This Week in V-Carbon: Carbon markets drop some new beats

Market players are tuning up for the 17th Conference of Parties in Durban, while California’s Air Resources Board orchestrated approval of the nation’s first state-administered cap-and-trade regulations. Here’s a backstage pass to the latest thinking behind the new market (and new market mechanisms).

NOTE: This article has been reprinted from Ecosystem Marketplace’s Voluntary Carbon newsletter. You can receive this summary of global news and views from the world of voluntary carbon automatically in your inbox by clicking here.

26 October 2011 | Market players are tuning up for the 17th Conference of Parties in Durban, while California’s Air Resources Board orchestrated approval of the nation’s first state-administered cap-and-trade regulations. Here’s a backstage pass to the latest thinking behind the new market (and new market mechanisms).

At the International Emissions Trading Association’s (IETA) Fall Symposium held in Washington last week, panelists weighed in on California’s finalized regulatory set list.
While lawmakers applauded the Air Resource Board’s unanimous adoption of the much-disputed regulations, market regulars like Barclays Capital’s Kedin Kilgore lobbed continued concerns at the state’s watered down but still-contentious rulemaking around offset invalidation.

Calling the state’s offsetting provision “an impaired mechanism,” Kilgore asserts that “even narrowing the window within which issued offsets could be rescinded to three years down from eight, this is still an issue” – referring to the length of time a buyer will be held liable if an offset is deemed invalid.

Panelists also investigated international regulatory instruments – most notably the EU ETS (“It’s pretty simple. It’s awful.”) – for signs of life in the run-up to Durban.

By now readers are likely familiar with the recession-driven lag in demand and gross oversupply that plague pricing in the European market. “The private sector over-complied – they have more than double their needs to fulfill their goals,” Climate Focus Director Charlotte Streck recently reiterated to a roomful of Latin American Designated National Authorities (DNAs) in Mexico City.
Any solution? “Think of other sources for commercializing these credits,” she suggests.

And indeed, they are. The domestic CDM project gatekeepers gathered last week to contemplate their role in potential complements to traditional Kyoto tools – considering new market mechanisms like Nationally Appropriate Mitigation Actions (NAMAs) that will be major items on the COP17 agenda.

These and other alternatives (ahem, voluntary market) are taking center stage as non-LDC developing countries – including all of Latin America except Haiti – grapple with the EU’s decision to exclude their projects from the third compliance period. According to the NAMA database administered by Ecofys, Latin America has so far registered 13 NAMAs – more than any other region.

Still, IETA’s CEO Henry Derwent takes a cautious stance toward the CDM alternatives. According to Derwent, progress on these mechanisms is “better than nothing, but begins to look like more improvements to table setting without much indication of where the food is going to come from to be put on the table. Not much money, not much demand.”

Back in Mexico City, Verified Carbon Standard (VCS) CEO David Antonioli circled back to the voluntary and domestic markets that served the region well in 2010 when Latin America supplied the second largest (and fastest growing) volume of voluntary carbon credits worldwide – many of which were purchased by domestic firms.

“Initiatives [that] are one step ahead and engage the international markets are nice, but we need to design systems in such a way that benefits remain in the country,” he says.

Cuing a conversation that links domestic voluntary markets to other emerging mechanisms, he added, “Voluntary domestic actions could be a NAMA itself – developing voluntary market rules with clear specifications for how reductions will take place and be credited.”
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Voluntary Carbon

Wildlife Works forges new Allianz

Munich-based insurance giant Allianz SE has made a 10 percent equity investment in REDD project developer Wildlife Works Carbon LLC (WWC) – also agreeing to a multi-year option to purchase carbon credits from the company’s flagship Kasigau Corridor REDD Project in Kenya, the first to be verified under the VCS and Climate, Community and Biodiversity (CCB) Standards. Allianz’ equity investment backs WWC’s plan to develop a portfolio of additional REDD projects to protect 5 million ha of native forest, mitigating at least 25 million tCO2e per year. “Widespread private sector engagement is the fastest solution to stop the destruction of the world’s forests,” said Mike Korchinsky, founder and CEO of Wildlife Works. “Allianz’ investment in Wildlife Works Carbon demonstrates that private sector financed REDD can and should play a leading role in the global effort to reduce deforestation.”

