1. 2018/11/29
Prospect and future of climate change regime: Implications of Unilateral CDM linked with CER discounting scheme for Korean commitment beyond 2012
Rae Kwon Chung
Director
Environment and Sustainable Development Division
UNESCAP

2. Climate Regime-The Kyoto Protocol
2018/11/29
Climate Regime-The Kyoto Protocol
International agreement (1997 adopted)
Ratified by 168 countries (Jan 2007)
Binding targets for 35 developed countries
Target: 5.2% reduction from 1990 level ( )
Mandatory targets expected post 2012
Flexibility mechanisms
Emission trading
Clean development mechanism (CDM)
Joint implementation

3. Major Focus – Asian & Pacific Countries
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Major Focus – Asian & Pacific Countries
ESCAP non-Annex I countries account for 56% of non-Annex I emissions & 33% of world GHG emissions (w/ LUCF)
63% of non-Annex I emissions & 30% of world (w/o LUCF)
Source: Schmidt et al., 2005

4. Overview of the Global Carbon Market 2005 & 2006 (up to Sept. 30)
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Overview of the Global Carbon Market & 2006 (up to Sept. 30)
2005
2006 (3 quarters)
Volume (Mt CO2)
Value (M U$)
Allowances
EU ETS
324.31
763.90
NSW
6.11
59.13
16.19
184.07
CCX
1.45
2.83
8.25
27.15
UK-ETS
0.30
1.31
2.26
9.27
Sub total
332.17
788.34
Project-based transactions
CDM
359.08
214.26 JI
20.85
100.89
11.86
93.88
Other compliance
4.51
36.72
7.92
60.02
384.44
234.05
Total
716.61
Source: IETA & World Bank

5. Korea’s Commitment Issue
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Korea’s Commitment Issue
Climate Change: will it not crush Korean Economy ?
What Korea has to do?
Is there any thing Korea can use for its own advantage?
Yes. Unilateral CDM & CER discounting scheme

6. Clean Development Mechanism (CDM)
2018/11/29
Clean Development Mechanism (CDM)
Clean Development Mechanism (CDM)
flexibility mechanisms for Annex I target compliance   
CDM can be re-designed as
an incentive mechanism for Non-Annex I action
an economic instrument for net global emission reduction

7. 2018/11/29
Unilateral CDM
Non-Annex I initiate CDM projects with domestic financing or purchasing agreement with Annex I countries or intermediaries
Non-Annex I can take voluntary climate action as the revenue from the sales of CERs is a strong incentive

8. Advantages of Unilateral CDM
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Advantages of Unilateral CDM
More independent and small scale projects by host countries
Non-Annex 1 do not have to wait for investment from Annex 1 investor
Uneven distribution of CDM can be balanced
Project risk born by Non-Annex 1
Annex 1: just BUY, not INVEST

9. U/CDM, Korean Invention
2018/11/29
U/CDM, Korean Invention
Korea proposed U/CDM at COP 6 in Hague,2000
Because if U/CDM is approved, Korea can recover the costs of GHG emission reduction by selling the CER from the U/CDM.
Strong opposition from both EU and many G77
Only officially approved in 23 April 2005 by CDM Executive Board when tested by the first U/CDM Cuyamapa Hydro Project from Honduras. Project developers overjoyed as the door is open for many other potential CDMs to be initiated by Non-Annex 1 themselves. Nearly after 5 years since Korea proposed.
Proof that Korea can negotiate through its idea at the global negotiations

10. Status of Unilateral CDM
2018/11/29
Status of Unilateral CDM
As of 1 February 2007
919 unilateral CDM out of 1586 CDM projects in the pipeline (from the validation stage) (> 58%)
39 countries out of 55 countries
Top six countries (UCDM/CDM)
India (460/559)
Brazil (150/250)
Mexico (94/146)
China (65/297)
Chile (16/30)
Republic of Korea (16/23)

11. Carbon linked to every aspect of your business
2018/11/29
Carbon linked to every aspect of your business
Korean Business can package their climate change actions into U/CDM and sell CER to recover the costs. Or As a new source of finance
Internalize cost and opportunity for new projects (part of the product price negotiations)
Impact on your share price and your corporate image
May be a factor to assess tax impact

12. Top 10 Developing Country Emitters for Major Industrial Sectors
2018/11/29
Top 10 Developing Country Emitters for Major Industrial Sectors
Electricity
Iron & Steel
Chemical & Petrochemical
Aluminum
Cement & Limestone
Paper, Pulp & Printing
China
India
South Africa
South Korea
Mexico
Iran
Saudi Arabia
Kazakhstan
Indonesia
Thailand
Brazil
Venezuela
U.A.E.
Chile
Argentina
Bahrain
Macedonia
Pakistan
Egypt
Colombia
Source: Schmidt (2006)

13. 2018/11/29
Looking beyond 2012
Combination of flexibility options to meet widely differing national circumstances and needs
Strengthen and streamline the CDM
Unilateral CDM linked with CER discounting scheme
Sectoral approach

14. Increasing CDM Share in the Carbon Market
2018/11/29
Increasing CDM Share in the Carbon Market
Due to rapid increase the volume of CERs from unilateral CDM projects
Carbon Market will expand
the market will be expanded even more if programmatic CDM projects counted
Thus CDM can be a significant mechanism for carbon market
There is a risk of CER flooding/ price fall: this is why we propose
Unilateral CDM to be linked with CER discounting scheme

15. CDM Projects linked with CERs Discounting Scheme
2018/11/29
CDM Projects linked with CERs Discounting Scheme
No CER Discount
With CER Discount
CERs discounting rate at 50%
Discount CERs Retained as net global reduction
All CERs
traded
no global reduction
Non-Annex I
Annex I
Non-Annex I
Annex I
No Global Reduction
Net Global Reduction

16. No binding target for developing countries Stabilize CER price
2018/11/29
How CER discounting scheme can function as the post Kyoto Non-Annex 1 ?
No binding target for developing countries
Stabilize CER price
Generate net global GHG reduction

17. Certified Emission Reductions (CERs) Discounting Scheme
2018/11/29
Certified Emission Reductions (CERs) Discounting Scheme
Rules
only certain portion of CER is issued to the project and sold to the entities of Annex I
Results
unsold CER will remain as net global emission reduction
higher the ratio of discounting, larger the volume of net global emission reduction could be expected

18. Why Non-Annex I should accept the idea of discounting the CER?
2018/11/29
Why Non-Annex I should accept the idea of discounting the CER?
Revenue
might not reduce
Could even increased depending on CER price elasticity
As CDM projects increased, CER discounting is needed to maintain the CER price in the long run
Generate net global GHG reduction without binding targets to Non-Annex I

19. Innovative mechanism beyond 2012
2018/11/29
Innovative mechanism beyond 2012
Without imposing binding targets on Non-Annex I countries
CER discounting can generate net global reduction
Thus, resolve the deadlock over Non-Annex I commitments issues
In particular, as Program CDM is going to be approved,
CER discounting can justify Program CDM.

20. Differentiation of Discounting Ratio
2018/11/29
Differentiation of Discounting Ratio
Level of development:
high income country; high discounting
low income country; low discounting
Type of gases: CER from CFC/HFC, CH4, discounted heavily
Minimum baseline for discounting: e.g. African countries exempt from discounting up to a minimum volume of CES
If Korea, proposes this idea ????