Tag Archives: carbon
Carbon Market Helps Cut Emissions
Carbon market helps cut emissions Updated: 2013-07-29 08:39 By Jiang Xueqing and Chen Hong (China Daily) Substantial step taken to clean up environment and save energy, report Jiang Xueqing and Chen Hong in Shenzhen, Guangdong province. On July 18, one month after China launched its first pilot carbon-trading program in Shenzhen, Guangdong province, the city began consulting local businesses and government departments about its draft regulations for the project. The regulations emphasize that carbon credits are corporate assets. The launch ceremony of the Shenzhen Emissions Trading Scheme saw Shenzhen Energy Group sell 10,000 metric tons of carbon credits to PetroChina International Guangdong at 28 yuan ($4.60) per ton. Hanergy Holding Group also bought 10,000 tons at 30 yuan per ton. Both businesses purchased the credits for investment purposes. “The launch of the carbon-trading market in Shenzhen demonstrates that China has taken a substantial step in reducing carbon emissions. Following Shenzhen, other carbon-trading pilots at provincial and city levels are making big strides,” said Wu Delin, deputy secretary-general of the Shenzhen municipal government. It has taken nearly three years to establish China’s first pilot carbon-trading market. In July 2010, Shenzhen, seven other cities and five provinces were named the sites of China’s first low-carbon program. The announcement by the National Development and Reform Commission was followed by the foundation of the China Emissions Exchange in Shenzhen two months later. The move from low-carbon programs to carbon trading came in 2011, when the central government announced pilots in two provinces and five cities, including Shenzhen, Beijing and Shanghai. One year later, China’s first regulations on the administration of carbon emissions were enacted by the Standing Committee of the Fifth People’s Congress of Shenzhen Municipality. Market-oriented measures “By founding the exchange, we are trying to use market-oriented measures, rather than administrative and taxation measures, to promote emissions trading and the construction of low-carbon cities,” said Chen Haiou, president of the China Emissions Exchange. “Three years ago, we didn’t expect the government to make such great efforts to develop carbon trading at such a high pace.” A major target for carbon trading is to push the city forward in areas such as energy saving and emissions reduction, said Wu. Research conducted over recent years revealed that industrial enterprises, transport, buildings and waste disposal are responsible for most of Shenzhen’s carbon dioxide emissions. In the initial stages of the carbon-trading project, Shenzhen’s municipal government put 635 manufacturers and 197 buildings, including shopping malls, hotels and office buildings, under carbon-emission management. The companies are mostly large enterprises with high levels of emissions. Research carried out in the period 2009-11 found that in 2010 alone, these companies emitted 31.73 million tons of carbon dioxide, accounting for 38 percent of the 83.4 million tons of the city’s carbon dioxide emissions. They also accounted for 59 percent of Shenzhen’s total “industry value added” – its contribution to national GDP – and 26 percent of its own GDP. By 2015, the city will cut carbon dioxide emissions per unit of GDP to 21 percent below the 2010 level, according to its low-carbon growth plan. However, because it’s extremely difficult and expensive to reduce transport and residential emissions, the municipal government set a reduction target of 25 percent for industrial enterprises. To that end, the government has allocated the 635 businesses more than 100 million tons of free carbon credits over the next three years, based on their previous emissions and industry value added. Companies that exceed their emissions quotas will be fined at a rate three times the average market price of the excess emissions. Before they signed their quota agreements with the government, each participating company took part in the allocation process by assessing the potential for further reducing its carbon intensity and estimating its annual growth of industry value added in the period 2013 to 2015. If a company has failed to cut carbon dioxide emissions per unit of GDP at the agreed rate a year after they signed their quota agreements, and its industry value added does not increase as quickly as estimated, the government will take back a proportion of its carbon credits accordingly. Striking a balance The use of adjustable carbon credits means Shenzhen will be able to balance allowance supply and demand and stabilize carbon prices, a lesson learned from the European Union’s carbon-trading market. In recent years, the price of EU carbon credits has fallen from more than 30 euros ($40) per ton to 5 euros. The price of carbon offsets, also known as certified emission reductions, slumped from more than 20 euros to around 50 euro cents. The price decline has been caused, in part, by a recession in Europe, which led to a decrease in industrial output and, in turn, resulted in fewer emissions and an overabundance of allowances. Moreover, the EU allocated all its carbon credits simultaneously, thus making it impossible to reduce credits when the eurozone economy began to weaken. Shenzhen can avoid similar problems by the adoption of adjustable credit allocation, said Xiao Ming, chairman of GDR Carbon, a consultancy specializing in carbon-asset management and investment. Unlike in the EU, carbon trading is a new phenomenon for most Chinese companies, which regard carbon credits as a huge responsibility, one they have to adhere to by remaining within their emissions limits. Since that first transaction at the China Emissions Exchange on June 18, a number of individual investors have opened accounts and expressed strong interest in buying emission allowances. The highest price listed is 33 yuan per ton, but so far no company has offered to sell its credits. “Many companies have no idea of how much carbon dioxide they have emitted in the first half of 2013 and therefore dare not sell their emission allowances. Even if some of them have realized that carbon credits are corporate assets which can even be used as pledges for bank loans, they do not have a clear procedure for making investment decisions on carbon trading, nor do they have any information about the trend of domestic carbon prices because of a lack of long-term market research and analysis,” said Ge Xing’an, vice-president of the China Emissions Exchange. The companies are in no hurry to make decisions about when to buy or sell their carbon credits, the number of credits they should sell or the prices they should ask. They won’t make those decisions until the first year of their contracts ends in June 2014, he added. However, with limited emission allowances, the companies have