Read more from Environmental Finance

Driving interest in all-American offsets

American auto icon Chevrolet is steering towards sustainability – announcing earlier this month that it will help support 16 different verified carbon offset projects across the nation, including wind farm, landfill and home weatherization initiatives. The company pledged last year to offset the estimated annual emissions produced by the 1.9 million vehicles it is expected to sell in the US in 2011 as part of its goal to spend up to US$40 million and reduce 8 million tCO2. Investments in the projects will be made through the Bonneville Environmental Foundation, and are expected to avoid 4.6 million tonnes of emissions through 2014. “Now that we’re committed to 16 diversified projects, we are fortified in our support of community-based, carbon-reduction initiatives,” Chris Perry, vice president of Chevrolet Global Marketing and Strategy, said in a statement. “It’s fulfilling to back organizations working toward building a cleaner, more-secure energy future.”

Read more from Chevy
Read more from GreenBiz

B of A banking on California

Bank of America Merrill Lynch shook the nascent California carbon market earlier this month when it announced a multi-million dollar agreement with TerraPass that will give the bank’s Global Commodities group the option to buy several million tonnes of offsets through 2020. The offsets will be generated from a pool of US agricultural methane projects expected to be compliant with the California Air Resources Board’s (ARB) approved protocol. According to Abyd Karmali, global head of Carbon Markets in the Global Commodities Group, the partnership will provide US clients with an integrated hedging service including power, fuels, and carbon risk management. “By acting as a first mover in California, we are positioning ourselves as the offset provider of choice for companies that will need to become compliant under these new regulations,” he said.

Read the press release
Read more from Environmental Leader

Reporting on the voluntary markets’ State of affairs

Few early market players could have put a value on recent years’ massive uptake of third-party standards and registries. Or the explosion of pre-compliance activity in the US in 2008-2009. Or the unprecedented crop of REDD transactions in 2010. What’s next for the global voluntary carbon markets? We hope to tell you, but are far from our goal of $90K in sponsorship pledges and donations necessary to make next year’s State of the Voluntary Carbon Markets report a reality. With one month left to reach our target, we’re reaching out to our loyal readers to help us bring this valuable report to market – for free and in full. You can help by contacting Molly Peters-Stanley about sponsorship opportunities (payable through Q2 2012), or simply make a donation today. If we reach our goal, donations over US$499 will be recognized in the 2012 report. If not, all report support will be promptly refunded. Help save the State of – make your tax deductible contribution today.

Donate online
Download sponsorship details (pdf)
Read the 2012 report

Voluntary carbon on board

The Carbon Markets & Investors Association (CMIA) just added two new members to its board – including the first-ever seat to be held by a company acting primarily in the voluntary carbon space. At its Annual General Meeting (AGM) in Brussels earlier this month, both Jonathan Shopley of the CarbonNeutral Company and Anna Lehmann of Climate Focus were newly elected, while Alexander Sarac of DLA Piper, Gareth Phillips of Sindicatum and Yvo De Boer of KPMG were reelected for a second term. “Our new board brings a wealth of experience and a diversity of perspectives on climate finance,” said CMIA’s Director Miles Austin. “The addition of Anna and Jonathan will add a strong perspective on REDD+ and the voluntary markets respectively to the board’s dynamic.”


Researchers occupied with Wall Street’s neutrality claims

Carbon data publishing site Ecodesk is pointing fingers at the financial industry – accusing banks of fooling investors and the public with false claims of carbon neutrality, reports Environmental Leader. In its recent Sustainability & Finance report analyzing 30 of the world’s major banks, Ecodesk accuses companies purchasing carbon offsets of “buying their way” into sustainability – and claims banks calling themselves carbon neutral are no greener than their competitors. This so-called greenwashing not only misleads consumers and investors, the report says, but it prevents the banks from implementing real efficiency and environmental programs. This assessment doesn’t, however, square with the recent Newsweek Green Rankings – which found that financial companies are among the most sustainable in America.

