and all o Europes

    cement industry moving beyond the EU. On 12 October,

    the settlement price on the European Climate Exchange or

    EUAs or delivery in December 2013 the rst year o phase

    three was 17.86/t.The CEO report disputed the analysis. It said there is no

    economic evidence to back the claims in the Cembureau

    report. CEO suggested that a very low criteria or assessing

    the risk was used to determine which industries would

    continue to receive ree allowances. Cembureau had not

    responded to questions about CEOs assertions, as Trading

    Carbon went to press.

    In Australia, Tony Mohr, Sydney-based manager o the

    climate change program at the Australian Conservation

    Foundation (ACF), said oten spurious claims that reducing

    emissions would cost jobs were one o the motivations or a

    report the ACF commissioned with the Australian Council

    o Trade Unions (ACTU).

    The analysis, Creating jobs cutting pollution: the

    roadmap or a cleaner, stronger economy, was conducted by

    the National Institute o Economic and Industry Research,

    a Melbourne-based consultancy. According to its ndings,

    strong action on climate, which included a price on carbon

    and other measures, such as energy eciency strategies

    will create 3.7 million jobs across Australias economy by

    2030. We expected some industries to dispute the results, but

    that hasnt happened, said Mohr.

    But ACCIs Evans told Trading Carbon, To argue the

    case or reducing emissions or environmental reasons

    is one matter, but to say it will produce a jobs dividend is

    not plausible. He called on Australias Treasury to model

    various carbon pricing scenarios.

    The ACF/ACTU report is not alone in suggesting job

    stimulation could result rom a low-carbon development

    path. Other analysis includes a 2009 report by the Political

    Economy Research Institute (Peri), part o the University o

    Massachusetts, or the Center or American Progress, a US-

    based think tank. The paper looked at how the AmericanClean Energy and Security Act, which passed the House

    o Representatives in June 2006, and other policies, could

    benet the US economy.

    The Senate ailed to ollow the House with passage o

    a climate bill. And there is now uncertainty over whether

    Congress will revisit the issue or let the EPA go orward

    with regulation. This situation has led some observers in the

    US to raise questions about the costs o not taking action.

    Three US business organisations American Businesses

    or Clean Energy, Small Business Majority and Main Street

    November 2010

    14

    Analysis by UK-based NGO Sandbag suggests that some

    companies that have bought UN carbon credits or

    compliance in the EU emissions trading scheme may be

    exacerbating concerns about carbon leakage and overseas

    competition (see main text).

    According to Sandbag, our steel plants in the EU

    scheme used certied emissions reductions (CERs) rom

    clean development mechanism (CDM) projects at steel

    plants in developing countries to help meet GHG targets.

    For example, 22,000 o the CERs used or EU ETS

    compliance in 2009 by the Integriertes HuttenwerkDuisberg steel plant in Germany came rom CDM projects

    at two steel plants one in India and one in China. Damien

    Morris, campaigns manager at Sandbag said, A lot o the

    carbon osets are supporting competitor industries in

    developing countries. Industry is inconsistent on this.

    The Duisberg plant is owned by Germanys steel giant

    Thyssen Krupp. The companys emissions trading manager,

    Markus Weber, told Trading Carbon that there is no

    intention to buy rom an overseas competitor.

    The CERs in Sandbags report were not bought directly

    rom the project primary market but on the secondary

    market (where credits with guaranteed delivery are

    traded), he added. I we are buying CERs on the secondary

    market we have no infuence over what type o CERs romwhich project type are delivered to us. From a company

    perspective, it is a simple economical choice to buy cheaper

    CERs than EU allowances, he said.

    Its always the same reaction... regulating emissions meanscompetition for jobs to industry

    Belen Balanya, Corporate Europe Observatory

    Subsidies, osets or carbon leakage?

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    15COVER STORY

    (a crucial component o cement) being replaced by overseas

    production. For aluminium, it said the volume eects are

    smaller and even more uncertain, as leakage is related to

    individual plants and contract lengths.

    But aluminium, which isnt directly covered by a carbon

    cap until 2013, is one industry that has seen a plant close

    because o the EU ETS, said Robert Jeekel, Brussels-based

    director o energy and climate change at the European

    Association o Metals, which represents the non-errous

    metals industry.

    He cited an aluminium plant in Anglesey in the UK that

    closed down last year because o increased electricity prices.Anglesey closed down because o power prices and a big part

    o that is carbon, said Jeekel. The problem is that we have a

    global pricing system and so cant pass on our costs.

    Anglesey Aluminium Metal, jointly owned by Rio Tinto

    and Kaiser Aluminium, ceased production in 2009 because it

    could not source a commercially viable power contract, the

    company said in a statement. Global aluminium prices are set

    by the London Metal Exchange.

    Jeekel added that there is no new investment in aluminium

    at the moment as a result o the EU ETS, despite demand

    increasing or the metal. We cannot make long-term capital

    investments because we have no clue what the carbon price

    is going to be, he said, reerring to the infuence o the yet-to-be-decided benchmarks to determine allowance allocation

    post 2012.

    The claims and counter claims, highlighted above, are

    just a snapshot o numeous reports and papers addressing

    the economic impacts o climate policies. Many o the

    conclusions seem aligned to which industry or interest group

    has commissioned or conducted the analysis. And oten they

    are predicated on assumptions, which may or may not come

    to ruition, to predict the uture scenarios.

