Carbon Trading and the Effect of the Copenhagen Agreement: Technical Options and Economic Drivers to a Low Carbon Future

Date: June 22, 2010
Pages: 194
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US$ 2,875.00
Publisher: Business Insights
Report type: Strategic Report
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ID: CC7E9479C1EEN
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Carbon Trading and the Effect of the Copenhagen Agreement: Technical Options and Economic Drivers to a Low Carbon Future
The reduction of global carbon emissions is now widely regarded as paramount if the world is to avoid major negative consequences throughout the course of the next century. Current levels of c. 380 parts per million (ppm), represent both a record high and an unprecedentedly rapid rise (by 30 ppm in just 17 years). To avoid adverse consequences – and possible catastrophe – experts believe that urgent action must be taken now to limit peak CO2 to 450 ppm.

Projections, based on current and forecast future emission levels, suggest that such a target is unlikely to be achieved. The interaction between economic growth, consumer demand and new technology is complex, and prediction is uncertain. However, a strong consensus now exists that without more concerted action that target will be exceeded at some point between 2030 and 2050, with most pessimistic assumptions outlooking ranges in excess of 800ppm by the end of the century.

The potential for reducing emissions using state-of-the-art technology is immense. So, too, is the cost (some analysts put it as high as 20 years). Various political initiatives have foundered on unwillingness by nation states to be “first movers”. Attempts to resolve the issue by economic means have included carbon pricing, offsetting and the creation of carbon markets.

Key features of this report
  • A review of the current threat to the environment from carbon emissions
  • An overview of the nature of that threat by primary energy source (e.g., coal, oil, gas) and by end-use sector (transport, buildings, power generation, etc.)
  • A summary and review of the main technological solutions available to reduce emissions: alternative strategies, including Carbon Capture and Sequestration and Land use, land-use change and forestry (LULUCF)
  • The theory underpinning economic initiatives to stimulate technology changes: carbon pricing and carbon markets
  • Current structures and political critique

  • Scope of this report
    • a quick and comprehensive understanding of the current issues under-lying the climate change debate
    • Clear linkage between technological solutions – and the economic framework in which they have to be developed
    • Understanding of the barriers to private sector initiatives in tackling carbon emissions
    • Understanding of the political dimension that is currently hampering efforts to reach international agreement (e.g., the ethics of offsetting, the inclusion of REDD within offsetting schemes)

    Key Market Issues
    • Core Issue: Action is needed on carbon emissions: a variety of technological approaches have been identified – but in the absence of any economic incentive for implementation, progress on this front is stalled.
    • Theoretical Approach: The international community, at Kyoto in the 1990’s, and at various conferences since, have attempted to create an economic incentive for private action by instituting measures that:
      • reflect the environmental cost of carbon emissions through a system of carbon pricing
      • Formalise carbon trading through a number of international carbon markets
    • Critique: A number of critiques have been put forward in respect of this approach, including the view that the theory itself is unjust (a form of “new colonialism”), that the system has unintended consequences, including support for projects that are non-sustainable or actually embed poor carbon practice, and that forestry should not be included within the calculation for offsetting projects.
      • More seriously, it is argued that the current price of carbon is too low to achieve its objective.

    Key findings from this report
    • Action is required to reduce carbon emissions
    • The range of technologies available to mitigate carbon emissions is wide and many technologies are capable of being implemented now: the main obstacle to implementation is cost
    • The economic theory underpinning a solution to carbon emissions is based on the allocation of the carbon cost to different activities by means of a worldwide carbon pricing mechanism – and leaving the detailed working out of solutions to market mechanisms.
    • The current price is half or less what it needs to be for effective technological solutions to be sought by the business community. Current forecasts suggest that targets initially set for 2020 and 2030 in terms of carbon emissions will not be met.
    • This issue has been exacerbated by the failure of the most recent international conference on CLimate Change, at Copenhagen in December 2009, to come up with more than a statement of general principles. The international business community is looking for guidance and direction on specifics, as well as some re-assurance of carbon price stability into the short and medium term future.

    Key questions answered
    • What is the scale of the challenge facing the world in terms of carbon reduction?
    • What are the key technological mechanisms available for dealing with these challenges?
    • What non-technical solutions (CCS and LULUCF) are available?
    • What are the main economic drivers put in place to stimulate technological change (carbon pricing, trading, markets)?
    Carbon trading and the effect of the Copenhagen agreement
    Executive summary
    Global warming: current status
    The principal components of CO2 emissions
    Global warming – primary technical solutions
    Global warming – further technical approaches
    Global warming – political and economic approaches
    Global warming – politics and economics in practice
    Global warming - the likely outlook
    Conclusions

    CHAPTER 1 INTRODUCTION

    Summary
    Objectives

    CHAPTER 2 GLOBAL WARMING: CURRENT STATUS

    Summary
    Introduction
    Global warming
    Current situation: global CO2 generation
    Drivers of CO2 generation: economic, social and technological trends
    Emission trends for CO2 generation
    Overview of recent history
    CO2 emissions
    Fossil fuel usage
    Electricity consumption
    CO2 intensity
    Energy intensity
    Electricity intensity

    CHAPTER 3 THE PRINCIPAL COMPONENTS OF CO2 EMISSIONS

    Summary
    Introduction
    Energy sources
    Energy conversion
    Transformation and storage
    Power plants
    Transportation
    Energy chain - overview
    Energy uses
    Power generation
    Transport
    Road
    Shipping (including inland waterways)
    Air travel
    Rail
    Buildings and construction
    Manufacturing industry