Read more about the Ecodesk report
Read more about the Newsweek Green Rankings

Terra Global challenged to a dual

… dually validated offsets that is. On behalf of the Royal Government of Cambodia, Terra Global Capital is initiating the sale of carbon credits from the Oddar Meanchey REDD project – recently dually validated to both the VCS and CCB Standards. Jointly implemented by Pact Cambodia and The Forestry Administration of the Royal Government of Cambodia, along with Children’s Development Association, Monks Community Forestry, and Community Forestry Federation of Oddar Meanchey, the project represents the first Cambodian REDD initiative. Expected to sequester approximately 8.3 million tCO2 over 30 years, the project aims to protect 64,318 ha of forest while demonstrating how communities can mobilize to protect their forests, generate sustainable income from carbon markets and positively impact climate change.


For more information

CDC Climat thinks local

A new Climate Report by CDC Climat describes how local authorities are increasingly involved in defining and implementing voluntary policies to combat climate change. Voluntary Carbon Offsetting by Local Authorities: Practices and Lessons reveals that due to limitations – GHG emissions in their jurisdictions are often beyond their direct control – voluntary offsetting by either purchasing offsets or generating credits in order to create a source of income is a viable option for local authorities. Although local authorities generating carbon credits account for just 3 percent of voluntary offset projects, their share of the demand for voluntary credits is harder to quantify. What the case studies do reveal, however, that the vast majority of local authorities prefer to buy carbon credits generated by projects implemented within their jurisdiction – maximizing their economic, social and environmental benefits.

Read the CDC report

Yes, master (brokerage agreement)

On the same day that Australian Parliament passed the government’s controversial carbon tax legislation through the lower house, Carbon Trade Exchange (CTX) was busy inking an historic deal of its own – a master brokerage agreement with Carbon Credit Corporation (C3). The agreement enables C3 to establish multiple broker agreements with accounting firms throughout Australia, who will be able to measure clients’ carbon footprints using EcoView’s CarbonView software and trade credits globally via CTX. Clients have the option of trading via their broker or using their own account directly with CTX – allowing businesses of all sizes to offset their emissions in accordance with the government’s National Carbon Offset Standard (NCOS). The agreement was planned and developed over the past year through engagement with Malcolm Borgeaud and Reg Williams of C3 – both managing partners of major accounting firms.

Read the press release

Re-conceptualizing offsets

Are carbon offsets irrelevant? Many would disagree, but Treehugger blogger Sami Grover thinks it’s time for a fundamental rethink of offsets. Although he believes that channeling money into clean technology, efficiency and conservation initiatives is a great way for individuals to make a difference, he says it might be time to change the rhetoric from the negative to the positive – packaging the service as supporting positive change rather than “offsetting” negative impacts. Grover also argues that individual footprints are the wrong metric, and prefers to think of offsets as a “mechanism to push technologies and conservation practices towards important tipping points, rather than just to “offset” my own impact or pay a modern ‘indulgence’ for my eco-sins.”

Read the Treehugger article

(Gotta get that) spekboom boom boom

A dually validated South African carbon project is reportedly ready to sell offsets – sales the South African Department of Environmental Affairs hopes will reel in upwards of R250m for the rehabilitation of degraded agricultural and conservation areas. Christo Marais, manager of the Department of Environmental Affairs’ natural resource management programmes, told the Business Day that by allocating funding to projects such as Eastern Cape Parks and Tourism Agency’s project to restore large tracts of the nearly 1.4 million ha of spekboom-rich thicket (spekboom is a succulent), the government hopes to “unlock investment from the carbon market.” According to Marais, R24m has been spent in 2010-11 already, with R18m set aside this financial year for the “subtropical thicket restoration project” – which is validated to both the VCS and CCB Standards.

Read the Business Day article

CO-TAPping into carbon finance

While many voluntary carbon players in California are looking introspectively at the state’s much-disputed compliance offset provisions, a few suppliers have a more global vision. Add to this list California-based Carbon Offsets To Alleviate Poverty (COTAP), which launched earlier this month with its very first partnership and project with Canadian non-profit Taking Root. The Limay Community Carbon Project – planned and accredited under Plan Vivo – has seen 205,000 trees planted in Nicaragua, covering an area of 159 ha. Donations for the Limay project can be made via at a rate of US$8.80/tCO2, with a minimum of 54.5 percent of the carbon revenues reportedly going directly to stakeholders. To date, the initiative has generated US$145,361 for participating communities.