    So ar, the only actual carbon cap-and-trade scheme in

    operation or any length o time is the EU ETS. Phase three

    will be a crucial test or many o the hypotheses underlyingthe reports eatured above. While no-one should want to see

    industries laid to waste or moving production to less stringent

    environmental bases, it should be remembered that the

    ultimate aim o these policies is to reduce GHG emissions. l

    Alliance on 14 September released a report called A costly

    climate o inaction. The analysis concluded that, as a result

    o the Senate halting its eorts to pass climate legislation on

    22 July, 1.9 million new jobs in the US had been lost. There

    is already clear evidence that the investments that would uel

    such new jobs are shiting to other nations, notably China,

    the report said.

    Others agreed that the USs slow pace to embrace policies

    that promote cleaner energy could be bad or its economy in

    the long term. The longer we wait, more and more clean

    technologies are going to be produced elsewhere and well

    have to import them, said Heidi Garrett-Pelter, a research

    ellow at Peri and co-author o the 2009 report. We are not

    only delaying jobs we could have now, but also uture job

    creativity, she said.

    According to Mark Fulton, managing director and global

    head o climate change investment research at Deutsche

    Banks asset management division in New York, US ederal

    and state governments are at a crucial cross-road in theirpolicy stance on clean energy; will they take action to

    deepen and extend policies or will they all behind other

    countries around the world?

    Fulton was giving testimony to the House select

    committee on energy independence and global warming

    on 22 September. The stakes are high in terms o energy

    security, new jobs and industries and the climate, he

    said. Uncertainty abounds These uncertainties are

    discouraging capital deployment in the US in the long

    term, he added.

    Earlier in September, Ernst & Young (E&Y) released

    indices outlining the most attractive countries or investingin renewable energy. While the report is not ocussed

    directly on carbon emissions reduction regulation,

    investment in renewables is seen by many as a direct

    response to such measures.

    It ound that the US had allen behind China as the

    most attractive country or renewable energy investment.

    Although the US remains a highly attractive location

    or investors in renewable energy, it is clear that recent

    events have stalled momentum, said Ben Warren, E&Ys

    environment and energy inrastructure advisory leader on

    the day o the publication o the indices.

    According to ACFs Mohr, a similar situation could arise

    in Australia, a near neighbour to China. Weve already hada solar brain drain as our best innovators leave Australia and

    look or countries with more supportive policy. The longer

    we wait, the urther we all behind, he said.

    In Europe, there are also concerns about what is

    happening in countries outside o the EU ETS region. In

    particular, the big concerns are so-called carbon leakage,

    as well as the trade exposure highlighted above. The ormer

    term reers to the potential or an industry covered by a

    carbon constraint to move to a country or region without

    similar restrictions. Thus, leakage results because emissions

    shit elsewhere (see box).

    A March report entitled Tackling Carbon Leakage by theUK-based Carbon Trust identied aluminium, cement and

    steel as potentially being the most exposed sectors to carbon

    leakage in phase three o the EU ETS. The report ound that

    a maximum exposure o 510 per cent or steel and clinkerISTOCK

    November 2010

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    16 OPINION

    Novmb 2010 www.pointcarbon.com

    ASimplePlanBringing carBon cap-and-trade Back on to the political

    agenda in the US will not Be eaSy. Bruce BraINe oUtlineSone approach that coUld Be taken

    Cap-and-trade proved to be a cost-

    eective, market-based approach

    that reduced sulphur dioxide (SO2)

    emissions in the US in the last two

    decades. When adopted in 1990, it had ull

    support o then President George HW Bush,

    a Republican, and bipartisan Congressional

    backing. But today the same mechanismhas been vilied as part o a plan to address

    greenhouse gas (GHG) emissions. It has been

    branded during current political campaigns as

    cap and tax or as a national energy tax.

    What happened to splinter bipartisan support

    or a successul emissions reduction programme?

    And can cap-and-trade be salvaged or inclusion

    in uture schemes to address GHG emissions?

    The what happened? is simple: Through

    eorts o many in Congress, the cap-and-trade

    system was structured to not only achieve

    emission reductions cost-eectively, but also toproduce revenues or government.

    Cap-and-trade bills created allowances,

    many o which were to be auctioned to bring

    additional unds or government. These unds

    would be used or decit reduction or, in some

    cases, or activities unrelated to climate.

    Unlike SO2, where system costs addressed

    environmental concerns, the eorts to use

    climate cap-and-trade to ll government coers

    made it easy to attach a tax label.

    Consumers would see increased energy costs,

    in part to und GHG reductions, but also to und

    other programmes. This led to lengthy proposals both the Senate and House o Representative

    bills were 1,000+ pages long that created

    the perception that the legislation was

    tax-and-spend politics rather than a

    serious energy/environmental bill.

    The allowance provisions in

    cap-and-trade also became linked to

    the Wall Street banking meltdown.

    Opponents equated allowances to a new

    derivative that would enrich Wall Street

    at the expense o Main Street.

    Cap-and-trade is an importantoption that provides nancial

    fexibility or compliance

    and should be the

    centrepiece o any GHG

    B Bin, aeP:

    an missions dit

    systm my b

    pfbl to n

    llown shm

    reduction plan. But salvaging it in the US will be

    dicult and a lengthy process.

    First, any renewed eort to include market-

    based mechanisms in uture legislation must

    strip away all revenue-producing elements

    that have burdened GHG emissions trading

    proposals, leaving a simple, basic plan.

    Second, it may be preerable to design anemissions reduction credit system rather than an

    allowance system. In this process, only acilities

    that reduce carbon dioxide (CO2) beyond what

    is required would create emissions credits that

    could then be sold to others to oset emissions.

    For instance, i a acility aced a requirement

    to reduce CO2 emissions by 50 tons, but managed

    a 70-ton reduction, that acility would create 20

    emissions credits that would have value on the

    market. Other acilities acing similar reduction

    requirements could comply either by making

    physical reductions or by osetting reductionsby buying these credits.

    This approach creates cost-eective options

    or compliance, while producing revenue to

    oset compliance costs or those creating credits.

