The Global Carbon Market 2009: Trading Thin Air

Chapter 1 Executive Summary 1
Carbon Trading 1
Compliance Markets 2
Assigned Amount Units (AAUs) 3
European Union Allowances (EUAs) 4
Certified Emission Reductions (CERs) 4
Emission Reduction Units (ERUs) 6
Other Compliance Markets 7
Australia............. 7
The US Compliance Market 8
Regional Greenhouse Gas Initiative (RGGI) 8
Other North American Initiatives 9
United Nations Climate Change Conference in Copenhagen 10
American Clean Energy and Security Act of 2009 (ACES) 11
Voluntary Markets 12
Chicago Climate Exchange 13
Over-the-Counter (OTC) Market 14
Carbon Market Participants 15
Regulation 16
United Nations Framework Convention on Climate Change (UNFCCC) 16
Standards Sponsors 16
Suppliers 17
Intermediaries 17
Buyers 19
Other Services 20
Summary 20
Chapter 2 Carbon Market History and Definitions 22
Carbon Footprint Defined 23
Reducing Carbon Footprint 25
The Greenhouse Effect 26
Greenhouse Gas Emissions 27
2007 Nobel Peace Prize 29
The Kyoto Protocol 31
Emission Targets 32
Kyoto Mechanisms 33
Commitment Period (2008 - 2012) 36
The Bali Roadmap - Kyoto post 2012 36
Poznan 2008 38
Carbon Credits vs. Carbon Taxes 40
Cap-and-Trade Criticisms 42
Compliance Markets 43
Kyoto Protocol 43
International Emissions Trading (IET) 45
European Union Emissions Trading Scheme (EU ETS) 46
Joint Implementation 48
Clean Development Mechanism 49
The New South Wales Greenhouse Gas Abatement Scheme 51
Regional Greenhouse Gas Initiative (RGGI) 52
California Global Warming Solutions Act of 2006 AB 32 54
Western Climate Initiative 55
Midwestern Regional GHG Reduction Accord (MGGRA) 56
Other State and Provincial Programs 56
Voluntary Markets 57
Chicago Climate Exchange 57
Over-the-Counter Market 60
Voluntary Emission Reductions (VERs) 61
Government Voluntary Purchasing Programs 62
Japan's Keidanren Voluntary Action Plan on the Environment 62
Japan's Voluntary Market 63
Australia's Greenhouse Challenge Plus 64
EPA Climate Leaders 64
Canadian GHG Clean Start Registry 65
Chapter 3 Market Size and Segmentation 66
Kyoto Mechanisms 67
Clean Development Mechanism (CDM) 68
Joint Implementation 69
International Emissions Trading (IET) 69
CDM Pipeline 70
JI Pipeline 72
CDM Project Types 74
Energy Efficiency (EE) + Fuel Switching 77
Agro-forestry 78
Reforestation / Afforestation 78
Landfill Gas (LFG ) 79
Waste Management 80
Coal Mine Methane (CMM) 80
Hydrofluorocarbons (HFCs) 81
Nitrous Oxide 82
Fugitive Emissions 82
Hydropower.. 83
Wind............... 84
Biomass............. 85
JI Project Types 86
Voluntary Carbon Market Projects 88
Renewable Energy 90
Methane............. 91
Forestry / Land Use 93
Geological Sequestration 96
Other............... 98
CDM Project Process 99
JI Project Process 101
CDM and JI Buyers 102
CDM Sellers 105
JI Sellers 108
Russia and JI Projects 110
The Voluntary Markets 112
The Voluntary Market in the United States 118
State-level carbon emissions trading schemes 120
California: Global Warming Solutions Act 120
Hawaii: Global Warming Solutions Act of 2007 120
Minnesota: Next Generation Energy Act of 2007 120
New Jersey: Global Warming Response Act 120
Oregon: Global Warming Actions 121
Washington: Mitigating the Impacts of Climate Change 121
Regional Initiatives 121
Regional Greenhouse Gas Initiative (RGGI) 121
Western Regional Climate Action Initiative (WCI) 121
Midwestern Greenhouse Gas Accord (MGGA) 122
Canada............. 122
The Climate Registry 122
Carbon Market Values and Volumes 123
Compliance Market Prices 125
OTC Market Prices 127
Regional Greenhouse Gas Initiative (RGGI) Activity 130
Chapter 4 Market Outlook and Issues 131
Copenhagen 2009 133
Waxman - Markey Bill 134
European Union Emission Trading Scheme (EU ETS) 140
Assigned Amount Units (AAUs) 142
The Chicago Climate Exchange (CCX) 143
Regional Greenhouse Gas Initiative 145
The Australian Carbon Market 146
Japan 149
Canada 150