already felt pressure to cut emissions and need to take advice from low-carbon consulting services, according to Xiao. He said consultancies that specialize in carbon trading offer a variety of services that could help businesses improve their ability to monitor emissions sources and collect verifiable data. The consultancies can also help companies investigate their greenhouse gas emissions, reduce emissions by optimizing management, technology and corporate structures, exploit potential carbon assets, log accurate records of carbon assets and make a profit from carbon investment. “Carbon trading is used as a tool to promote energy saving and the reduction of emissions,” said Chen of the China Emissions Exchange. “During the process of developing the market, we will provide not only a trading platform but also a wide range of financial support to help businesses build their carbon management and trading systems.” For example, the exchange is planning to help a wind power company issue a 1 billion yuan bond in early September. Futures and options Carbon market helps cut emissions Because only carbon credits and Chinese certified emission reductions are tradable in China, experts and professionals have called on the central government to open the futures and options market as soon as possible. “Without futures and options, it is hard to find long-term investment value in the carbon-trading market and the development and application of low-carbon technologies will be hindered by a lack of funding,” said Xiao. Ge pointed out that carbon credits can be problematic financially and the risks must be countered by risk-management tools, such as futures and options. The China Emissions Exchange holds a training session once a week, where it provides training for participating companies and listens to their demands. The ultimate aim of the exchange’s founders is to build a carbon-trading financial center in China. “Cultivating the carbon-trading market in China will be a long process. We shouldn’t pull at seedlings to help them grow, or dream of huge transaction volumes immediately. That’s unrealistic. We’ve got a lot of work to do to build a solid foundation for the market,” said Chen. Contact the writer at jiangxueqing@chinadaily.com.cn Wu Wencong also contributed to this story. Continue reading
EU’s Carbon Pricing Strategy Takes A Potentially Fatal Hit
Posted by Anthony Harrington , July 29, 2013 If you believe that global warming is the biggest catastrophe and economic disaster coming our way, then attempts to retrofit measures to contain CO2 emissions onto a global industrial base that has evolved largely without regard to emissions (other than as pollution) is a hugely important task. Finding a way of putting a price on carbon is the obvious route to go. The EU set itself up to be the global leader in creating mechanisms for carbon pricing but its emissions trading scheme, which has been copied by a number of countries, including Australia, South Korea and some Chinese provinces, is now in disarray. A vote by the European Parliament in April effectively holed the EU’s carbon pricing scheme below the waterline, to quote a recent article in The Economist . There are basically two ways to get industry to reduce its carbon emissions . You can mandate it by law, in a command-and-control manner, using the power of the state to force compliance, with massive fines and even prison as the ultimate sanctions for non compliance. Or you can set a cap-and-trade policy and leave it to the market, which is what the EU has done. Under a cap-and-trade approach you set limits to the emissions of the heaviest producers and then allocates or auctions carbon credits to cover production up to the limit. Firms that manage to reduce their emissions below the limit will have surplus credits that they can sell to other companies. By lowering the limit over time, the government can bear down on emissions, gradually reducing them over time, while trading in carbon credits creates a true, market based per-tonne price for carbon. That, at least, is the theory. What the EU did not count on when it set up the scheme back in 2005 was that advanced markets would suffer a global financial crash which would lead to years of no-to-very-low growth. This resulted naturally in falling emissions and so to surplus numbers of credits washing about in what was supposed to be a limited-supply market. It is now obvious that the EU handed out far too many carbon allowances from day one, back in 2005, and every year since, to the point where, according to The Economist , there is now a surplus of about 1.5 to 2 billion tonnes of carbon allowances in the system, causing the price per tonne to drop from twenty euros in 2011 to just five euros a tonne in 2013. The EU’s solution to this was a plan to withdraw some 900 million tonnes of carbon allowances off the market, with the idea of reintroducing them at some unspecified point in the future when the price per tonne of carbon had firmed up. The idea was dubbed “backloading” by the EU. Constraining supply has always been a good way of driving up price and since the whole market is artificially created there is probably no logical reason why the EU shouldn’t be able to tinker with the scheme to firm up prices. But the EU needed the European Parliament’s approval to put this scheme into action and on 13 April 2013 the European Parliament rejected the idea. The price of carbon sank like a stone, bottoming at under 3 euros. Since the International Energy Agency is warning that the price of carbon needs to be at least fifty euros to be effective in moving power generation companies away from coal to gas and renewable sources, this does not look hopeful for the EU’s best lever against global warming. There is now a serious question mark over the future of emissions trading schemes generally, which is not particularly helpful for California, which introduced its cap-and-trade scheme in January 2013 . The Californian scheme raised far less, by way of auctioning of carbon credits, than State authorities had anticipated and the tribulations of the EU scheme will not go unnoticed. Australia had been planning to link its cap-and-trade scheme to the EU’s scheme, creating an international trading market in carbon allowances, but that too, now looks rather unappealing. Right now the EU’s ETS scheme looks like no more than a rather useless additional “green” tax which the power companies simply pass on to the consumer. As a behaviour changing mechanism, it is dead in the water until and unless the EU finds a way of shoring up the price. Unfortunately for the EU no one actually wants carbon in the way that they want gold. The market is entirely artificial and carbon allowances, as a tradable asset class have just given a graphic illustration of what is meant by “political risk”. Continue reading
Can Cutting Trees Curb Emissions And Improve Incomes In Mexico?
