The Role of the CDM in the UK An Active Market Jonathan Thomas

The Climate Change Projects Office

The Role of the CDM in the UK An Active Market

Jonathan ThomasThe UK Climate Change Projects Office

Djerba, Tunisia, September 2004www.dti.gov.uk/ccpo


Climate Change is a high political priority in the UK

“Urgent action is needed now to combat the worlds greatest environmental challenge – global warming”

Tony Blair 14th September 2004


The UK Position

• The UK Kyoto target is 12.5% reduction in GHGs (20% domestic CO2 reduction target)

• To achieve this, the Government has in place a Climate Change Programme

• Responsibility for meeting the target partly resides with UK companies

• The Government expects to meet its Kyoto target without the need for importing CDM/JI credits, but companies may want to use them to meet their own targets and for onward trading


Emissions Trading in the UK

• The UK Government launched the world’s first all sector voluntary emissions trading scheme (the UK ETS) in April 2002, as part of the Climate Change Programme

• Rules were devised in conjunction with business

• UK companies, consultants and brokers are now experienced in the way the market works, and carrying out emissions trades


The EU Emissions Trading Scheme

• Allocation based on “National Allocation Plan”

• Up to 5-10% of Allowances can be Auctioned

• “Linking Directive” covers CDM & JI entry

• Not Dependent on Kyoto Ratification !


Linking the EU-ETS and JI & CDM?

• CDM (from 2005) and JI (from 2008) ‘credits’ (=1 tCO2e) can be used by over-emitters in the ETS

• JI and CDM credits may be cheaper than EU allowances– Reduce compliance costs

– CDM could be in short-supply in the early years

• JI and CDM credits need not be converted into EU allowances (more flexibility in market response)


Demand for CDM & JI Credits

• JI and CDM demand is not solely dependent on “toughness” of EU state NAPs

• The key demand drivers for JI & CDM are the Kyoto targets for the EU states

• A weak NAP plan will require states to meet Kyoto commitments by reducing emissions in non-ETS sectors (very difficult!) or by buying CDM & JI at a the national level


What UK business has to offer

• Experience from the UK and EU Emission Trading Scheme

• A wide range of brokerage, consultancy and legal skills is readily available

• CERs from CDM project are available and ERUs from JI projects are in the pipeline. There is a large demand for good projects

• The City of London is a world centre for emissions trading


Recent UK CDM Market Activity - 1• The world’s first CDM project submitted for CDM-EB Registration

has UK involvement

• The project is based in India and uses HFC-23 destruction technology supplied by Ineos Fluor UK

• The project is very significant and is expected to generate several tens of millions of tonnes of CO2e over its lifetime

• Ineos are providing 2 million tonnes of CERs under the first private deal in Europe – Facilitated by Natsource

www.ineosfluor.com


Recent UK CDM Market Activity - 2

• CO2e.com, a prominent UK-based carbon broker, has recently facilitated two of the largest CDM project transactions to date and has an ongoing demand for CERs

• This multi-million dollar deal is based on methane production from the waste of 100,000 pigs at an Agrosuper plant in Chile (~ 0.5 mtonnes of CO2e/yr)

• The CERs are being purchased by buyers in Japan and Canada

• CO2e.com has transacted tens of millions of tonnes of emission reductions to-date

www.co2e.com



• The ICECAP fund has been set up in the UK to acquire a portfolio of ~ 40 million tonnes of CERs

• The founders of ICECAP participants are LessCarbon, Cumbria Energy and Investec Bank

• ICECAP is acquiring CERs to sell to buyers in the EU-ETS, Japan and Canada amongst others

• They are keen to source further good quality projects!

www.lesscarbon.com/icecap.asp



• Natsource Europe (based in London) have helped create the GG-CAP carbon asset management tool

• GG-CAP is the world's first large-scale privately run "buyers pool" designed for companies to purchase compliance-ready reductions of greenhouse gas (GHG) emissions.

• Targeted for launch later this year, it will begin purchasing 10 - 20 million tonnes of CERs and JI credits early in 2005 and for several years to come.

www.natsource.com



• IT Power, a leading energy & climate change consultancy are Carbon Finance Advisors for China's first CDM project - Huitengxile Wind Farm

• 3 further CDM projects in China in development

• Developing 3 small-scale CDM "bundles" in India & working with IREDA to develop a strategic business unit offering bundling services to small-scale developers

www.itpower.co.uk


Recent UK CDM Market Activity - 6• EcoSecurities is the largest company solely dedicated to

carbon trading and climate change mitigation in the world

• EcoSecurities-Standard Bank Carbon Facility has been set up to purpose to purchase €8 million of emission reductions from JI and CDM credits

• 2E Carbon Access Programme – Joint venture with E&Co concentrating on funding and facilitating small-scale renewable energy CDM

• EcoSecurities has advised more than 60 JI/CDM projects around the world

www.ecosecurities.com



• The CCPO is running a major trade mission to India in the first week of October 2004

• The mission comprises 15 UK companies who are keen to develop and invest in CDM projects and acquire CERs

• The mission will be led by the Rt Hon Margaret Beckett, Secretary of State for Environment, Food and Rural Affairs (Defra)

• The CCPO is keen to promote further CDM trade missions around the world


Recent UK JI Market Activity

• The British Cabinet has recently given clearance for Defra to negotiate with a project developer with a view to hosting the UK’s first Joint Implementation Project

• The project removes nitric oxide emissions from a nitric acid plant and is expected to generate over 2 million tonnes of CO2e reductions per year

www.carbonventures.com


What can the CCPO provide?

• Basic guidance

• Assistance preparing project proposals

• Advice on potential project partners

• A route to UK Government approval of projects

• Access to UK expertise in emissions trading and climate change project development


The Climate Change Projects Officewww.dti.gov.uk/ccpo

Manager:

Jonathan Thomas

[email protected]

Tel: +44 (0)20 7215 1608

Documents

The Role of the CDM in the UK An Active Market Jonathan Thomas