Project-Based Transactions 151
The Voluntary Over-the-Counter (OTC) Market 156
Chapter 5 Carbon Market Participants 159
Regulation in the Compliance Markets 160
United Nations Framework Convention on Climate Change (UNFCCC) 161
EU Commission 163
Regulation in the Voluntary Markets 164
Clean Development Mechanism 166
Chicago Climate Exchange Offsets Program 166
The Gold Standard 167
Voluntary Carbon Standard 167
VER+ Standard 168
Climate, Community and Biodiversity Standards 168
Plan Vivo........... 169
Voluntary Offset Standard 170
Other Standards 171
EPA Climate Leaders Offset Guidance 172
Greenhouse Gas Services Standard 173
Greenhouse Friendly 173
Protocols....... 174
Offset Provider Certification Programs 175
Green-e Climate 175
Quality Assurance Scheme for Carbon Offsetting 175
2008 Changes 176
Regulatory Bodies 177
UNFCC Secretariat 177
Clean Development Mechanism Executive Board (CDM EB) 178
JISC............... 179
Compliance Committee 180
Designated National Authorities 181
Designated Operational Entity 182
Non-Governmental Organizations (NGOs) 183
Suppliers 183
Project Developers 183
Mandated Installations 188
Financiers...... 188
Consultants. 189
Technology Development Transfer 191
Policy Environment 193
Intermediaries 193
Brokers........... 194
Traders.......... 196
Exchanges.... 198
Emerging Market Exchanges 203
Private Sector Financial Companies 204
Buyers 207
Compliance Buyers 208
Voluntary Buyers 210
Other Services 216
Quality Control 216
Legal Advisory Services 217
Information and Analysis 220
Capacity Building 222
Registries........ 224
Chapter 6 Company Profiles 230
Corporate Background
Product and Brand Portfolio
Performance
Company News
Acquisitions and Divestitures
Innovation
Outlook
Personnel Changes
Overview 230
3Degrees 232
APX Incorporated 235
Baker & McKenzie 240
Blue Source 243
CantorCO2e LLC 247
Climate Focus 250
Credit Suisse 253
EcoSecurities Group plc 257
Equator LLC 260
Evolution Markets 263
Fortis 266
MGM International 270
Natsource LLC 274
RNK Capital LLC 277
Sterling Planet, Incorporated 280
Tradition Financial Services / TFS Energy / TFS Green 284
TÜV SÜD America 287
Glossary of Acronyms 291

List of Figures

Figure 1-1 The Kyoto Compliance Market ......................................... 3
Figure 1-2 CDM Project Categories, as a share of volumes supplied (2008).......... 6
Figure 1-3 Transaction Values on the Voluntary Carbon Market ..................... 12
Figure 1-4 Carbon Market Participants ...................................... 15
Figure 2-1 Global Carbon Emission Estimates........................................................ 23
Figure 2-2 The Greenhouse Effect ......... 26
Figure 2-3 Global Greenhouse Gas Emissions, Sources and Activities............... 28
Figure 2-4 Kyoto Protocol Participation Map .............. 32
Figure 2-5 Regional Shift in Emissions Share .......................................... 36
Figure 2-6 Joint Implementation Illustration............................................................ 48
Figure 2-7 Joint Implementation Track 2 Procedure............................................... 49
Figure 2-8 CDM Project Cycle ..................................... 51
Figure 2-9 RGGI Participants and Observers ..................... 53
Figure 2-10 Western Climate Initiative Partners and Observers (July 2009)............. 55
Figure 2-11 Reduction Schedule for CCX Members (Baseline through 2010)......... 59
Figure 3-1 Flexible Mechanisms under the Kyoto Protocol..................................... 67
Figure 3-2 European Union Linking Directive ........................................... 70
Figure 3-3 CDM Project Categories, as a share of volumes supplied (2008).......... 76
Figure 3-4 CDM Project Categories, as a share of volumes supplied (2002-‘08)... 77
Figure 3-5 Anaerobic Digester Facility .......... 80
Figure 3-6 CDM and JI Project Comparison (2007) .... 87