Read the press release

You can bet the farm on it

While the debate over putting a price on carbon rages on in the capital, farmers elsewhere in Australia are going about their business – but not business as usual. Two months ago, 14 farmers – including Tasmanian grazier Roderic O’Connor – were issued the first verified carbon credits under Australia’s Carbon Farming Initiative. A seventh-generation landholder, O’Connor was surprised to learn from Redd Forests Pty that he could earn as much by leaving the native trees on his 3500 ha property standing as he could by cutting them down. At the current average market rate of A$15/tCO2, O’Connor expects that the initiative could provide him with a cash injection of more than A$400,000 annually. “Too few Australians realise that you can already trade carbon and farmers like my family are now being paid to do so,” said O’Connor, who expects to sell more than 30,000 offsets in the next few weeks.

Read the National Affairs article

Ch-ch-ch-ch-changes (to the VCS)

Last week the VCS association released updates to several of its Version 3 Program Documents. Changes include: requirements for a new eligible project category – Avoided Conversion of Grasslands and Shrublands (ACoGS) – under the Agriculture Forestry and Other Land Use (AFOLU) requirements; procedures for the ongoing oversight and updating of approved methodologies; a new Methodology Assessment Report template for Validation/Verification Bodies (VVBs); and a new pathway for VVB temporary accreditation. The updates are incorporated directly into VCS program documents. To find an update, review the update catalogue and download the relevant program document. A review of all quarterly updates is listed on the VCS Version 3 Updates List. Questions, comments or feedback may be directed to [email protected].

Read more from the VCS

Reduce & Retire: The Latest on Carbon Neutral

Avis SA puts it in gear

… and by gear we mean scope. Car rental company Avis South Africa has once again achieved carbon neutral certification by the CarbonNeutral Company – an award it has held since 2009 – but this year expanded their carbon management to include Scope 3 emissions. Avis’ scope 1, 2 & 3 emissions consist of all emissions relating to the company (Rent-a-Car, Zeda Car Sales and Luxury Division), including energy consumption, fuel usage, waste and business travel. Over the next two years, chief executive Wayne Duvenage says the company plans to increase internal energy efficiencies as well as offset approximately 12,500 tCO2 per annum. The company has selected two projects for its new two-year portfolio: the VCS verified Tieling Coal Mine Methane Capture project in China and the Gold Standard Basa Magogo “Light it up” Improved Cooking Technique project in South Africa.

Read the BizCommunity article

Duke, duke, duke, duke of offsets

As of October, members of the Duke University community can offset their emissions while supporting local projects through the Duke Carbon Offsets Initiative. The program is designed to help Duke meet its goal of becoming climate neutral by 2024 while providing local and regional benefits beyond carbon reductions. Duke’s carbon calculator shows that the average employee contributes about three tonnes of carbon emissions per year to Duke’s overall carbon footprint – which, by purchasing credits starting at US$10/tCO2e, can be offset for as little as US$30. In addition to their Loyd Ray Farms swine waste-to-energy pilot project – from which Google was a notable buyer – Duke is considering other initiatives such as reforestation of North Carolina lands and energy efficiency in homes and businesses. “We want our initiative to be similar to investing in a mutual fund, where you can support a variety of projects that make up a diverse portfolio,” said program director Tatjana Vujic.

Read more from Duke

Climate North America

The countdown begins

As the implementation date for California’s carbon market nears, the ARB has put the final stamp of approval on its cap-and-trade rules. The regulation was unanimously approved for adoption during a Board Hearing last week and must be filed with the California Office of Administrative Law (OAL) by October 28. As part of finalizing the regulation, the Board considered the related environmental analysis and written responses to environmental comments. In additional California carbon news, Point Carbon reports that – according to officials – the state could rule some forestry offset credits ineligible in its carbon trading scheme if the program has unexpected impacts on state forests. This news could put the value of forestry credits – already the cheapest offset type in the market – in doubt.