    Similar to allowances, credits could be earned or

    emission oset activities outside the cap, such as

    tree planting and methane destruction.

    This system retains all the benets o a

    cap-and-trade programme, but eliminates

    the allowance systems biggest pitall the

    temptation or lawmakers to auction allowances

    that is to say, tax consumers or other

    governmental purposes. It ensures that consumercosts are directly tied to the costs o emissions

    reductions and not to lling government coers.

    An emissions reduction credit system would

    not be as simple as Ive described. Details would

    have to be feshed out so the scheme would work

    eectively and equitably across industry sectors.

    The challenge or developers o this or any

    other related concept will be to keep the ocus on

    emissions and on energy. It must not be hijacked

    or ederal budget purposes. Weve been down

    that road beore. Its a dead end.l

    Bruce Braine is vice president strategic

    policy analysis at US utility American

    Electric Power

    Email: [email protected]

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    17PEOPLE

    November 2010

    JamesAtkinsSuSaNNa TwidaLEtalks to James atkins about emission

    reductions and football fanatics

    ames Atkins has been chairman

    o green fnancing house Vertis

    Environmental Finance since 2001.

    Based in Hungary, the company

    has helped clients with joint

    implementation (JI UN backed

    emission reduction projects in industrialised

    countries) in central and eastern Europe.We did work on a couple o CDM (clean

    development mechanism UN schemes in

    developing countries) projects, but the process o

    registration and validation dragged on so long

    that we just gave up, Atkins said.

    Our main ocus now is brokerage in the

    EU emissions trading scheme (ETS), we have a

    lot o JI knowledge in linking ERUs (JI carbon

    credits) rom eastern Europe to the EU ETS, but

    we dont have our eyes solely ocused on central

    and eastern Europe, he added.

    One potential area o development isthe burgeoning JI market in New Zealand,

    although Atkins said discussions between Vertis

    and project developers in the country are at an

    early stage.

    The continuation o JI post 2012, ater the

    Kyoto protocols current commitment period

    expires, will be up or discussion at the high-

    level climate change talks in Cancun at the end

    o the year. But Atkins said he does not have any

    particular expectations about what the outcome

    o the talks will be. There is not a lot o point

    speculating how things will develop, you

    cannot rely on politicians and regulators to dothe right thing; we just have to be able to adapt

    and change as things evolve, he said.

    When JI was frst introduced

    some people eared that i

    emission reductions happened

    at installations covered by

    the EU ETS there could

    be double counting o

    reductions. This is because

    each ERU needs to be taken

    rom the host countrys

    allowance o assignedamount units (AAUs) the

    units that are equivalent to the

    total volume o greenhouse

    gases each industrialised

    Jmes atkns: a

    psson for footbll

    n clmte chnge

    mtgton

    country is allowed to emit during Kyotos frst

    commitment period. And so the reduction

    may have been counted in the host country and

    again by a buyer o the ERU.

    I they hadnt made such a uss we would

    have seen more JI projects and emission

    reductions, said Atkins. So what i someone

    gets double credits or doing the right thing?There are plenty o companies out there doing

    the wrong thing, he said.

    Instead, he ventured, JI should be applauded

    or its eorts in circumventing layers o red tape

    and bureaucracy that present the biggest hurdle

    to doing business in eastern European countries.

    Going orward, he would like to see some

    kind o domestic Europe-wide crediting

    scheme that could reward people or making

    emission reduction eorts on a small scale.

    The EU ETS is ocused on reducing end o

    pipe emissions and doesnt do a good job atstimulating people urther down the energy

    chain to reduce their consumption, he said.

    Liestyle changes by individuals is whats

    needed, he added.

    Getting this message across and acilitating

    the changes will not be easy. But in an eort

    to convey the message to the masses, Atkins

    has recently published a book, called Climate

    Change or Football Fans, based on a fctional

    supporter o English club Burnley and his

    encounters with a carbon academic.

    I have read a lot o books on climate

    change, and even though its something Iminterested in I ound them quite boring, he

    said. A humorous and more human approach

    to climate change ideas makes them more

    readable, he added.

    I also realised there are some salient

    parallels between ootball and climate policy.

    Ive tried to highlight these in the book, he

    added. The intense passion displayed by ootball

    ans, he suggested, needs to be replicated in

    emission reduction eorts, i the cuts in

    GHGs that scientists tell us are needed to avoid

    catastrophic climate change are to be achieved.There also has to be an unquestionable

    political commitment to cut emissions. As long

    as we dont believe the politicians are serious, we

    dont believe in the carbon price, he said. l

    J

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    Nvmb 2010 www.pointcarbon.com

    I you attend a carbon market conerence in Brazil, at least

    one panellist is likely to point out the countrys pioneering

    role in the UNs clean development mechanism (CDM).

    Well-known CDM project developers and consultancies,

    such as Ecosecurities, Ecoinvest and Econergy have Brazilian

    roots. And it was Nova Iguacu, a methane gas capture project

    at a landfll in the state o Rio de Janeiro, which became the

    frst registered CDM project in 2004.Although six years later, China and India dominate the

    CDM market in terms o the number o projects registered,

    South Americas largest and richest country is taking new

    steps and developing resh ideas to lead the way toward a

    low-carbon uture. To some extent, the uture is already being

    shaped by the popular outgoing president, Luiz Inacio Lula

    da Silva, who leaves ofce at the end o the year with approval

    ratings o over 80 per cent.

    Lula raised Brazils climate change leadership profle last

    December, when he was one o the our world leaders joined

    by US President Barack Obama to broker a deal to salvage the

    UN summit in Copenhagen. Lulas last-ditch negotiationswith the leaders o South Arica, India and China and Obama

    resulted in the non-binding Copenhagen accord.

