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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
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Annual subscription 499
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Point Carbon Thomson Reuters
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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
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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
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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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26/48
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)
8/8/2019 Trading Carbon November 2010
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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]
8/8/2019 Trading Carbon November 2010
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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