Source: www.cnn.com/SPECIALS/ 2001/climate.change/ Energy & Global Warming. .

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CO2 Greenhouse EffectGlobal Warming & Climate Change

What is Global Warming & Climate Change?Human ActivitiesGHG EmissionGreenhouse EffectGlobal WarmingClimate ChangeSevere Impacts

JTH 17-07-2001

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COP6bis/SBSTA

The Greenhouse Effect

Solar radiation

Long-wave radiation

Main GHGsCO2 CH4 N2OMain (man-made) greenhouse gases

Carbon dioxide is not the only greenhouse gas, but it is the main contributor to warming. Other important greenhouse gases include nitrous oxide and methane, both of which have increased in the last century. The concentration of carbon dioxide has increased primarily due to burning of fossil fuels. Land use changes such as clearing of forests, which releases into the atmosphere carbon that had been stored in trees, also increases the concentration of CO2. GHGs remain in the atmosphere for many years after being emitted. Even if we were to start reducing global emissions today, atmospheric CO2 concentrations would continue to rise.Minor GHGsHFCs PFCs SF6

GHGs Emission Reduction Emissions Controlling () Capture and Storage ()

Emissions ControllingEnergy Efficiency and ConservationFuel Switching Management Techniques Specific Techniques Low Carbon Fuels switching from coal or oil to NG No Carbon Fuels Biomass- Other Renewables- Biogas

Energy ResourcesFossil Energy Resources

Geophysical Energy Resources

Petroleum

Tar Sand Bitumen

Coal

Oil Shale

Geothermal

Solar

Wind

HydroelectricTidalNuclearIncreaseGreenhouse Effect

CO2 Emission

Reduce Greenhouse Effect

Zero Emission

Gas

Energy Resources and CO2 Emission

CO2 Capture and Storage

2 Whether or not climate change is happening? What can be done to address its effects? Rio Earth Summit 1992 UNFCCC (United Nations Framework Convention on Climate Change) 1992 2 Annex I Parties: Developed countries (41 ) Non-Annex I Parties: Developing countries (148 ) (Kyoto Protocol) 1997Emissions Reduction Commitment Target for Annex I

GHGs under KPSource: Intergovernmental Panel on Climate Change (1995)

GHG (Greenhouse Gas)GWP(Global Warming Potential)Carbon dioxide (CO2)1Methane (CH4)21Nitrous oxide (N2O)310Hydrofluorocarbons (HFCs)140 - 11,700Perfluorocarbons (PFCs)6,500 9,200Sulfur hexafluoride (SF6)23,900

Kyoto Protocol (KP)Under the Kyoto Protocol, Annex I countries have commitment to reduce their GHGs emissions by an average of 5% below their 1990 emission levels by 2008-2012. 3 (Flexibility Mechanisms) 2 Project-based mechanisms: CDM & JI GHGs 1 Non-project-based mechanism: ET GHGs GHGs Hot air trading

Hot Air TradingEmissions Reduction

CDM BackgroundCDM (Clean Development Mechanism): (Kyoto Protocol) GHGs Win-Win-WinWin 1: (non-Annex I Host Countries) () () ()Win 2: Annex I Countries (more cost effective)Win 3: GHGs Global Benefits

Note: non-Annex I CDM Annex I Hot Air lost-lost-lostCDM Background

CDM Credit or CERsEmissions reduction units from CDM project implementation must be certified by CDM Executive Board (CDM EB) before transferred to Annex I Entities; hence its usually called CERs (certified emissions reduction)CO2 EmissionsyearsWith CDM projectWithout CDM project(business as usual)CERs

Possible CDM Transaction ModelsBilateral Co-operation: traditional way (JV) CERs CERs buyer (EB registration) (Emissions Reduction Purchase Agreement)Multilateral Co-operation multilateral financial institutions WB, ADB carbon funds or brokerages CERs buyer Unilateral Co-operation: just recently (since Feb.2005) ( ) CERs Spot Market CERs buyer CERs EB RegistrationSource: Wytze 2006

Advantages & Disadvantages Bilateral & Multilateral No risk for project participants due to ERPA available Multilateral No need for CERs investor to involve in the project preparation & implementation

Unilateral ERPA Advanced Technology () CERs Spot Market Unilateral Domestic Technology () Source: Wytze 2006

Single Project Approach: traditional wayProgrammatic CDM approach: Approved Methodology?Programme of activities (bringing together several CDM projects)Implement within one country, not mandatory activitiesReduce transaction costs per projectExamples: biogas systems for farmersSectoral CDM approach: Approved Methodology?Government policy to reduce GHG emissions in a sectorBaseline and additionality assessment complexExamples: transport (green transport plan), efficient buildingsPerverse incentive: countries with progressive energy strategies reduce their CDM potentialPossible CDM ApproachesSource: Wytze 2006

Programmatic vs Project-based CDMP-CDM Project 1P-CDM Project 2Note: Project activity is an emissions reduction activity occurs at a single location within a narrowly defined boundary. Program of activities would be a program supported by a single entity that encourages or mandates a number of emissions reduction activities; hence multiple locations under a program.