    Domestically, Lula signed into law last year a national

    climate change policy. It includes a voluntary goal or Brazil

    Low-carbon

    leader?to reduce its greenhouse gas (GHG) emissions between 36.1and 38.9 per cent below projected levels by 2020.

    Much o that reduction would come rom a target to

    reduce Amazon deorestation 80 per cent by 2020. Around 60

    per cent o which has already been achieved thanks to record-

    low deorestation rates recorded or 20082009.

    In an interview in October in the Economist, Lula said

    regardless o whom succeeds him, the law will remain inplace. The law that we passed is no longer President Lulas,

    nor will it be President Dilmas, its a law o Brazil, Lula told

    the magazine, reerring to his hand-picked successor and

    ormer chie o sta Dilma Rousse.

    Rousse is expected to deeat ormer Sao Paulo Governor

    Jose Serra in the 31 October presidential election run-o (see

    box, page 20). The House and Senate have already voted on

    it. So whoever comes into government is going to have to

    comply with this law, Lula said.

    But Lulas ruling is not the only law o the land that

    sets a GHG reduction target. As the governor o Sao Paulo,

    Brazils most populous and economically important state,Serra signed a climate change law just one month beore

    Lula agreed the ederal legislation. The Sao Paulo law sets a

    goal to reduce GHG emissions in the state 20 per cent below

    2005 levels by 2020. It aims to achieve this target by boosting

    How mucH of a role will

    tHe carbon market play

    in brazils emissions

    reduction plans?

    Valerie VolcoVici reports

    ISTOCK

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    19

    energy efciency, converting existing energy sources to

    renewables and transorming the transportation system.

    The continuity o the countrys commitment to addressing

    climate change may be assured, but Brazils carbon market

    participants are seeking clarity on how the targets can be

    met and what role they will play. The national law outlines

    32 emission reducing actions currently being implemented

    in Brazil. It includes expanding the national ethanolprogramme (see box, page 22), as well as lists o additional

    Maciel, technical director o Brazil-based CDM consultancy

    GSS Consultoria.

    Up until now, the government has not published urther

    details about the national climate change law. However,

    it is expected that, in the near uture, this programme

    will become mandatory or many dierent sectors o the

    economy, he said.

    There is some conusion among carbon market

    participants about whether or not the national climate

    change law has made Brazils voluntary GHG reduction

    pledge mandatory. They are awaiting clarity on how

    a voluntary target will be enorced when the next

    administration takes ofce. But, or some, the goals in the

    law are, in practice, as good as mandatory, especially i the

    government decides to implement a domestic emissions

    trading scheme (ETS).

    One o the measures o the national climate change law

    is the development o a Brazilian ETS, said Maurik Jehee, an

    independent CDM and sustainable business consultant, whopreviously headed up carbon origination or Banco Santander

    and ABN Amro in Brazil. This is still subject to urther

    specifcation, but it certainly implies mandatory emissions

    reductions, he said.

    Brazilian carbon market

    Brazils fnance ministry commissioned a report earlier this

    year examining how a carbon market could control emissions

    in the power, transportation, agribusiness and industrial

    sectors. The report outlined a number o dierent market

    structure ideas, but gave little detail.

    Sao Paulo stock and utures exchange BM&F Bovespa,the World Bank and the Inter-American Development

    Bank have launched workshops in the past ew months

    bringing national and international experts together to

    discuss the opportunities or developing carbon markets in

    Latin America. And several companies in Brazil are already

    developing in-house emissions mitigation actions to comply

    with, as yet, unspecifed uture targets, said GSS Maciel.

    These companies share an overall understanding that any

    voluntary pre-action in relation to climate change impact

    management (such as development o GHG inventories and

    carbon trading schemes) is more cost-eective than waiting

    or the defnition o the mandatory actions to be included in

    the national law, he said.The trend o Brazilian companies taking proactive

    measures to reduce emissions has also been observed by

    Andre Aguilar, a Sao Paulo-based CDM project analyst or

    the KW Carbon Fund, the carbon credit purchasing unit

    o Germanys state-owned development bank. We have

    companies in Brazil that have traded and bought certifcates

    to reduce their emissions, he said.

    Although domestic GHG mitigation eorts are at an

    early stage, Brazil is no stranger to the emissions reduction

    business. The country has developed over the past two decades

    what Fabio Nehme, the Houston, Texas-based general

    manager o environmental products or the Americas atEDF Trading, called an established inrastructure o carbon

    consultants and brokers and advisors. I the next government

    decides to push a domestic ETS orward, Brazil would be

    ready, Nehme said.

    Th dvpmnt f BzneTS mps mndtymssns dutns

    Maurik Jehee, independent CDM consultant

    SPecial rePorT: BraZil

    Nvmb 2010

    actions that are in the early stages o conception. The law

    oers no details on how the measures will be executed.

    The government did announce in June a target or

    agriculture to reduce emissions 4.96.1 per cent by 2020,and that it will spend over $500 million next year to fnance

    more efcient technology in the sector. But the government

    is still to defne emissions targets or specifc sectors, such as

    transportation, cement and energy production, said Magno

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    One o the aspects I fnd interesting in terms o the carbon

    market in Brazil, is the level o awareness and penetration o

    the subject in the major sectors, he said. What you start to

    see now is more mainstream companies becoming aware o

    the opportunities in the carbon market and dierent ways to

    reduce emissions, he added.

    One organisation that has helped raise the visibility both

    domestically and abroad o the potential o the carbon

    market in Brazil is BM&F, said Nehme. The exchange held

    successul auctions o UN carbon credits rom two Sao Paulo

    landfll gas CDM projects in 2008, which attracted several

    international buyers. In addition, it held a voluntary emission

    reduction (VER) auction in April. Four bidders participated in

    the auction, although none bought the VERs.

