Climate Change in LAC: A Review of the Bonn and Marrakech Decisions and their Effect on the Clean Development Mechanism of Kyoto Protocol
Por Carla della Maggiora (05/02, En) Vea también Medio Ambiente
This working paper is being published with the sole objective of contributing to the debate on a topic of importance to the region, and to elicit comments and suggestions from interested parties. This paper has not gone through the Department's peer review process or undergone consideration by the SDS Management Team. As such, it does not reflect the official position of the Inter-American Development Bank.
This document presents a literature overview of recent climate change developments, in particular with regards to carbon markets under the Clean Development Mechanism (CDM).
To assist Annex I countries achieve compliance in a cost-effectively manner, the Kyoto Protocol allows the use of different market-based instruments of which the Clean Development Mechanism (CDM) is the only mechanism that involves developing countries. It allows Annex I countries to invest in projects that reduce GHG emissions in developing countries, and use the CERs accruing from such projects to contribute to compliance with their emissions target.
Parties to the United Nations Framework Convention on Climate Change (UNFCCC) attained a political agreement in Bonn during COP6bis in July 2001. Subsequently, the Marrakech Accord (COP7) formalized the political agreements made in Bonn, defining the operational rules and modalities for the implementation of the Kyoto Protocol. These operational rules and modalities include: no-supplementarity condition, eligibility criteria to participate in the flexible mechanisms, sinks and the creation of a new Removal Unit (RMU), banking of credits, creation of three new funds to assist developing countries, the operating rules for the flexible Mechanisms (IET, JI, and CDM), and the compliance regime which started defining its shape, although the legal status is still pending until after the ratification of Kyoto.
With regard to the Clean Development Mechanism, Parties in Bonn and Marrakech agreed on several issues including that: ?investment additionality? will not be considered as a necessary condition for CDM projects; Annex I Parties must refrain from using CERs generated from nuclear power; sinks are accepted under the CDM, but limited to afforestation and reforestation; and CDM projects are to be validated, and reductions verified and certified by designated operational entities, to be design by the EB (EB members where recently elected during COP7).
The Kyoto Protocol is expected to enter into force by the end of 2002 due to the agreements reached in Bonn and Marrakech during COP6bis and COP7, respectively. Although there is no formal market for carbon credit, several transactions have taken place. In these cases, the price of carbon credits has been determined by the vintage, location of reductions, and the likelihood that the reductions will earn future recognition. The most comprehensive record of GHG emissions transactions has been assembled in a report prepared by Natsource for the Prototype Carbon Fund Plus. Market data indicates that the prevailing price in the market is in the range of US$14-44.4/tonC for government-issued permits, while the price for CERs is only in the range of US$6.5-11.1/tonC for CERs.
In addition, there are several theoretical studies that try to estimate the size of the carbon credit market and the price of the credits under different assumptions and scenarios. In the case of theoretical studies, carbon credits are considered absolutely fungible regardless of their origin (CERs, ERUs, or AAUs), therefore for each scenario and set of assumptions the estimated price of carbon credit is only one. Results differ substantially based on the assumptions and scenarios used in each model such as projection on population, economic growth, carbon-intensity of energy consumption and production, technology level, and assumptions regarding economies of scale of alternative energy sources.
In general, the theoretical models could be divided into two groups. The first group corresponds to earlier studies done prior to any of the most recent events which are expected to have a great impact on the carbon market i.e., the withdrawal of the USA and the agreements reached in Bonn and Marrakech. Under a trading scenario, prices would fluctuate between US$9.6 to US$215/tC. Among this group of studies, only some of them specifically examine the size of the CDM. According to this sub-group of studies, carbon credits from CDM will satisfy between 10 and 55 percent of the total market (including domestic action), which equals to between 144 and 723 MtC. Carbon prices will be in the range of US$9.6-36.7 t/C, and the total market value of CDM credits will be US$2.8-21 billion.
The second group corresponds to more recent studies that include some of the aforementioned events into their models i.e., USA withdrawal and the agreements reached in Bonn and Marrakech. This group of theoretical studies provides several new estimates of the future price of carbon credits, although less analysis of the effects on the CDM market. According to a study by Gruetter (2002) (the only study in this group that estimates the potential size of the CDM market), the US withdrawal reduces the CDM market size from previous estimates of US$2.8-21 billion to a range from zero to US$0.8 billion. The same study shows that the carbon credit price would range from zero to US$7/tC when the US is absent from trading (Gruetter 2002).
Under the present scenario, developing countries are not expected to play a major role in the carbon credit market unless: (a) ?hot air? suppliers (Russia and Ukraine) and/or China (the largest and cheapest seller of CERs) form a cartel; (b) Russia and Ukraine become ineligible for participating in the trading system; and (c) demand for hot air is less than expected.
Ultima actualización: 08/05/07