Figure 3-7 Offset Credit Sources in the Voluntary Market ......................... 89
Figure 3-8 Carbon Sequestration Illustration ........ 97
Figure 3-9 Average Time from Registration Request until Registration ........... 100
Figure 3-10 Joint Implementation Project Process ................... 101
Figure 3-11 Primary CDM and JI Buyers by Country, as shares of volumes purchased (2006-2008).......................................................................... 103
Figure 3-12 Locations of CDM Projects, as a share of volumes supplied, (2008)..... 106
Figure 3-13 Locations of CDM Projects (2002-2008)................................................ 108
Figure 3-14 Number of JI Projects by Host Country.................. ........................... ...109
Figure 3-15 Location of JI Projects, as a share of volumes supplied (2003-2007).. 110
Figure 3-16 Transaction Values on the Voluntary Carbon Market............................. 112
Figure 3-17 Transaction Volume by Type of Buyer, Voluntary OTC Market (2008). 113
Figure 3-18 Transaction Volume by Buyer Location, OTC Market (2008) ......... 114
Figure 3-19 Transaction Volume by Project Location, OTC Market (2008)............... 115
Figure 3-20 Volume and Number of Offset Projects by State (2007)........................ 117
Figure 3-21 Average Market Prices in US$ (2006-2008)........................................... 125
Figure 3-22 CCX Price and Volume History (2003-2008).......................................... 127
Figure 3-23 Project Prices by Project Type, Voluntary OTC Market........................ 128
Figure 3-24 Average Credit Prices by Project Type, OTC (2007 vs. 2008)............... 129
Figure 4-1 Map of Australia and New Zealand ........................................ 148
Figure 5-1 Growth in Carbon Market (2005 - 2008)............................................... 159
Figure 5-2 Players and Institutions in the Carbon Market ........................ 160
Figure 5-3 The Regulated Market ....................................... 161
Figure 5-4 CER Project Procedure ....................... 179
Figure 5-5 Frequency of Technology Transfer for the Main Host Country as a Percentage of the Projects.................................................................... 192
Figure 5-6 Technology Suppliers, Percentage of Projects Involving a Technology Transfer ............................................ 193
Figure 5-7 Transaction Volume by Type of Buyer, OTC Market (2007)............... 211
Figure 5-8 Transaction Volume by Type of Buyer, OTC Market (2008)................ 212

List of Tables

Table 1-1 Kyoto Mechanism - AAUs (2008-2013)................................................. 3
Table 1-2 EU ETS Market Volume and Values (2004-2013)................................. 4
Table 1-3 Clean Development Mechanism (CDM), CERs (2004-2013)................. 5
Table 1-4 Clean Development Mechanism (CDM), Secondary Market CERs
(gCERs) (2004-2013)............................................................................. 5
Table 1-5 Joint Implementation (JI) - ERUs (2004-2013)...................................... 7
Table 1-6 Regional Greenhouse Gas Initiative (RGGI) (2008-2013)..................... 9
Table 1-7 The Chicago Climate Exchange (CCX) (2004-2013)............................. 13
Table 1-8 The Voluntary Over-the-Counter Market (OTC) (2004-2013)........ 14
Table 1-9 Carbon Market Exchanges and Related Products and Services ... 18
Table 2-1 Top Carbon Emitting Countries and Emissions (2007) .. 24
Table 2-2 Changes in CO2 Emissions, Selected Countries (1992-2007) ..... 25
Table 2-3 Relative CO2 Emission from Various Fuels 29
Table 2-4 Countries Included in Annex B to the Kyoto Protocol and Their Emissions Targets (1990 through 2008/2012) . 33
Table 2-5 Allowance Based EU - ETS Trading Volumes and Values
(2006-2008) ... 44
Table 2-6 Kyoto - AAUs Trading Volumes and Values (2008) ....... 44