    Many early players in the CDM market were Brazilian,

    and they were instrumental in designing some o the original

    project methodologies, said KWs Aguilar. We have been

    pioneering in new structures and methodologies, he said.

    Because Brazil was an early mover in the CDM, most othe so-called low-hanging ruit has already been picked

    in terms o large-volume emissions reductions, said Sandro

    Marotica, Brazil manager or Bunge Emissions Group, a seller

    o carbon credits. The Brazilian carbon market is a mature

    market. The frst projects registered were rom here. But it

    is not really a market that we believe will grow like in East

    Asia, said Marotica.

    Brazil has 354 CDM projects in its pipeline, according

    to the most recent fgures rom the Unep Risoe centre.

    Although it accounts or 40 per cent o all CDM projects in

    Latin America, it lags behind its Asian counterparts. China,

    in comparison, has 2,211 projects in its pipeline and India has1,439 projects.

    But, when asked why oreign investors would still fnd

    Brazil a worthwhile destination or carbon fnance, Marotica

    www.pointcarbon.comNvmb 2010

    pointed to the countrys reputation or developing high-

    quality projects.

    The head o Brazils designated national authority (DNA)

    or the CDM ormer chair o the CDM executive board Jose Miguez, is known or being stringent. Brazils DNA

    requires that projects get validated beore receiving a letter

    o approval, he said. Even though I think Brazil is not the

    jackpot o the CDM it is recognised as a quality market,

    he added.

    As or uture CDM opportunities, market players pointed

    to a ew areas that have potential to generate CERs ater 2012,

    when the frst Kyoto protocol commitment period ends. In

    addition to transportation and programmatic CDM which

    involves aggregating several small emissions reduction

    projects under one programme o activities methane capture

    and waste recycling rom landflls and renewable energy,

    were also highlighted as important project types.Rodrigo Franco, executive director o Sao Paulo-based

    Carbon Market Consulting, said a new law that just came

    into orce on waste management will create opportunities

    or project developers. The law provides environmental

    guidelines or the management o solid waste and requires

    municipalities to convert dumps into managed landflls. With

    a wave o new municipalities now required to create landflls,

    project developers can earn carbon credits or waste recycling

    and methane capture projects.

    There are 6,000 cities in Brazil and only 40 per cent o

    them have some kind o managed collection o waste, Franco

    said. Some cities, such as Sao Paulo, produce as much as 9,000tonnes a day o municipal waste and recycle only 1 per cent o

    it, he added.

    BM&F Bovespa and the World Bank have commissioned

    Franco to write guidelines or the public sector cities,

    20 SPecial rePorT: BraZil

    Many pundits thought Dilma Rousse would win outright

    in the 3 October general elections. But Rousse ell

    3 percentage points shy o the 50 per cent o votes she

    needed to stave o a second-round contest against Jose

    Serra, who won 33 per cent.

    Most people attribute Rousses last-minute slide

    in support to Green Party candidate Marina Silva, who

    nished stronger than anyone predicted by capturing

    nearly 20 per cent o votes. Silva, who had been a member

    o Lula and Rousses Workers Party, had served as Lulas

    environment minister.

    A champion o deorestation prevention in the

    Amazon, she resigned her post in mid-2008, accusing

    Lula and the party o preventing her and colleagues in the

    ministry rom enacting stronger environmental measures.

    Silvas endorsement is now seen as crucial to both

    Rousse and Serra. The two candidates have been

    actively courting Silva or her support since 3 October.

    In exchange or her endorsement, Silva has been askingboth candidates to support an agenda that seeks to

    ensure economic development without harming the

    environment, Brazils media has reported.

    Election standings

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    21

    municipalities and public industries on how to harness the

    potential o the CDM.

    Another area o CDM potential is Brazils energy sector,

    despite it being one o the cleanest energy matrixes in the

    world. In 2009, renewable energy sources accounted or 47.3

    per cent o energy consumed in Brazil, compared with an

    average o less than 20 per cent in the rest o the world (2008),

    according to data rom the Brazilian energy ministry and the

    International Energy Agency.

    According to GSS Maciel, Brazils selection as host o

    the ootball World Cup in 2014 and the Olympics in 2016

    has stimulated major investments around the country in

    energy generation and inrastructure projects. These sportingsuccesses may be a boon or project developers, he said.

    Brazil remains an attractive destination or carbon

    fnance. This is due to act that the highly competitive energy

    sector and huge oreign investments or inrastructure

    projects lead to a avourable scenario to create low-carbon

    activities and, consequently, a hub or the carbon market,

    he said.

    The energy ministry has announced that the government

    will hold several renewable energy auctions every year until

    these major sporting events take place, he added. The auctions

    will mean at least 1,000 MW o new installed renewable

    electricity capacity comes to the grid.Maciel said at the most recent auction in August, almost

    every company that intended to sell projects had considered

    carbon fnance in its estimates. For medium-sized wind

    installations, or example, the addition o carbon fnance can

    increase a projects internal rate o return by an average o

    4 per cent, he said.

    While the CDM has helped Brazil raise its profle as a

    climate leader and earn money, it only addresses a ractiono the countrys GHG emissions. For Brazil to tackle a larger

    chunk o its GHG output, it has to take extra steps to avoid

    deorestation in its tropical orests and savannas.

