Tag Archives: green
Kazakhstan: Carbon Trade Scheme Fuels Divisions In Kazakhstan
uly 9, 2013 – 1:47pm Alisher Khamidov Viewed from the top of Kök-Töbe (Green Hill) a thick, hazy blanket of pollution settles over the southeastern city of Almaty in March 2011. The Kazakh government intends to implement a carbon dioxide trading scheme for companies generating polluting emissions. (Photo: Dean C.K Cox) Authorities in Kazakhstan are at loggerheads with business executives over a plan to introduce a carbon dioxide trading scheme for companies generating greenhouse gas emissions. The government sees two benefits to the scheme — a healthier environment and more revenue for state coffers. But leaders of the country’s business community, including KazEnergy, a powerful alliance of energy producers, is opposing the plan, arguing that it would stifle economic growth and decrease Kazakh global competitiveness. Left largely unsaid is what the government would do with the extra revenue. In Transparency International’s most recent corruption index, Kazakhstan ranked 133 out of the 174 countries surveyed. According to various estimates, Kazakhstan annually generates approximately 240 million tons of CO2 emissions, and along with Ukraine, it accounts for only 2 percent of global carbon emissions . Despite this comparatively low emissions figure, Kazakhstan in recent years has sought to project itself as the regional leader in environmental protection. In 2009, Kazakhstan joined the Kyoto protocol, whose signatories pledge to fight global warming by reducing their greenhouse emissions. Using the year 1990 as a benchmark, Kazakhstan agreed to achieve a 15-percent reduction in emissions by 2020 and 25-percent drop by 2050. In 2012, Kazakhstan was first among CIS republics to announce the formation of the carbon emissions trading system (ETS). In keeping with the so-called cap-and-trade scheme, the government initially set a nationwide cap of 147 million tons on allowable emissions (using the year 2010 as the benchmark year for calculating quotas for companies). Officials then planned to distribute allowances among 179 state-run and private companies that account for 80 percent of all emissions. Companies that fail to reduce their emissions, or do not purchase allowances from other companies that have credits to spare, would risk incurring significant fines (approximately $15 per ton), or losing their business licenses, according to the Ministry of Environmental Protection. Government officials are extolling the virtues of the ETS. Addressing Kazakh law-makers at a November 2012 meeting, Minister of Environmental Protection Nurlan Kapparov said: “The advantages [of the ETS] need no mentioning. I will just give one figure. The market for carbon emission allowances in the EU was estimated at $120 billion in 2010.” Privately, some Kazakh observers say authorities are pushing ETS because promoting a green economy is currently one of President Nursultan Nazarbayev’s pet projects. ETS plans quickly ran up against stiff opposition in corporate corner offices. The push-back prompted officials to back down. For example, instead of using 2010 (a year when production was lower due to the fallout from the global financial crisis) as the benchmark year for emissions, officials agreed to use 2013, and adjust standards accordingly. Addressing a government meeting on June 11, Kapparov, the environment minister, announced ETS standards would go into effect in 2014, instead of 2013, and indicated that the government would soften punishments for companies that fail to comply with ETS standards. Even after the government backtracking, some observers say ETS standards may hit the country’s energy sector (particularly the coal industry) hard. Bela Syrlybayeva, an economist at the Kazakh Institute of Strategic Studies under the Kazakhstani Presidential Administration, told EurasiaNet.org; “The current situation demands urgent measures aimed at reducing emissions. At the same time, it is important to ensure a reasonable balance between the economic growth rate and development of low-carbon technologies.” ETS is lauded by the UNDP, but it is causing consternation of some foreign investors who say that they were not consulted. At a May 30 environmental forum held in Astana, foreign investors complained that they already pay various taxes for their CO2 emissions. The Ak Zhaik news website quoted Kenneth E. Mack, managing partner of Dechert’s law office in Almaty, as telling forum participants: “The tax for excessive emission is 10 times more than the tax for emission below the allowed limit. No other country has such a figure. On top of these, by Kazakh laws, administrative penalties and damage recovery sums are also levied .” A representative of KazEnergy, who agreed to speak with EurasiaNet.org on condition of anonymity, complained that ETS implementation was injecting uncertainty into the market. “The uncertainty regarding the volume, costs and rules in the internal carbon market is causing significant problems for investors as they plan their budgets and forecast growth,” the representative said. There is also widespread concern that companies with close governmental connections will get special treatment. In the court of public opinions, ETS is causing a different set of concerns. Abiljan Husainov, head of “Eko-Kokshe,” an environmental non-profit in the Akmola Province, told EurasiaNet.org; “The problem is that although we have good laws and regulations that protect environment, their implementation leaves much to be desired, especially at the level of small towns and villages.” Husainov added that “stricter measures must be adopted to preserve environment,” and that flaws in the monitoring mechanism, especially a lack of inspectors, will likely hinder compliance. There are also fears that the ETS can prompt businesses to pass along higher costs to end users, spurring inflation and generating discontent in many communities. Privately, some government officials, even some of Kapparov’s subordinates, have reservations about the viability of the ETS plan. Insiders say that the MEP is ill-equipped to administer ETS, and suggest it is possible that the 2014 implementation date will get pushed back again. Editor’s note: Alisher Khamidov is a researcher specializing in Central Asian affairs. Continue reading
