ASrIA - Emissions Trading & Carbon Funds

The Kyoto Protocol has established market based mechanisms as a means of reducing global greenhouse gas emissions. The following pages provide examples of trading mechanisms, brokerage activities and carbon funds that have been established in response to the demand for carbon credits.

Asia Carbon Group and the Asian Carbon Exchange
http://www.asiacarbon.com/aboutus.htm

Asia Carbon Group's primary objective is to mitigate global climate change and initiate sustainable development through the application of the Kyoto Protocol financial mechanisms in particular the Clean Development Mechanism (CDM), Joint Implementation (JI) and Emissions Trading. In addition to carbon financing, the Group is now establishing a trading platform - the Asia Carbon Exchange and also the Asia Carbon Fund for the purposes of investing in sustainable development projects globally. It is further planning to launch an exchange in Japan that will enable utilities to gain better access to carbon reduction projects.

Carbon Credit Capital (CCC)
http://www.carboncreditcapital.com

Carbon Credit Capital’s mission is to cultivate the supply of sustainable carbon credits from energy projects in developing countries for sale to international carbon credit buyers.

It provides advice and carbon finance to GHG offset project developers seeking to create carbon credits for the regulated markets or voluntary markets. It also screens and designs projects to generate sustainable credits that create lasting benefits to host communities and carry minimum risk for buyers. Carbon Credit Capital focuses on three proven and tested reduction technologies: Biomass, Hydropower and Landfill Gas. It works with project locations in the regions of Africa, Asia and South and Central America.

CCC also serves as brokers to buyers of carbon credits, matching buyers with credits from projects most suited to their risk tolerance, financial needs and GHG exposure and structuring transactions between buyers and sellers. It works with governments and companies seeking to comply with regulated GHG reduction standards under the Kyoto Protocol or other regulatory schemes, financial institutions seeking to benefit from carbon credits as an asset class and corporations who voluntarily buy carbon credits as a strategy to raise their corporate social responsibility profile.

Carbonpositive arranges and manages sustainable-development projects that reduce greenhouse-gas emissions in developing countries. These projects are designed to generate Certified Emissions Reductions (CERs) under the Kyoto Protocol Clean Development Mechanism. Its website provides useful information ranging from generic information on climate change to the details of the Kyoto Protocol, carbon markets and company news.

Capacity Development for CDM (CD4CDM) is a 4-year project with funding from the government of the Netherlands. The project is intended to help establish GHG emission reduction projects that are consistent with national sustainable development goals, particularly projects in the energy sector. It will develop national capabilities so that persons in the countries are at the project’s conclusion capable of analysing the technical and financial merits of projects and negotiating possible finance agreements with Annex 1 countries or investors.

Chicago Climate Exchange
http://www.chicagoclimatex.com

The Chicago Climate ExchangeR (CCXR) is a greenhouse gas (GHG) emission reduction and trading pilot program for emission sources and offset projects in the United States, Canada, and Mexico. Projects also include Brazil. CCXR is a self-regulatory, rules based exchange designed and governed by CCXR Members. These members have made a voluntary, legally binding commitment to reduce their emissions of greenhouse gases by four percent below the average of their 1998-2001 baseline by 2006, the last year of the pilot program.

Emissions Marketing Association
http://www.environmentalmarkets.org/index.ww

The objective of the Environmental Markets Association is to promote market-based trading solutions for environmental management and to serve its membership in order to:

European Climate Exchange
http://www.europeanclimateexchange.com/index_flash.php

The European Climate Exchange is a wholly-owned subsidiary of the Chicago Climate Exchange (CCX). It manages the sales and marketing for ECX Carbon Financial Instruments (ECX CFIs), listed on the ICE Futures electronic platform. ECX/ICE Futures is the most liquid pan-European platform for carbon emissions trading with standard contracts and clearing guarantees provided by LCH.Clearnet. More than 50 leading businesses, including global companies such as ABN AMRO, Barclays, BP, Calyon, E.ON UK, Electrabel, Fortis, ICAP, Morgan Stanley and Shell have signed up to trade ECX products.

European Union Emissions Trading Scheme (EU ETS)
http://europa.eu.int/comm/environment/climat/emission.htm

In January 2005 the European Union Greenhouse Gas Emission Trading Scheme (EU ETS) commenced operation as the largest multi-country, multi-sector Greenhouse Gas emission trading scheme world-wide.The scheme is based on Directive 2003/87/EC, which entered into force on 25 October 2003.

Allowances traded in the EU ETS will not be printed but held in accounts in electronic registries set up by Member States. All of these registries will be overseen by a Central Administrator at EU level.

Greenhouse Gas-Credit Aggregation Pool (GG-CAP)
http://www.natsourcejapan.com/english/works/greenhouse/ggcap.html

GG-CAP is initiated by Natsource Group and is a carbon pool. Natsource Japan solicits Japanese entities for this GG-CAP which is run by its affiliate company Natsource Asset Management Corp. GG-CAP enables its participants to comply with domestic, international and voluntary greenhouse gas emissions reduction requirements by purchasing low-cost compliance instruments from a diverse portfolio of project-based emissions reductions.

GG-CAP will initially procure 15 to 30 contracts totaling 30 to 50 million tons of greenhouse gas emissions reductions for delivery in the 2004-2012 period.

ICECAP is a private sector provider of emissions credits from developing world CDM & JI projects in the emissions trading markets. In March 2004, the ICECAP Carbon Portfolio was launched, one of the world’s first private sector carbon hedging vehicles. This reached first closing on 17th January 2006 with aggregate commitments of 15 million tonnes. In addition, ICECAP has developed a track record in Certified Emissions Reduction transactions through its trading business.