Read more from ARB
Read more from Reuters
Read more from Point Carbon

Now just hold on a minute

Although California’s cap-and-trade scheme appears set to move forward, some are still not satisfied – particularly with the holding limits the ARB places on market participants. The holding limit restricts the number of GHG allowances that may be held by participating entities in an attempt to avoid market manipulation or the concentration of market power in the hands of any single participant – but may pose an issue for compliance entities, according to Barclays Capital’s Kedin Kilgore. Kilgore thinks the rule may cause entities to lose some of the benefits of banking – such as flexibility – resulting in reduced market liquidity and “pricing that may not provide the most efficient levels from the capped entities.” Last December IETA released a response to the proposed regulations in which President and CEO Henry Derwent said that such holding limits are “difficult to effectively enforce and can actually impede the proper functioning of a cap-and-trade program, particularly in the early years of the program.”

Read last year’s IETA press release
Read more about the regulations

Good enough for Democrats, but I like it too
Reuters reports that although Republicans in the House of Representatives have fought against EPA rules on emissions of everything from mercury to GHGs, Republican voters may not entirely agree. When asked in a survey how they felt about a proposal in Congress to stop the EPA from enacting new limits on air pollution from power plants, 58 percent of Republican voters said they opposed the effort, along with 88 percent of Democrats. The survey also showed that 67 percent of voters from both parties supported the EPA’s Cross State Air Pollution Rule. “The research clearly demonstrates Republican voters are willing to support new rules to reduce harmful emissions in order to improve public health,” said Greg Strimple of GS Strategy, one of the organizations that conducted the poll. “Republicans like clean air too.”


Read the Reuters article

BC Hydro cries NAFTA

BC Hydro’s energy-trading arm Powerex has called out California for favoring American power supplier Bonneville Power Administration (BPA) under its cap-and-trade scheme, reports the Vancouver Sun. BPA was exempted from the scheme after it argued that it is owned by the US federal government and not subject to state regulation. But Powerex argued in the letter to the ARB that it deserves equal status to Bonneville as it is government owned as well. The company is now prepared to take the issue to NAFTA, because the stakes for it are high. Although BC is a green energy exporter, Powerex also buys power from US coal-fired plants to meet energy shortfalls. Not only would it be required to purchase credits for its exports on the carbon market at a cost of $10-15 per megawatt, it could run afoul itself of what the California board calls “resource shuffling.”

Read the Vancouver Sun article

Why so blue, BC?

As BC municipalities face the daunting task of becoming carbon neutral, some are turning to creative – and local – solutions to reducing emissions. According to the Comox Valley Echo, Regional District directors heard last week that the Courtenay River Estuary has the potential for ‘blue carbon’ capture through the extensive restoration of eel grass beds and sedges in salt marsh riparian zones. Paul Horgen, chair of Project Watershed, has sought support for the pilot project – hoping to persuade the province to divert CA$100,000 of the carbon offset payments it would be receiving to fund the initiative. Hogan suggests the project is a win-win, because even if sufficient potential for carbon capture cannot be proved – which he believes it will – the project would help restore the estuary to its former abundance. Regional district directors reportedly liked the idea and are now proposing the province allow local governments to invest their carbon offset payments in similar projects.

Read the Comox Valley Echo article

Kyoto & Beyond

Keep your head up, CDM

The benchmark contract for CERs hit an all time low of US$9.77 a tonne on October 14 as the EU debt crisis and a glut of permits damaged confidence in the market. Reuters reports that CERs have lost nearly 40 percent of their value in what has been a record issuance year. A whopping 254 million CERs have been awarded in 2011 so far, well above the 132 million awarded in 2010. Shares in project developer Camco are down 41 percent and Trading Emissions 45 percent since the start of the year. Trading Emissions recently announced it would scrap its dividend given the continued drop in carbon prices, which forced the company to abandon talks to sell its carbon portfolio earlier this year. But not everyone thinks that the falling prices are a bad thing – in fact, one Forbes blogger called it excellent news: “Low permit prices are showing us that cutting emissions is easier than we had thought which is just great,” wrote Tim Worstall.