    Deorestations share o GHG emissions in Brazil

    accounted or as much as 75 per cent in 1994, as recorded in

    Brazils frst national GHG inventory. Recent measures aimed

    SPecial rePorT: BraZil

    REUTERS/STRINGER

    Bz hs t tk xt stpst vd dfsttn fm tsfsts nd svnns

    at combatting Amazon deorestation have led to a decline inthat share. It is estimated to be responsible or over 50 per cent

    o countrys emissions. Under the climate change law, eorts

    to reduce Amazon deorestation make up 20.9 per cent o

    Brazils 36.138.9 per cent reduction target.

    One way Brazil hopes to meet its deorestation target is

    through an international fnance mechanism the country

    created. The mechanism involves non-reimbursable

    investments rom oreign countries and companies.

    In 2008, the Brazilian Development Bank (BNDES)

    established the Brazilian Amazon Fund to raise $21 billion to

    reduce emissions rom deorestation and degradation (Redd).

    Norway, so ar the sole donor, has granted up to$1 billion until 2015, contingent on Brazils success in

    avoiding emissions. Roughly $20 million was transerred to

    Brazil in October 2009. BNDES has received about 50 projects

    or review and doled out money to fve so ar.

    Bzn psdnt nddt f th ung Wks

    Pty Dm russff (n wht) ttnds mtng wth

    Bzn gvns n Bs

    Nvmb 2010

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    One thing the Amazon Fund does not do is create Redd

    carbon credits or the countries or entities that invest. Brazils

    position in international climate negotiations has been to

    oppose letting industrialised countries use Redd credits to

    oset their own emissions.

    According to Thais Linhares Juvenal, director or

    climate change issues at Brazils environment ministry,

    rich countries should not be able to use orest osets until

    they set a legally-binding target enshrined in a global

    climate treaty. We cannot consider the possibility o

    having osets, unless we have negotiated a fnal mitigation

    package, she said.

    Brazil has been holding meetings with stakeholders rom

    civil society, government and state agencies to discuss how

    to engage the private sector in its deorestation eorts and to

    help crat a national Redd+ strategy, she added. They hope to

    consolidate their conclusions by November to share with the

    incoming president, Linhares Juvenal said. We believe we

    need a mix o instruments to attract the private sector to theorestry sector in Brazil, she said.

    Redd+ plans create incentives or countries not only to

    reduce their emissions rom orested lands, but to include

    the role o conservation, sustainable orest management and

    enhancement o carbon stocks.

    Bullish investors

    Carbon investors are bullish about investing in Brazils

    orests and see the country as a winner regardless o what

    mechanisms emerge globally and domestically to combat

    deorestation.

    Greg Dunne, chie executive ofcer o Chile-based orestcarbon project developer Less Carbon, sees potential in Brazil.

    Forest carbon does have a uture in Brazil. I think that comes

    rom two areas: its potential to produce orest carbon osets

    rom any uture Redd mechanism; or rom bilateral or

    multilateral trading arrangements between countries with

    sophisticated climate change legislation, he said.

    He added that Redd credits could also attract domestic

    demand, noting that i big emitters in Brazil have to comply

    with uture emissions limits, they could turn to osets rom

    Redd sourced in the country. Whichever way you look, there

    is an opportunity or Brazil, he said.

    Regardless o whether the Amazon Fund or a uture UN

    Redd und doles out money to Brazil money that is meantto build capacity to and create prototypes it does not erase

    the need or the private sector to invest in its orests, Dunne

    said. The door is completely open or the private sector to

    fnancially innovate, he said.

    Looking ahead, the next president will have to deal with

    the allout rom a challenge to a 75-year old law, which has

    been partially credited with the countrys success, so ar, in

    reducing deorestation. A group o both let- and right-wing

    politicians is seeking to change the countrys Forest Code to

    weaken restrictions it placed on armers to conserve land on

    private property and to prevent them rom expanding into

    protected areas.The group claims the code is too onerous on armers.

    The legislature is expected to vote on the reorm o the code

    in the coming weeks, which could put pressure on Lula to

    sign it during the lame-duck post-election season. I the law

    passes, and Lula does not veto it, his successor will be orced to

    enorce the bill, while implementing measures or Brazil to

    meet its own deorestation targets.

    The next president will also have to decide on the ate o

    uture revenue rom Brazils recently discovered deep-salt

    oshore oil reserves, which could turn the South American

    country into a major oil exporter. State oil company Petrobras

    estimates that production o the newly discovered reserves

    could reach 3.9 million barrels by 2020, up rom the 2 million

    a day it produces now.

    She or he will ace tremendous domestic and global

    pressure to balance Brazils commitment to its national

    climate change law with its uture ossil uel expansion. All

    eyes will be on Brazil to see whether or not it will continue to

    be a low-carbon pioneer or morph into a petro power. l

    22 SPecial rePorT: BraZil

    www.pointcarbon.comNvmb 2010

    According to Luiz Fernando do Amaral, environmentaladvisor to the Brazilian Sugar Cane Industry Association

    (Unica), the rise o sugarcane ethanol in Brazil stemmed

    rom uel supply concerns during the oil crisis o the 1970s.

    Unlike other countries, such as the US, which remained

    dependent on petroleum ater the oil shocks, Brazil

    continued to develop its sugarcane ethanol production

    industry. Between its vast hydropower capacity and its

    sel-production o ethanol, Brazil became completely sel-

    sucient in oil and energy, he said.

    Today, ethanol has overtaken gasoline as the countrys

    primary uel, as private sector investment led to a

    penetration o fex uel vehicles in Brazil, Amaral said.Unica calls sugarcane ethanol a rst-generation biouel

    with second-generation perormance.

    Now sugarcane-based bioelectricity has made inroads

    in the energy sector. Bioelectricity is produced rom

    bagasse, a vapour by-product that the sugarcane industry

    collects at harvests.