Source: Thomson Reuters Foundation – Wed, 24 Jul 2013 A member of the Mayan indigenous community of San Antonio Tuk climbs a gum tree with a machete in hand to score its bark for extraction of the resin that gives Mexican chewing gum its name: chicle. THOMSON REUTERS FOUNDATION/Talli Nauman SAN ANTONIO TUK, Mexico (Thomson Reuters Foundation) – Not far from the site of the Cancun 2010 U.N. climate change summit, indigenous people in rural southeast Mexico are doing their part to staunch global warming. They are perfecting Community Forestry Enterprises (CFEs) to establish long-term profitability through tree farming and related agricultural practices that protect the environment. “Climate change is a serious problem in the world, caused by bad habits,” says Miguel Cante Chuc, president of the Ya’ax Sot Ot’ Yook’Ol Kaab Environmental Service-Providers Network. “We as Mayan people want to be sure it is reversed.” The 9-year-old network consists of 12 Mayan jungle villages in the state of Quintana Roo on the Yucatan Peninsula, with the specific objective “to mitigate climate change and obtain financial resources.” For all their good intentions, however, a big obstacle to success – one that they face together with hundreds of other communities like theirs across the country – is lack of access to loans for logging equipment and operations. To ease that problem, Mexico’s government has created a Forest Investment Plan that will extend cut-rate credit lines from foreign lenders to support Community Forestry Enterprises . The plan allows the Inter-American Development Bank (IDB) to administer a novel $6 million, 5-year technical assistance and micro-loan pilot project for local forest production projects. Now in the design phase, Mexico’s trend-setting small-business loan assistance pilot aims to boost timber industry profits, foster community socio-economic stability, and ease problems associated with climate change. Bank representatives hope the endeavor will be an example to the country and the world. “It’s an innovative project offering the possibility to have something new and successful that’s never been done before,” says IDB Senior Climate Change Specialist Gloria Visconti. It promises at least 60 CFEs will average a 6-percent increase in annual profits, garnering higher income for the 4,900 people involved in them, and providing indirect benefits to 10,680 community members. At the same time, it is expected to result in the capture of the equivalent of 28,610 tons of carbon. WHY MATCH TREE FARMERS WITH BANKERS? To understand why something like this was never done before and how it will work, it’s vital to consider Mexico’s peculiar land-tenure legacy. After the hacienda system provoked peasant rebellion in the Mexican Revolution, the ensuing Constitution of 1917 provided safeguards against plantation exploitation by advancing one of the largest systems of communal land tenure in the world. Land reform defined common property holdings for comunidades (traditional indigenous ancestral territories) and ejidos (parcels distributed to dispossessed peasants). In each of these units, community members elect officials and hold general assemblies to vote on land-use questions. Today, communal landholders control the rights to a whopping 60 percent of Mexico’s forest lands, according to independent Mexican CFE specialist David Bray. Some 13 million people live off these lands, about half of whom belong to the country’s 62 indigenous groups, according to the IDB. Extensive research by Bray and other scientists has established that the local governance of many of Mexico’s forests has made community forestry undertakings more successful than either corporate concessions or protected areas in conserving natural resources, providing employment, and ensuring environmental services that combat global warming. The combination of legal rights, traditional knowledge, and economic self-interest in Mexico’s community forestry model has made it a beacon for other countries seeking to stem poverty, deforestation and greenhouse gas proliferation. Timber production in comunidades and ejidos generally is a community-wide endeavor. Alternatively, smaller groups form inside these communities to extract and market timber. They are now learning that their natural resources could afford significantly more economic dividends to their mostly low-income residents, while helping compensate for industrialised countries’ failure to adhere to mandatory international commitments to reduce carbon emissions. “Through a program of carbon capture, we can provide economic sustenance to our families, live in the jungle, use it, and produce more environmental services,” Cante Chuc says. Looking over his shoulder he can see one of the 159 members of the Mayan indigenous community of San Antonio Tuk climbing a gum tree with a machete in hand to score its bark for extraction of the resin that gives Mexican chewing gum the name chicle . The work of the chicleros , who harvest and make gum, complements softwood lumbering and