An Introduction to the Voluntary Carbon Markets
By Grattan MacGiffinManaging Director, Global Sustainable Trading Limited
EOI, MadridFebruary 16, 2011
Global Sustainable Trading Limited is a part of the Global Sustainable Group Ltd. Offices in Boston, London, Paris and
Izmir.
A little joke…
El doctor llama por teléfono a su paciente:
‘Vera, tengo una noticia buena y otra mala’.
‘Bueno... dígame primero la buena’.
‘Los resultados del análisis indican que le quedan 24 horas de vida.’
‘Pero, bueno, ¿eso es la buena noticia? ¿Entonces cuál es la mala’?
‘Que llevo intentando localizarle desde ayer’.
An Introduction to the Voluntary Carbon Markets
• Introduction
• Definitions
• Historic data
• Components of a VER offset
• VER pricing
• Transacting VERs
• VCM versus Regulated Emissions market
• The future
• Questions
Definitions
• “In a voluntary carbon market, an entity (company, individual, or another ‘emitter’) volunteers to offset its carbon emissions by purchasing carbon allowances from a third party, who then takes this money and uses it towards a project that will reduce carbon in the atmosphere.” National Renewable Energy Lab
• “Voluntary Emission Reductions (VERs) are carbon credits that are not certified by the United Nations under the Kyoto Protocol. Some companies and individuals choose to buy carbon credits resulting from carbon-cutting projects that are not certified by the UN, in order to meet their own carbon reduction objectives.” Financial Times, London
Historic Volume in the Voluntary Markets
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
Historic Value in the Voluntary Markets
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
2009 – 2010 Trends
• 2009 started strongly, ended quietly• Linkages and infrastructure building a key theme• Better information• Impacts of recessions and regulation• Carbon+
The components of a VER offset
• These include…• Standard• Project type (‘methodology’)• Location• Vintage
Offset Standards in the Voluntary Carbon Markets, 2009
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
Transaction Volume by Standard, 2008 v 2009
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
Transaction Volume by Project Type, 2008 v 2009
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
Land-Based Credits Sold OTC, 2008 v 2009
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
Transaction Volume by Project Location, 2009
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
Transaction Volume by Location and Project Type
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
Transaction Volume by Location and Project Type
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
Transaction Volume by Vintage, 2008 v 2009
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
Pricing
Average Credit Price by Project Type, 2008 v 2009
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
Typical Market Pricing Summary
Transacting VERs
Issues in Transacting VERs
Not commoditised
No guarantees of enduring appeal
Changing fashions
Beauty in the eye of the beholder
Interference from external agencies e.g. delays by UN, 3rd party verifiers
Legislative uncertainty
Occasional bad press
= HARD WORK!
Transaction Volume by Type of Buyer, 2009
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
Mo
nito
ring
Rep
ort
up
load
Offset
Role of Registry Infrastructure in the Building Blocks of an Environmental Market
Creation and / or Allocation of Credits
Traders / Brokers /
Investment Banks
Exchanges and Clearing Houses
Settlement
Project Funders e.g. banks,
investors, non-profits
Owners/Operators of environmental market project
Cre
dit
Issuan
ce
VerificationProject Operation
Project Validation
Project Design
Pen
din
g
Issuan
ce
Units
Marketplace: Trading of Credits and Allowances
Buyers Domestic ETS
participants Governments Banks Traders Retailers Corporate Buyers Long term
Investors Speculative
Buyers
Tra
ck T
ransfe
rs
Tra
ck R
etirem
en
t
Usage
Tra
ck T
ransfe
rsC
onn
ectivity
Reg
ister
Proje
cts
Markit Environmental Registry System
Allowances (tradable permits/credits) allocated to regulated entities
Post T
rade
In
forma
tion
&
Se
rvices
Ma
rket
Esta
blish
me
nt
Service
s
Governments and regulatory
agencies
Credits created
Transaction Volume by Registry Utilised, 2009
21%
17%
15%10%
8%
8%
7%
4%
1%
0.1%1% 7%
APX (VCS)
CAR
CCX
Caisse des Depots
Markit
Gold Standard
ACR
CDM
NSW GGAS
BlueRegistry
Internal Registry
Remaining
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
Tips
• SELLERs
• Select standard carefully
• Understand what is selling
• Have all info in Registry account
• Consider sale size/vintages
• Commit to sell
• Speak to experts
• Don’t cut corners
• Be realistic!
• Aim for repeat business
• BUYERs
• Assess carefully what you need
• Understand what is available
• Have Registry account ready
• Buy only what you need
• Commit to buy
• Speak to experts
• Accept unforeseen delays
• Be realistic!
• Aim for repeat business
Regulated Emissions Market v Voluntary Carbon Market
Transaction Volumes and Values, Global Carbon Market, 2008 and 09
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
The Future…
Projected Market Growth for the Voluntary Carbon Markets, according to Participants
Source: “State of the Voluntary Carbon Markets 2010”, Ecosystem Marketplace and Bloomberg New Energy Finance
Likely Scenarios..?
• Bounce back to upward growth trend in global VCM
• Continued evolution of standards and market transparency
• More REDD; more African projects
• More Innovation of new project methodologies e.g. water filters
• Broader base of investment – health, education; aid, development budgets
• More forward trading as market matures
• US offsets and trading to dominate growth e.g. CaT, WCI
Mucho [email protected] 44 7733 365303