    Unica is trying to increase the share o bioelectricity

    in the electricity sector, according to Amaral, to 14 per

    cent by 2020 rom 3 per cent now. Generation is currently

    dominated by hydro, which accounts or over 80 per cent

    o supply. But, because connecting sugar mills to the grid

    is costly, it has been dicult to drive the renewable source

    orward, he said.

    The UNs clean development mechanism (CDM) has

    helped some bioelectricity projects get o the ground, but

    it has not been a signicant enough driver, Amaral said.

    So ar, 27 bioelectricity projects have been approved by the

    CDM executive board.

    He said that a recent change to a CDM bioelectricity

    methodology has prevented a slew o new projects in

    the pipeline rom being approved. Unica is hoping the

    board which administers the system will x the new

    methodology and unblock a bottleneck o 26 new projects

    in the pipeline.

    I think the CDM has not yielded the results everyoneexpected due to those very complex methodological issues.

    We need new types o carbon structures or rules to actually

    boost mitigation technologies, he said.

    Sugarcanes sweet success

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    24 TRANSPORT

    There is growing awareness that to control climate

    change you need to manage greenhouse gas

    (GHG) emissions rom transport. Recognitiono the need to curb the anticipated growth in the

    sectors emissions already responsible or about 23 per cent

    o global GHG discharges, according to the International

    Energy Agency has increased over the last decade. This has

    maniested itsel in a shit in strategies by institutions to the

    international rom the local.

    The Asian Development Bank (ADB), or example, states

    that better and more sustainable transport relates to all three

    o its strategic agendas environmentally sustainable growth,

    regional integration and inclusive economic growth that

    will guide its work until 2020. The banks increasing support

    or sustainable transport, which they reer to as a guidingprinciple, is reected in its transport lending. Lending has

    increased to $3.4 billion a year between 2010 and 2012 based

    on pipeline fgures rom $2.2 billion in 2004.

    A similar shit has been witnessed in other multilateral

    development banks (MDBs), such as the Inter-American

    Development Bank, where transport is a component o its

    sustainable energy and climate change initiative.

    Governments at all levels are also becoming more aware

    o the role o transport in climate change mitigation. This

    was demonstrated in August by the Bangkok Declaration or

    2020, when representatives o 22 Asian countries, as well as

    several international organisations, developed a resolution to

    demonstrate their renewed interest in, and commitment to,

    sustainable transport across Asia.A similar desire to undertake mitigation activities in

    the transport sector is evident under the UN Framework

    Convention on Climate Change (UNFCCC). Twenty-six o

    the 43 developing countries who have submitted nationally

    appropriate mitigation actions (Namas) under the non-

    binding Copenhagen accord made explicit reerence to land

    transport. Namas are policies or actions developing countries

    plan to take to reduce GHG emissions.

    This desire to develop low-carbon transport systems has

    not yet been reected in provisions or associated fnancing

    pledged by developed countries under the accord. These

    pledges, which are oten reerred to as ast-start fnancing,should approach $30 billion or the period 2010 to 2012 and

    $100 billion a year by 2020. The only sector specifc support

    promised, so ar, is to orestry.

    Finance under the accord is still being developed, but it

    is just one area o fnance, where the need or a paradigm

    shit to support sustainable low-carbon transport is not yet

    reected. Other sources will need to be recognised and oer

    considerably more in terms o volume.

    More than $1.5 trillion is spent annually on transport

    globally and most o this investment which includes

    domestic public fnance, Ofcial Development Assistance

    (ODA) and private investment reinorces and develops

    unsustainable transport systems and behaviours.The Bridging the Gap initiative* part o the Sustainable

    Low Carbon Transport Partnership, which is made up o over

    50 organisations has responded to the increased need or

    fnancial support or transport within the UNFCCC process

    by developing the reducing emissions through sustainable

    transport (Rest) proposal.

    Rest is a basically a sectoral approach or transport. In a 16

    September interview with Bloomberg, Christiana Figueres,

    the new UNFCCC executive secretary, agreed with such

    actions in transportation and associated

    new market and non-market fnancial mechanisms and

    sectoral approaches.The Rest sectoral approach could provide support or the

    ormulation o transport Namas, capacity building, as well as

    the implementation o transport policies, programmes and

    projects. These three streams are detailed below.

    HOlgeR DAlkmANN and ANNe BiNSTeD propose a sectoral

    approach for reducing transport emissions within the

    un framework convention on climate change

    Looking for thesustainable road

    Novbr 2010 www.pointcarbon.com

    A.Supportingsustainabletransport

    B. Undersimpleconditions

    C. Througha transportwindow

    An overview o the Rest sectoralapproach

    FormulateNamas

    Build capacityImplement low-carbon

    transport projects/programmes/policies

    3. Meet simplifedtransport-compatible

    additionality criteriaand methodologies

    4. Receiveurther

    resourcesthrough carbon

    markets

    1. Commit totransport Namas

    2. Monitortransport emissions

    Transport window within:Fast-start fnance

    The post-2012 UNFCCC Fund (in uture)

    To To To

    Carbon markets(eg, CDM)

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    25TRANSPORT

    Formulation of Namas A relatively small proportion o

    the overall resources will be used or the purpose o assisting

    interested countries in the ormulation o transport Namas,

    which would be communicated through ofcial means and

    be included in a countrys Nama registry.

    Capacity building A second stream will be used to

    provide capacity building, which comprises o technical

    assistance and the establishment o skills and processes to

    mobilise policymakers and practitioners to maintain the

    benefts o sustainable low-carbon transport in the long term.

    Implementation of transport policies, programmes and

    projects The third stream o support will be used to

    fnance transport policies, programmes and projects thathave been stipulated as Namas and which are measurable,

    reportable and verifable (MRV). In short, countries

    would receive fnancial resources commensurate with the

    carbon savings they achieve through transport Namas.