a protected area set-aside in San Antonio Tuk’s diversification and management plan for a robust woodlot and for greenhouse gas reductions. Tapping the gum tree and processing the product provides income to relieve economic pressure to fell precious and endangered tropical hardwoods like mahogany. BREAKING WITH ‘BUSINESS AS USUAL’ The principle climate changing greenhouse gas, carbon dioxide, is absorbed by healthy jungles and forests, partially offsetting emissions released by burning fossil-fuels elsewhere. Contrary to popular belief, managed cutting of forest for timber can actually increase the carbon-absorbing capacity of the trees, because lumber products store the carbon absorbed from the atmosphere (as long as they are not burned), and new growth replaces felled trees, Bray notes. Yet the efforts of communal landholders have rarely been met with offers of credit, partly because the ejidos and comunidades by definition hold their properties in trusts that have not been considered equity or collateral. What’s more, Visconti notes, “Asking for credit is a cultural issue.” CFE operators “need consultation so they can be involved and ready to receive credit,” she says. The IDB project, called Support for Forest Related Micro, Small, and Medium Enterprises in Ejidos and Communities, proposes to bring the lenders and the borrowers to the same table to resolve these issues. Since neither the CFEs nor the banks have a history of loans for lumber business development, $4.2 million of the project disbursement will go just to technical assistance and $1.8 million will go to loans. “It’s an innovative project,” Visconti says. “It’s not business as usual. If it was, it wouldn’t be part of the Climate Investment Funds,” she adds. The Climate Investment Funds (CIF) were established in 2008 to provide scaled-up climate financing to developing countries, with the aim of creating new climate resilient, low-carbon development models. CIF funds are channeled through five multilateral development banks, including the IDB. Though the Forest Investment Program , one part of the CIF, the Inter-American Development Bank is supporting Mexico’s Forest Investment Plan, including the pilot forestry project in Mexico, and similar projects in Peru and Brazil. The Forest Investment Program aims to reduce emissions from deforestation and forest degradation, promote sustainable management of forests and enhance forest carbon stocks. Mexico’s project “is expected to develop models for future global replication,” the approved proposal for IDB administration states. FIRST PRIVATE-SECTOR LOANS It is the first time that the bank’s Multilateral Investment Fund will work with the private sector in a project of this type, it notes, “and the lessons learned from its implementation will be important contributions to the national policy for the Reducing Emissions from Deforestation and Forest Degradation in Developing Countries ( REDD++ ) program currently being developed.” Findeca, a private lender that has experience financing shade-grown sustainable coffee plantations in southern Mexico, has signed on to the project. It will be in charge of delivering the Multilateral Investment Fund money to the landholders. It will kick in loans only after the non-profit Mexican Fund for the Conservation of Nature (FMCN) has rounded up the technical assistance and consultants to build community acceptance and capacity to use and repay loans. “We’re still in negotiations for the project,” said FMCN spokesman Juan Manuel Frausto. He expects a final contract with IDB in September, after which the first step will be to identify an initial batch of communities to take part. The project will focus first on five of the eight states with the highest net forest loss — Oaxaca, Yucatán, Quintana Roo, Campeche and Jalisco. These states have 1,768 forestry communities with a total population of more than 500,000, average poverty rates of 75 percent and a 40 percent indigenous makeup. The limited experience with private sector investment in Community Forestry Enterprises in Mexico requires the “demonstration approach” being taken in this project. The money will not start to flow until 2014, Visconti says. Loans will be in the range of $800 to $3,000. The CFEs could use the micro credits to buy equipment such as tractors or inputs such as seeds “to facilitate efficient production and to make them more sustainable,” Visconti says. The small amounts are viable for all but the largest and most sophisticated CFEs, Bray says. “There are many forestry communities in Mexico who need additional support to improve their logging or to move into logging,” Bray says. “Community forestry is a very mature sector with lots of successes, and there are a lot of opportunities in communities that are struggling with lack of support,” he adds. Talli Nauman is co-director of the consulting firm Journalism to Raise Environmental Awareness, based in Aguascalientes, Mexico. This article is part of a series funded by the Climate Investment Funds . Continue reading