Table 2-7 Compliance Market Values in $M - Project Based (2005-2008) ... 45
Table 2-8 Regulatory Carbon Market Component Summary ... 45
Table 2-9 RGGI Market Values in $M (2008-2009) ... 53
Table 3-1 CDM Pipeline Detail by Project Type (July 1, 2009) ........ 71
Table 3-2 Status of CDM projects ........ 72
Table 3-3 JI Pipeline Detail by Project Type (July 1, 2009) ...... 73
Table 3-4 JI Project Status (July 1, 2009) .... 74
Table 3-5 CDM Methodologies and Related Scope ... 75
Table 3-6 Hydropower CDM Projects (July 1, 2009) . 83
Table 3-7 Wind CDM Projects (January 1, 2009) ....... 85
Table 3-8 Renewable Energy Project Volumes Sold in OTC (2007 and 2008)..... 91
Table 3-9 Methane Project Volumes Sold in OTC (2007 and 2008) . 92
Table 3-10 Land Based Credits Sold in OTC (2007 and 2008) ......... 94
Table 3-11 Volumes by Other Project Type (ktCO2e) (2007 and 2008) ........ 98
Table 3-12 Top Country CER Purchasers .... 104
Table 3-13 Top 20 Authorized Buyers ... 105
Table 3-14 Host Country for JI projects, Number of Projects and kERUs............... 109
Table 3-15 Growth in Carbon Market, values in US$M (2004-2008).. 123
Table 3-16 Annual volumes in MtCO2e (2004-2008) ........ 124
Table 4-1 Carbon Market Value in Millions USD (2004-2008) ....... 131
Table 4-2 Carbon Market Value in Millions USD (2009-2013) ....... 132
Table 4-3 Carbon Market Volumes (2004-2013)................................................... 133
Table 4-4 EU ETS Market Volume and Values (2004-2013)................................. 141
Table 4-5 Kyoto Mechanism - AAUs (2008-2013) ............ 143
Table 4-6 The Chicago Climate Exchange (CCX) (2004-2013) ..... 143
Table 4-7 Regional Greenhouse Gas Initiative (RGGI) (2008-2011) ...... 145
Table 4-8 The Australian Carbon Market (2004-2013) ..... 148
Table 4-9 Clean Development Mechanism (CDM), CERs (2004-2013).............. 152
Table 4-10 Clean Development Mechanism (CDM), Secondary Market CERs (2004-2013) .... 154
Table 4-11 Joint Implementation (JI) - ERUs (2004-2013) ........ 154
Table 4-12 The Voluntary Over-the-Counter Market (OTC) (2004-2013) . 157
Table 5-1 Voluntary Market Standards ........ 165
Table 5-2 Offset Provider Members of the Chicago Climate Exchange ........ 185
Table 5-3 Offset Aggregator Members of the Chicago Climate Exchange .... 186
Table 5-4 Additional Offset Aggregator Members of the Chicago Climate Exchange .... ..... ..... 187
Table 5-5 Carbon Market & Investors Association Brokerage Members ....... 194
Table 5-6 CCX Liquidity Providers ....... 197
Table 5-7 Carbon Market Exchanges and Related Products and Services ... 199
Table 5-8 Private Sector Financial Companies ... 205
Table 5-9 Carbon Finance Products ..... 207
Table 5-10 Applicants to Participate in RGGI Auction June 17, 2009 210
Table 5-11 CCX Business Members 214
Table 5-12 Additional CCX Business Members 215
Table 5-13 CCX Members - Public Entities ... 216
Table 5-14 Carbon Market Law Firms .... 218
Table 5-15 Carbon Market Consultancies ............ 219
Table 5-16 Independent Registries and Registry Infrastructure Providers 226
Table 5-17 Standard and Exchange Specific Registries ..... 227
Table 6 1 Companies Profiled . 230
Table 6 2 3Degrees Incorporated Profile ..... 232
Table 6 3 APX Incorporated Profile 235
Table 6 4 Baker & McKenzie Profile .... 240
Table 6 5 Blue Source Profile . 243
Table 6 6 CantorCO2e Profile ....... 247
Table 6 7 Climate Focus Profile .... 250
Table 6 8 Credit Suisse Profile 253
Table 6 9 EcoSecurities Group Profile .. 257
Table 6 10 Equator LLC Profile... ... 260
Table 6 11 Evolution Markets Profile ..... 263
Table 6 12 Fortis Profile ... 266
Table 6 13 MGM International Profile .... 270
Table 6 14 Natsource Profile ... 274
Table 6 15 RNK Capital LLC Profile 277
Table 6 16 Sterling Planet, Incorporated Profile ... 280
Table 6 17 Tradition Financial Services/TFS Energy/TFS Green Profile . 284
Table 6 18 TUV SUD America Profile .... 287