International Emissions Trading Association
http://www.ieta.org/ieta/www/pages/index.php

The International Emissions Trading Association (ETA) is a membership organization dedicated to the establishment of effective market-based trading systems for greenhouse gas emissions by businesses that are demonstrably fair, open, efficient, accountable and consistent across national boundaries. To achieve its goals, IETA focuses on the following areas:

IFC has established Carbon Finance Facilities. The Facilities are arrangements under which IFC will purchase carbon credits for the benefit of the Government of the Netherlands under the international emission reduction transfer rules of the Kyoto Protocol. IFC presently has about $100 million under management in two facilities to purchase credits: (i) the IFC-Netherlands Carbon Facility (INCaF) operating under the rules of the Clean Development Mechanism (CDM); and (ii) the Netherlands European Carbon Facility (NECaF) operating under the rules of the Joint Implementation (JI) mechanism and managed jointly with IBRD. Payments for carbon credits purchased will be made to eligible projects in emerging markets and will provide them with additional revenue. The Government of the Netherlands will use the purchased credits to meet its GHG reduction obligations under the Kyoto Protocol. The credits will be purchased and paid for regardless of whether or not the Kyoto Protocol is in force.

Kyoto Protocol

The Kyoto Protocol established in 1997, significantly strengthens the United Nations Convention on Climate Change by committing Annex I Parties to individual, legally-binding targets to limit or reduce their greenhouse gas emissions. 163 countries have ratified the Protocol to date (as of April 2006). Of these, 35 countries and the EEC are required to reduce greenhouse gas emissions below levels specified for each of them in the treaty. The individual targets for Annex I Parties are listed in the Kyoto Protocol’s Annex B. These add up to a total cut in greenhouse-gas emissions of at least 5% from 1990 levels in the commitment period 2008-2012.

The protocol provides mechanisms based on emissions trading to assist participating countries in meeting their reduction targets http://unfccc.int/kyoto_mechanisms/items/2998.php. The Kyoto mechanisms are:

Joint Implementation (JI)
http://ji.unfccc.int

JI provides for Annex I Parties to implement projects that reduce emissions, or remove carbon from the atmosphere, in other Annex I Parties, in return for emission reduction units (Eros).

Clean Development Mechanism (CDM)
http://cdm.unfccc.int

CDM provides for Annex I Parties to implement projects that reduce emissions in non-Annex I Parties, or absorb carbon through afforestation or reforestation activities, in return for certified emission reductions (CERs, tCERs and lCERs) and assist the host Parties in achieving sustainable development and contributing to the ultimate objective of the Convention. The CDM is supervised by the CDM Executive Board.

Emissions trading, provides for Annex I Parties to acquire units from other Annex I Parties. These units may be in the form of AAUs, RMUs, ERUs, and CERs.

Renewable Energy Certificate System (RECS)
http://www.recs.org

RECS stand for Renewable Energy Certificate Systems and are considered as an international trading system in Europe (EU25) for renewable energy certificates. The system is initiated and coordinated by the RECS International Association in cooperation with the Association of Issuing Body (AIB). Every participating country has appointed an independent national issuing body to operate the system. This national issuing body should be a member of the AIB so certificates can be exchanged based on the same standard: the RECS. A RECS-certificate can be issued for every MWh of renewable energy as long as the trader or producer opens an account for RECS at its national issuing body. To do this, one should be a member of the RECS International association.

The RECS International Association is a non-profit European organisation registered in Brussels. Its members are all renewable energy producers, traders and suppliers in Europe that either wish to have a RECS account at their national issuing body and/or wish to influence policy on governmental and system level concerning the certificate trading. RECS International acts as the representative of market players towards national and European governmental authorities and facilitates all possible events and activities that will enhance the mission statement of RECS.

The Union of the Electricity Industry
http://www.eurelectric.org

The Union of the Electricity Industry (EURELECTRIC) has undertaken a series of trading simulations called Greenhouse Gas and Energy Trading Simulations: GETS 1, GETS 2, GETS 3 and GETS 3bis, in order to learn more and demonstrate the usefulness of this "flexible mechanism" provided for in the Kyoto Protocol. Meanwhile, GETS 4 has been launched and is designed to assess the impacts of world-wide emissions trading and to test scenarios for the post-Kyoto period.

United Nations Development Programme - Millennium Development Goals (MDG) Carbon Facility
http://www.undp.org/mdgcarbonfacility/docs/BookletMDGCarbonFacility.pdf

To capitalize on the potentially significant benefits of carbon finance for the developing world, UNDP is establishing the MDG Carbon Facility, a carbon-finance mechanism featuring emission offsets derived from a pool of projects designed to contribute directly to achieving the MDGs. UNDP will mobilize carbon finance and direct this towards developing a portfolio of projects that yield tangible sustainable development and poverty reduction benefits across a diverse group of developing countries.

The World Bank Carbon Finance Unit (CFU) uses money contributed by governments and companies in OECD countries to purchase project-based greenhouse gas emission reductions in developing countries and countries with economies in transition. The emission reductions are purchased through one of the CFU's carbon funds on behalf of the contributor, and within the framework of the Kyoto Protocol's Clean Development Mechanism (CDM) or Joint Implementation (JI).

CFU contracts to purchase emission reductions similar to a commercial transaction, paying for them annually or periodically once they have been verified by a third party auditor. The selling of emission reductions - or carbon finance - has been shown to increase the bankability of projects, by adding an additional revenue stream in hard currency, which reduces the risks of commercial lending or grant finance. Thus, carbon finance provides a means of leveraging new private and public investment into projects that reduce greenhouse gas emissions, thereby mitigating climate change while contributing to sustainable development.