20082012First Kyoto Commitment PeriodSecond Commitment Period?2005First Phase EU ETSJan2000Timing of CER transactionsSecond Phase EU ETSKyoto Protocol entered into force16 Feb. 2005CDM projects can generate credits from 2000, but CDM credits can be used in EU ETS from 2005

EU ETS Background An European Directive on CO2 Emission Trading Scheme (EU ETS) 22 July 2003 since January 2005 It was agreed that the EU ETS would have two phases: Learning Phase: during 2005-2007, not legally binding Implement Phase: coincide with the 2008-2012 Kyoto commitment period EU ETS annual emission caps emissions allowances (EUAs) ( 13,000 ) (Installations) Adjust their energy consumption patterns Purchase emission allowances from other installations Non-compliance within the scheme implies 40 CO2 100 Source: Wytze 2006EU ETS Background

EU ETS An European Directive 2004/101/EC (so-called EU Linking Directive) adopted by the EU Foreign Affairs Ministers (16 September 2004) as an amendment to the ETS Directive Linking Directive the EU ETS Kyoto Protocol EU Installations emission reduction credits project-based Kyoto mechanisms: JI & CDM Linking with CDM has been effective since Jan 2005 Linking with JI will be effective on Jan 2008 to reduce costs for EU installations to contribute technology trnsfers to developing countries Source: Wytze 2006EU Linking Directive Background

Europe and Japan are major shares in the carbon marketDemand increasing in Europe since 2005 (may be due to EU ETS)Private entities dominate, especially in JapanEuropes Carbon Market ShareSource: Hayashi 2006As of March 2006

4 - 6 for medium-risk forwards 8 -10 for low risk forwards / DNA approved projects. 11-14 for registered projects 15 for Gold Standard registered projectsEU intermediaries do not believe that CER price will become equal to EU allowance price:Risk (counterpart, delivery, etc.)CER and EUA are fundamentally differentCERs are bankable (from 2005-07 to 2008-12)CERs are capped by EU StatesRisk of ITL not being operational on timeLimited awareness of Linking Directive reduces arbitrageOnly guaranteed CERs are quite similar to EUAPossible CER Prices in Europe Source: Wytze 2006

CDM Status in ThailandRatified UNFCCC: December 1994Ratified KP: August 2002Institutional Framework- MONRE (Ministry of Natural Resources and Environment) was appointed by Cabinet in July 2003 as DNA-CDM

- ONEP (Office of Natural Resources & Environmental Policy and Planning) was appointed as KP National Focal Point and DNA Secretariat (to coordinate on CDM implementation in Thailand)

CDM has two demand-supply chainsAnnex I Side: CER demand technology supplyNon-Annex I Side: Technology demand CER supply In actual practice, chain 1 dominatesLetter of Approval is often Letter of no ObjectionSeveral non-Annex I Parties do not have criteria or strategy for maximising CDM OpportunitiesTechnology Need Assessment (TNA)Ideally, a CDM host country would assess what it needs in terms of sustainable technologies Maximising CDM OpportunitiesSource: Wytze 2006

CERs CER Demand & Supply CERs host country entities 30-40% of EU ETS price ( forward CERs) Buyers 40-60% of EU ETS price ( no guaranteed delivery) or even over 90% ( guaranteed delivery)Note: margin to cover risk & commercialization well-known Ecosecurities, NatSource, Evolution Markets, etc.Intermediaries play a role in either unilateral or bilateralRoles of IntermediariesSource: Wytze 2006

How could Thailand having progressive Energy Strategy get benefit from the CDM?Are there possibilitites for Thailand to implement CDM via Programmatic or Sectoral CDM Approaches?How to maximise CDM opportunities?Should Thailand implement Unilateral CDM and which cases?How could Thailand maximise benefit from the EU Linking Directive?Topics for Discussion