Read the Reuters analysis

Novartis pharming Chinese carbon

Swiss pharmaceutical giant Novartis International AG has planted its first batch of 12,000 trees in Sichuan province’s Liangshan Yi autonomous prefecture, reports China Daily – part of the third carbon offset project initiated by the company worldwide. The Sichuan Carbon, Community and Biodiversity project was jointly implemented by the Sichuan Forestry Administration, Daduhe Forestation Bureau, Shanshui Conservation Center and the US-based Nature Conservancy. The initiative – part of Novatis’ long-term campaign to reduce its carbon footprint – has the potential to be registered under the CDM. It is expected to see 10 million trees plante in Sichuan over four years, reducing emissions by 1.2 milliion tonnes over 30 years. “As a comprehensive ecological restoration project, its significance not only lies in the scale of plantation area, but also the economic contribution to be made to the local community,” said Zhang Xingsheng, managing director of The Nature Conservancy’s North Asia division.

Read the China Daily article

Philippines phast-tracking post-2012 reductions with PoA

A local company in the Philippines is helping renewable energy developers become players on the international carbon scene – offering to process their applications ahead of the 2012 deadline after which the EU will only accept credits from least developed countries. Carbonenergy Business Consultancy Service, a unit of PhilCarbon Inc., is taking advantage of the Program of Activities (PoA) modality under the CDM to allow the registration of multiple activities from different owners under a single registered project – with the potential to add more activities post-2012. “RE developers that subscribe to the POAs can focus on their core business of RE development while Carbonergy will take care of CDM processes to ensure that they can benefit from the CERs,” said Ruth Yu-Owen, president of PhilCarbon.

Read the Malaya Business Insight article

Biogasses for the masses

For the first time, the UNFCCC has issued carbon credits to two Nepalese biogas projects – a huge milestone for the country’s Biogas Program, representing the largest worldwide issuance of CERs in a Least Developed Country (LDC). With over 92,000 credits issued to the first registered projects in September and two more similar projects on the way, the initiative is expected to generate 170,000 CERs per year. Nepal is now home to 225,000 families with easy-to-operate biogas plants in their backyards, reducing the time spent collecting firewood, improving indoor air quality and lessening the pressure on deforestation. The World Bank’s Community Development Carbon Fund has committed US$7 million to the program to purchase the carbon credits that it generates, while a US$5 million grant was provided by the Global Partnership on Output-Based Aid (GPOBA) to subsidize the construction of the biogas plants.

Read the World Bank blog post

MiFID hits the spot

In an effort to protect its embattled emissions trading scheme (ETS), the EU Commission has proposed that spot carbon permits should be classified as financial instruments along with the futures, forwards and options already covered by the Market in Financial Instruments Directive (MiFID), reports Reuters. “By treating emission allowances as other financial assets, the proposal extends financial market protection to the carbon market,” said EU Climate Commissioner Connie Hedegaard, adding that it will provide increased certainty for carbon market participants. But not all industry stakeholders agree with the new rules – including Henry Derwent, president and chief executive of the International Emissions Trading Association (IETA). In a statement released last week, Derwent argues that the approach “automatically triggers burdensome requirements that are not relevant to the risks in this market.” He added that further work would be required to ensure the move does not undermine the functioning of this market and is effective in preventing abuse.

Read more from Reuters
Read the IETA press release

Global Policy Update

Australia: one small step for carbon trading…

… one giant step for Australia’s Labor government, who overcame a major hurdle as its contentious carbon tax proposals cleared the lower house of parliament – paving the way for what could be an internationally-linked emissions trading scheme. Evolution Markets CEO Andy Ertel remarked to IETA Fall Symposium attendees that Australia’s s news should give heart to market advocates in less decisive nations. “Under a previous administration in Australia, any kind of carbon program was dead in the water. Australia is an indicator of how the winds can change.” With the support of both Green and independent MPs, the carbon tax bill passed 74-72 – and is now expected to be voted into law by senators next month.


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