Carbon Pricing & Energy:

Private sector investments, competitiveness and social equity

GDF SUEZ ENERGY LATIN AMERICA

Philipp Hauser – VP Carbon Markets

philipp.hauser@gdfsuezla.com

Tel: +552139745443

GDF SUEZ Energy International

UK-TURKEY

GDF SUEZ Energy International global presence Strong position to deliver sustained growth

2

50

46

17

9

12

2

76

14 97

3 NORTH AMERICA

SAMEA ASIA-PACIFIC

LATIN AMERICA

12

55

2

13 GW

20

45

32

Ownership capacity at 100% as at 30/06/2014

Note: Total Gross capacity (100%): 73.2 GW; Total Net Ownership capacity: 37.7 GW

13.7 GW

26.2 GW 12 GW

8.2 GW

77%

12%

48%

36%

99%

15%

7%

46%

36%

1%

5%

2%

<1%

1%

<1%

10%

60%

1%

25%

1%

1%

<1% 10%

4%

2%

Coal

Natural gas

Hydro

Other renewable

Wind

Other non-renewable

GDF SUEZ among Global Compact Carbon Pricing Champions

Key principles

Set an internal carbon price high

enough to materially affect

investment decisions to drive

down greenhouse gas

emissions;

Publicly advocate the

importance of carbon pricing

through policy mechanisms that

take into account country

specific economies and policy

contexts.

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3

4 Source: IPCC 5th assessment report – WG III

Global climate policy failed by (m)any means

+ 1,3% p.a.

1970-2000

+ 2,2% p.a.

2000-2010

+5%

Growth of GHG emissions has

accelerated.

GHG emission growth in developing countries outpaces Annex I mitigation

5

Source: EDGAR 4.2 (1970–2008); IEA, 2011; USGS, 2012; WSA, 2012; NOAA, 2012

Past progress is being reversed

6 Source: IPCC 5th assessment report – WG III

PMR members with huge differences in development needs

7 Source: UNDP and World Bank Data Bank (2011)

Australia

Brazil

Chile China

Colombia

Costa Rica

Denmark

Finland

Germany

India Indonesia

Japan

Jordan

Kazakhstan

Mexico

Morocco

Netherlands

Norway

Peru

South Africa Spain

Sweden

Switzerland

Thailand

Tunisia

Turkey

Ukraine United Kingdom

United States

Vietnam

400

4,000

40,000

0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00

Po

we

r c

on

su

mp

tio

n (

kW

h p

er

ca

pit

a)

on

lo

g s

ca

le

Human Development Index (HDI) Size of bubbles ~ GDP/capita

Capita specific Power Consumption, GDP & HDI on log scale

8

Importance of a global carbon market

OECD perspective:

Mitigation requires gradual reform of

infrastructure

Mitigation cost to be contained by

substituting depreciated assets with

new technologies

Mitigation Potential is insufficient

when compared to emission grow of

non OECD countries

OECD needs time for smooth

transition and asset rotation

Non OECD needs immediate

incentives for clean growth

Energy Security & unconstraint

economic growth

Minimum ST-Cost

Social & Environmental

Costs & Benefits

Perspective and objectives of emerging countries:

8

9

Energy Security & unconstraint

economic growth

Minimum LT - Cost

Global Climate Compliance

Social & Environmental

Costs & Benefits

Importance of a global carbon market

OECD perspective:

Mitigation requires gradual reform of

infrastructure

Mitigation cost to be contained by

substituting depreciated assets with

new technologies

Mitigation Potential is insufficient

when compared to emission grow of

non OECD countries

OECD needs time for smooth

transition and asset rotation

Non OECD needs immediate

incentives for clean growth

Carbon

Market &

Finance

Perspective and objectives of emerging countries:

9

The challenge ahead according to the WEO 2011

In a policy driven scenario to achieve 450 ppm CO2 prices in:

OECD will converge to $120/t in 2035;

BRICS is to rise from $10/t in ‘20 to $95/t in ‘35.

Cost is time dependent and increasing: Each US$ investment delay

will cost 4.5 US$ investment in 2020.

Though no direct link between markets expected before 2035, all

systems have access to offsets (indirect linking), leading to price

convergence

If all countries began immediate mitigation, establish a single

global carbon price and use of all technologies, economic costs is

limited to 0,06% reduction in annual consumption growth until 2100

(IPCC 5th AR WG III)

“If we do not change course, by 2017, 100% of the permissible energy

sector emissions will be locked in.