China’s Carbon Emissions Traders Await Offset Demand
Author: Daphne Yin As China rolls out seven domestic pilot emissions trading schemes this year – with the city of Shenzhen’s debuting last month – market actors are wondering how carbon offsets will fit into the picture. Here, we provide a breakdown of the types of offsets eligible for trading, existing supply and potential demand, as well as what’s on the horizon. 9 July 2013 | Designated as China’s first special economic zone back in 1980, the fast-growing city of Shenzhen has come to epitomize the country’s move toward market-oriented economic policies. On June 18, Shenzhen set yet another precedent when it launched the first of seven pilot programs to help pave the way for a national cap-and-trade program. Under the pilot program, 635 companies in Shenzhen, responsible for about 38% of the city’s emissions, face obligations to reduce their carbon intensity by 6.68% on average per year by 2015. The first day of trading on the Shenzhen Emissions Rights Exchange saw eight transactions of emissions allowances completed for a total of 21,112 tCO2e. Allowance prices ranged from 28 to 32 yuan per tonne, close to the expected price of 30 yuan per tonne (US$4.89). While only allowances have been traded so far, emitters have the option of trading carbon offsets in the form of Chinese Certified Emission Reductions (CCERs), which are issued by the National Development and Reform Commission (NDRC). The NDRC allows existing projects registered with the UN’s Clean Development Mechanism (CDM) to register as CCER projects – a source of potential relief for CDM suppliers reeling from the protracted collapse in prices for CDM project offsets (CERs) and the recent ban on CERs from non-least developed countries for use in the European Union Emissions Trading Scheme (EU ETS). Beyond the historically strong relationship between suppliers of Chinese renewable energy offsets and European buyers, there is potential for CERs from China-based projects to fetch higher prices from domestic buyers should the pilots manage their prices well. With more than 70% of the world’s CERs issued in China as of the end of 2012, a big question on the minds of Chinese CER suppliers is how much domestic demand they can actually expect to absorb existing and new offset supply. Ramping up Initial reactions to China’s new pilot activities have generally been positive among stakeholders, but elements of the system remain hazy. Liable emitters are expected to not only monitor, report, and verify their emissions, but also to participate in auctions. For the bulk of Chinese companies, trading offsets – or allowances for that matter – is an unfamiliar arena. “Even the few Chinese companies that are in a joint venture with a European or international company that has experience in the EU ETS or California’s market are just now getting organized,” notes Jeff Swartz, Director of International Policy at the International Emissions Trading Association (IETA), which oversees a working group in China to build capacity for the new pilots. “Policymakers haven’t actually traded allowances or purchased offsets, so there’s an imperative need to share information and work with companies in existing systems that have.” What’s eligible? In March, the NDRC released its first batch of 52 CCER methodologies eligible for domestic emissions trading, all of which are adapted from existing CDM methodologies. The list stays true to China’s traditional focus on renewable energy, energy efficiency and fuel switch, and methane. It also controversially includes methodologies for HFC-23 and N2O industrial gas offsets, which the EU ETS banned post-2012 in response to critique regarding their environmental integrity. Some say it is important for industrial gas suppliers to be able to access the domestic market – now their only major prospective source of demand – for recourse, however, a recent analysis by Climate Bridge – a major China-based project developer and retailer – expresses concern that the inclusion of industrial gas projects could crowd out China’s domestic offset market and potentially subject pilot schemes to low carbon prices as experienced in the EU ETS. Offsets from non- or pre-CDM projects are eligible for voluntary emissions trading if they apply methodologies that have been approved by the NDRC, according to interim government regulations . While not explicitly stated, this could potentially provide a bridge for projects developed to the Verified Carbon Standard (VCS) and Gold Standard, which certify many of their projects according to CDM methodologies. NDRC-approved methodologies do not yet cover forestry and land use, which the NDRC said it is still vetting alongside other CDM methodologies. Domestic initiatives like the Panda Standard , China’s first voluntary carbon standard developed by the China Beijing Environment Exchange and BlueNext with the support of Winrock International, are in the process of seeking approval from the NDRC for afforestation/reforestation methodologies. Gauging demand Domestic demand for offsets will inevitably vary between Shenzhen and other emerging pilots. After factoring in the level of emission reduction targets and allowances provided