    The amount o resources per tonne o carbon dioxide

    (CO2) saved should be set lower than the prevailing carbon

    market price, to maintain the integrity o the carbon

    market. This discounted rate would be adjusted according

    to the level o risk and uncertainty contained within the

    portolio o policies, programmes and projects supported

    by the sectoral approach. The approach will provide a

    predictable source o unding similar in nature to grantsgiven through ODA, but earmarked to support sustainable

    low-carbon transport.

    Rest has relatively simple conditions or access compared

    with the high transaction costs o many sources o climate

    Novbr 2010

    fnance. Not to mention the challenge o MRV in the

    transport sector, particularly under current UNFCCC systems,

    such as the clean development mechanism (CDM). To receive

    support or Nama ormulation, countries would be only asked

    to express interest in including transport within their Namas.

    This would be done through appropriate channels yet to be

    decided, but reecting the uture Nama ramework.

    To be eligible or capacity building, developing countries

    would commit to transport Namas to monitor emissions

    and to establish a sectoral baseline rom which emission

    reductions can be measured.

    The third orm o support would have the most stringent

    requirements. It would request developing countries to

    measure the carbon abatement impact o these interventions.

    Developing countries would be supported to meet this

    requirement through the second stream, which would

    enhance MRV capacity.

    The procedure or assessing the eligibility o support

    can ollow the basic eatures o the CDM. These proceduresinclude the development o identifcation notes, project

    development documents, methodologies and the matching o

    fnancial resources to tonnes o CO2 mitigated.

    This support would equip developing country recipients

    with access to fnance or transport through carbon markets

    by catalysing the development o new MRV methodologies

    and establishing associated domestic processes and procedures.

    Rest would be fnanced through a transport window,

    which, in the short term, could be within the ast-start

    fnance detailed above. In the long term, fnance could come

    rom a post-2012 UNFCCC und. Figure 1 shows an overview

    o the dierent components o Rest.The proposal remains open or input with uture

    discussions anticipated at orthcoming UNFCCC negotiations.

    The authors would also welcome any eedback.

    Rest has been developed to urther increase discussions on

    how to incorporate transport under the UNFCCC process.

    But it is equally important to look beyond the UNFCCC

    to increase awareness o the need or a wider paradigm

    shit, both to transport and also to low-carbon transport, in

    unding practices and priorities.

    This article has reerred to some o the actors that need

    to be engaged, such as MDBs, domestic governments, ODA

    and the private sector. The signifcance o also reaching out

    to these actors must not be overlooked. Volumes o availableclimate fnance, or example, are increasing, but will remain

    dwared by the amount o unding available through

    more traditional channels, such as ODA. The mobilisation

    o private sector fnancial ows will also be imperative i

    mitigation actions in the transport sector are to be scaled up. l

    *This article has been written on behalf of the Bridging the Gap

    initiative. A partnership of GTZ, Transport Research Laboratory

    (TRL), Veolia Transport, the International Association of Public

    Transport and the Institute for Transport & Development Policy

    (see www.transport2012.org).

    Holger Dalkmann is programme director for

    sustainable transport and climate change and Anne

    Binsted is senior consultant at TRL in the UK

    Email: [email protected] and [email protected]

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    26 NORTH AMERICA

    In his flms, Arnold Schwarzeneggers characters never wentdown without a fght. And so it is as the sun sets on histenure as a two-term governor o Caliornia, the US mostpopulous state. Prevented by term limits rom running

    or ofce again, Schwarzenegger wont be on the ballot on 2November when his successor is chosen.

    But you wouldnt know it by the fery rhetoric hes been

    spewing during recent speeches in deense o AB 32, a law hesigned in 2006 that mandates the state reduce its greenhousegas (GHG) emissions to 1990 levels by 2020. In his fnal act,the Governator has ound the perect villain to battle Texas oil companies Valero and Tesoro.

    The oil companies, which have refning operationsin Caliornia, have bankrolled proposition 23, a ballotinitiative that would stop Caliornias cap-and-tradeprogramme and other clean energy measures beorethey even start. Proposition 23 also has the support omanuacturing giant Koch Industries, which is run bybrothers who are outspoken climate change denies.

    The implications o the vote are huge, not only or

    Caliornia, but or broader eorts to reduce GHG emissionsin the US. I a majority o Caliornia voters mark yes on theballot initiative on 2 November, Caliornia will not only beunable to enorce its law, it will also be unable to participate

    in the Western Climate Initiative (WCI), a regional cap-and-trade programme.

    That result would likely mean the end o the WCI,since the only other US state that could participate in theprogramme when it starts in 2012 New Mexico has said

    it will not proceed i Caliornia drops out. The provinces oCanada that are members o the WCI Quebec, Ontario, andBritish Columbia have said theyll look at Canada-onlyapproaches to cutting emissions i proposition 23 passes.

    Polls show the initiative trailing slightly, but they alsoindicate a number o voters havent made up their minds onthe issue yet. The oil companies and some conservative statelawmakers say implementation o the Schwarzenegger-backed environmental law will raise energy prices, hurtbusinesses and put even more Caliornians out o work.

    Schwarzenegger has not held back in his deense o thelaw. Does anybody really believe these companies out othe goodness o their black oil hearts are spending millionsand millions o dollars to save jobs? he said in a speechon 27 September. This is like Eva Braun writing a koshercookbook, he added.

    He said that because o AB 32, in 2008, clean techinvestment in the state was $3.3 billion, up rom $1.5 billion

    in 2007 and seven times what it was in 2005. Caliorniahas the most clean tech frms in the US with almost 13,000businesses, and leads the US in patent registrations or greentechnologies, with 1,400 over the last decade, he pointed out.

    Schwa