Maria van der Hoeven - Executive Director IEA

GDF SUEZ ENERGY INTERNATIONAL – Climate Change & Investment – 15/11/2013

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11

Outright Carbon Pricing is out of fashion, but costs are rising

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Carbon Price regulation in reality: A combination of policies

Different regulations co-exist and

have to be made compatible to

ensure economic efficiency.

Where an ETS applies, the policy

overlap will determine the explicit

price level.

Smart regulation and good

enabling environments will lower

the cost of mitigation

Fossil fuel incentives cause

distortion and increases price

level.

Regulatory

framework

Taxes &

Incentives

Carbon

Price

12

How to use existing tools & minimize cost

13

CTCN and bilateral organizations are available

to support host countries on request

According to Economic Theory each market failure

requires a specific instrument.

CDM & NMM are globally coherent steps to

build an international carbon market.

Development Banks & Green Climate Fund can

bridge financial barriers.

NAMA policies with international support need

to improve clean investment environment

Pricing external costs &

benefits

Inefficient Capital Markets

Lack of enabling environment

Sound MRV for GHG emissions and emission

reductions ensure global comparability

Quantify external cost and

benefits

Lack of access to technology

and organizational knowledge

Distribution of

technologies & countries:

10 Mio CER p.a.

GDF SUEZ Experience with clean energy & support policies

16 Projects registered under the CDM

16 Projects are supported by national policies (NAMA)

7 Project financed by Multilateral Development Banks

Uruguay NAMA LNG project seeking MDB financing

GDF SUEZ ENERGY INTERNATIONAL – Climate Change & Investment – 15/11/2013

CDM:

16

NAMA 16

MDB financing

7

7

7 11

4

Combination of incentives mitigates individual policy risk

MAY 2014 I GDF SUEZ ENERGY LATIN AMERICA 14

Focus on clean expansion and efficiency of existing infrastructure.

Major share of GHG mitigation is related to avoided emission growth.

Early action avoids building-up of future GHG liabilities, but requires large

capital investments today.

Domestic Carbon tax or Cap & Trade can generate demand for domestic

offsets, set a minimum price for investors and satisfy demand for net

mitigation.

Clear commitment to honor early action and emission reduction results will

attract new and existing investors and anticipate mitigation investments.

Gauging Price & Coverage allows leveraging incentive for clean expansion.

Combining CDM with NAMA policies allows development of sectoral

mechanisms and facilitates scale-up.

Solid bottom up MRV will demonstrate efforts and results and attract results

based climate finance.

Use of the CDM or the future NMM allows flexibility and paves way for

indirect linking in preparation for a global carbon market.

Principles to promote domestic early action & prepare for a global carbon market

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Source: Adapted from Linking emission trading systems (Climate Strategy - 2009)

A global vision to orient domestic action Building a global carbon market from bottom up action

Integrated

Carbon Market

OECD &

advanced

developing

countries

OECD

Carbon

Market

EU ETS Phase III EU ETS Phase II EU ETS Phase I

North &

South

American

ETS

REGGI

California

Domestic

& International

Offset Bubble

for indirect

linking of

domestic &

International

market

Quebec

Mexico

Chile

Asian

ETS

Japan

South Korea

New Zealand

NAMA activities in Major Emerging

Economies with net mitigation

NAMA activities in less Developed Countries

Supported NAMA in least Developed Countries

Problem: Capital Intensity and long term maturity of clean infrastructure is

the biggest barrier to green growth and a risk to our climate.

Urgency: Early action needed to avoid fossil fuel lock-in.

Solution: Transformational change now, requires global cooperation and

use of existing mechanisms to address all market failures at once.

Role of the CDM : Offer comparable & solid MRV & flexible mechanism,

i) in support of national policies (NAMA, etc.)

ii) in complement to Carbon Financing (RBF)

iii) for domestic offsetting and indirect linking between countries to ensure

transformational investments and a move towards an incrementally global

carbon market.

Important CDM reforms and elements of the ADP text:

1) Recognize KP mechanisms & results under the future climate agreement.

2) Open access to & promote early action by all parties, IMO & ICAO.

3) Reduce costs & bureaucracy to attract use by developing countries.

4) Establish due tracking and accounting of units.

Conclusions and suggestions for discussion

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