1 Carbon Trading: Prospects and Drivers Kristian Tangen, Point Carbon IETA-seminar Bonn June

2 Products and tools Products Analytical tools o Carbon Market Analyst – Forecasts and market reports o Carbon Market Quarterly – The broader picture o Country Profiles – Ranking of JI hosts o Carbon Market Projects – Tailor-made package for the CDM & JI Markets o Carbon Market News – Free daily newsletter o Carbon Market Europe – Free weekly newsletter o CDM Monitor – Free Monthly service oCarbon Transaction Database –Worlds most comprehensive –>400 transactions, 400 MtCO 2 e oTrading Systems Database –With IETA oStructural price-model –Simulation of policy scenarios –Monte Carlo-simulations –Parametric sensitivity studies oExpert Networks –Polls See

3 o Not ONE market: – Domestic schemes – Project-based programs – Voluntary programs o Not ONE commodity: – Payment, risk-sharing – Standardisation: only in domestic schemes o Not ONE price A fragmented market

4 Trends o Focus of attention shifting towards Europe – On-going UK, Danish and Dutch programs – Planned EU ETS directive – First trade in EU allowances February 2003 o Volumes in domestic schemes dwarfed by CDM/JI – But, how much will be offered to the market, and when? o Focus on projects compatible with Kyoto rules – CDM/JI o First clean AAU-deal in December 2002

5 No. Transactions

6 Traded Volumes

7 Future: Political drivers o Russian ratification – Increased Japanese demand – (Canada) o EU ETS Directive – Creates a large market from 2005 o EU JI/CDM Directive – No sinks or large hydro? – Ceilings (6%)? – Effects on the CER-market o CDM Procedures

8 EU ETS: Current prices o Bids and offers, ref. Carbon Markets Europe – 5 to 7 /tCO 2 bid-offer spread, firm bids: 5 to 5.5 /tCO 2 – Nuon-Shell deal: probably in the indicative market o Why this price-level? – Maybe: Point Carbons September 02 analysis (5 /tCO 2 ) – Probably: linked to CER prices (4 to 6 /tCO 2 ) The CDM is currently influencing EU prices The role of CDM, in the longer term? What would be the volume?

9 Prospects for the CDM o Developing CDM-projects is time-consuming – After 5 years: relatively few projects – The most advanced have reached the PDD-stadium – Implementation, after EB approval of PDD: 1-2 years – Issuance of CERs: 1 year after implementation 1-3 years from PDD to CER Projects that have not yet been developed as PDDs are not likely to start delivering CERs before after 2005 Current PDDs give an indication of CER-supply by 2005

10 o About 2 MtCO 2 e to market in 2005 o About 0,1 % of total emissions o Dwarfed by annual variations CER volumes CERs to market in 2005: 3.35 MtCO 2 e

11 Natural variation, EU15 Total volume allowances:1800MtCO 2 e Natural variation:30MtCO 2 e CERs to market in 2005: 3.35 MtCO 2 e

12 The size of the EU market

13 Conclusions o Market implications for CERs – CER price = Price of EAU – Two prices: approved and not approved by EU – Offset opportunities: Reduced risk in connection with CDM investments Makes CDM more attractive But potential depends on procedures...

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