through the system (totaling 100 MtCO2e between 2013-2015), the scope of supply and demand for offsets will depend on the existing supply of offsets eligible for use under each pilot, as well as limits set on the use of offsets against emitters’ compliance obligations (tentatively 10% on average across China’s various planned pilots). “Policymakers are very aware of the fact that if they open up a fire hydrant, they could have a situation in which supply exceeds demand,” says Swartz. “However, I suspect they face a difficult situation in restricting offsets because some of the companies that they’re asking to participate in the ETS from the compliance point of view have also supplied CDM offsets in the past.” Given China’s large existing offset supply in certain areas, many project developers have been slow to embark on new projects until sufficient demand can soak up existing inventories. Climate Bridge’s analysis predicts that Shenzhen will have limited potential for new offset project development, as “the existing CER supply in this region already makes up more than 8% of the capped emissions.” The company expects other pilot jurisdictions like Tianjin, on the other hand, to have strong demand for new CCERs given the dearth of existing CDM projects in the area. Greater demand (and clarity) ahead? Over the course of this year, other pilots are busy incubating in the cities of Beijing, Tianjin, Shanghai, Chongqing, and the provinces of Hubei and Guangdong – each setting their own limits on offset location and project type. The plan is to eventually link the schemes together as a foundation for a national cap-and-trade program as early as 2016, following the release of China’s next Five-Year Plan. Should China’s carbon market eventually link with other markets abroad, China would be a net exporter of offsets, at least for the foreseeable future . The probability of cross-border linkages is still pretty slim at this point according to Wenjie Zhuang, Senior Project Manager at Climate Bridge. “China’s carbon market is in early stages – there is no national-level program yet,” she says. “And while the design of China’s pilot schemes has drawn lessons from trading systems all over the world, they also show many innovations in design.” Continue reading
Europe Acts to Fix Its Crippled Carbon Market
SustainableBusiness.com News After months of wrangling, a vote in the European Parliament is bringing relief to the EU’s stricken Emissions Trading System (ETS), the world’s first and largest cap-and-trade program. The vote shows the political will to address the oversupply of allowances (permits to emit carbon) that has led to unsustainably low carbon prices. On July 2, Members of the European Parliament (MEPs) voted in favor of a “backloading” proposal which would withhold hundreds of million of permits. Pulling back available permits to balance supply and demand (in order to raise prices) is exactly what’s been needed, but a previous vote caved to industry interests, which convinced them that higher carbon prices risked the bloc’s competitiveness. That move collapsed carbon prices by another 45%, to €2.63 ($3.38) per ton of carbon dioxide, and led many to question whether Europe remains committed to the program – its flagship climate change policy. However, that price collapse triggered intense debate and a renewed effort to save the market. “This is a good decision by the European Parliament and is an important step forward for climate change policy,” says Ed Davey, the UK’s climate change minister. “We need a stable carbon market so we get more certainty for investors so emissions reductions can be achieved at the lowest cost possible.” Carbon allowances have lost 75% of their value over the last four years as Europe’s economic downturn, and the faster-than-expected development of renewable energy capacity has reduced demand for allowances from emitters. As the world’s first market, it did not have rules that would come into play when demand drops. The lack of the ability to reduce the supply of allowances led to a glut. Last year, the European Commission proposed to ‘backload’ 900 million allowances, holding them back until later in the decade. This would push prices up, giving time for structural reforms to the system to be introduced. “This is a reassuring signal for industry and international observers – many of whom have recently adopted their own emissions trading schemes – that the EU remains committed to decarbonizing Europe’s economy in the most cost-efficient way,” says Hans ten Berg, the Secretary General of Eurelectric, which represents Europe’s electricity sector. “Today’s positive vote is a much needed step in the right direction, but it is nevertheless only a first step. We urge the Commission to continue down this path of strengthening the ETS in the long run by proposing more significant structural reforms.” The backloading proposal still needs to clear several more hurdles, although analysts say last week’s vote was the toughest. Traders expect the Commission to begin withholding allowances next year. Structural reforms, however, are likely to be years off, given the drawn-out processes involved in European policy making. Elections next year to the European Parliament are likely to slow deliberations, and most observers don’t expect reforms to be agreed until 2017. But last week’s vote shows there is political will to fix Europe’s carbon market, say participants. “The ‘yes’ vote should provide a short-term boost to carbon prices and confirms the EU’s commitment to the success of the ETS and to implementing the long-term improvements that are still needed,” says Thomas Rassmuson, a Founding Partner at CF Partners, a risk advisory and investment firm specializing in renewables and commodities. Continue reading