    CHAPTER 4 GLOBAL WARMING - PRIMARY TECHNICAL SOLUTIONS

    Summary
    Introduction
    The main physical principles and approaches to CO2 control
    Counter trends
    Principal technological approaches
    Moves toward Smart Grid
    Zero Energy Building
    Alternative fuels
    Fuel supply chain
    Switching fuels
    Nuclear and Renewables
    Mitigation by sector
    Power generation
    Energy efficiency – integrated IT solutions and Smart Metering
    Transport
    Private cars, road freight and bus and coach
    Biofuels
    Natural Gas (CNG / LNG / GTL)
    Hydrogen/Fuel Cells
    Electric vehicles
    Mode shifts
    Shipping (including inland waterways)
    Increasing efficiency
    Advancing technology
    Improving operations
    Mode shift
    Partnering for progress
    CO2 emission indexing scheme
    Economic instruments for international shipping
    Air travel
    Fuel efficiency
    Technology developments
    Engine developments
    Aircraft
    Alternative fuels
    Lower flying
    RVSM (Reduced Vertical Separation Minimum)
    Lower flight speeds
    Rail
    Reducing aerodynamic resistance
    Construction
    Reducing energy consumption and embodied energy in buildings
    Switching to low-carbon fuels
    Manufacturing industry
    Sector-wide efficiencies
    Process-specific improvements
    Optimized operating procedures
    Cross-sector impact

    CHAPTER 5 GLOBAL WARMING - FURTHER TECHNICAL APPROACHES

    Summary
    Introduction
    Carbon dioxide capture and storage (CCS)
    Scope for capture
    Transmission considerations
    Costs associated with CCS
    Land use, land-use change and forestry (LULUCF)
    Agriculture
    Technical approaches
    Potential for carbon reduction
    Forestry
    Approaches
    Potential for Carbon reduction
    Impact of technology availability
    Environmental Kuznets Curve hypothesis

    CHAPTER 6 GLOBAL WARMING - POLITICAL AND ECONOMIC APPROACHES

    Summary
    Introduction
    Economic theory
    Technology alone will not work
    Economic incentives
    Political initiatives: structures and framework
    Intergovernmental Panel on Climate Change (IPCC)
    UN Framework Convention on Climate Change (UNFCCC)
    Kyoto
    Agreed mechanisms for carbon control
    Copenhagen
    Copenhagen Accord

    CHAPTER 7 GLOBAL WARMING - POLITICS AND ECONOMICS IN PRACTICE

    Summary
    Introduction
    Emissions trading
    Trading principles
    Trading units
    Carbon markets
    Carbon trading volumes
    Voluntary markets
    Voluntary market trends
    Carbon pricing
    Prices stabilizing at lower levels
    Technology transfer
    Regional co-operation
    Issues around current political and economic initiatives
    General political and economic issues
    Development
    Views on the principle of offsetting
    Impact on forestry
    Specific criticisms of existing carbon trading mechanisms
    Carbon surplus
    Offsets acting counter-productively
    A Long List of Criticisms
    The future of carbon trading
    Carbon trading best practice

    CHAPTER 8 GLOBAL WARMING - THE LIKELY OUTLOOK

    Summary
    Introduction
    Actions required
    Agenda for change
    Quantitative targets
    More stringent targets
    Forecasts
    Economic and social factors
    Population
    GDP
    CO2 emissions
    Future prices and effects on emissions
    Outlook/developments since Copenhagen
    UK Initiative
    Existing proposals

    CHAPTER 9 CONCLUSIONS

    Summary
    Main achievements
    Gaps in knowledge
    What needs to be done – next steps
    Implications for the future
    Glossary
    Index
    Footnotes

    LIST OF FIGURES

    Figure 2.1: Impacts of four Kaya factors on world CO2 emissions, 2010
    Figure 2.2: CO2 emissions by country in 2007 (GtCO2)
    Figure 3.3: Terminology for energy commodities
    Figure 3.4: World total final consumption by fuel
    Figure 3.5: Energy Return on Energy Invested (EROEI)
    Figure 3.6: CO2 emissions and energy use by mode of transport (2000)
    Figure 7.7: Carbon prices respond to the recession (€), 2010
    Figure 8.8: Global economic potential in 2030 (Bottom up): cost categories in US$/tCO2e
    Figure 8.9: Global economic potential in 2030 (Top Down): cost categories in US$/tCO2e
    Figure 8.10: Global economic potential in 2030: cost categories in US$/tCO2e

    LIST OF TABLES

    Table 2.1: Temperature increase at equilibrium relative to pre-industrial (C)
    Table 2.2: Key ratios for energy-related CO2 emissions in 2007
    Table 2.3: Impacts of four Kaya factors on world CO2 emissions, 2010
    Table 3.4: CO2 emissions by sector (MtCO2), 2007
    Table 3.5: CO2 emissions by sector (%), 2007
    Table 3.6: CO2 emissions and energy use by mode of transport (%), 2000
    Table 3.7: Conversion factors from guidelines for company reporting on greenhouse gas emissions (CO2), July 2005
    Table 4.8: Reduction in CO2 emissions relative to carbon price (GtCO2/yr) 2030
    Table 4.9: Reduction in CO2 emissions for buildings relative to carbon price (GtCO2/yr), 2020 and 2030
    Table 5.10: Reduction in CO2 emissions for agriculture relative to Carbon Price (2030)
    Table 7.11: Carbon market at a glance, volumes and values in 2008-09
    Table 8.12: Carbon intensity of G20 economies excluding EU (kgCO2/$GDP), 2008
    Table 8.13: Classification of recent (post-TAR) stabilization scenarios according to different stabilization targets and alternative stabilization metrics
    Table 8.14: A view on analysts’ expectations for EU ETS Phase II and Phase III 179
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