Carbon Markets and Mexico Key Issues for Market Design

Transcription

1 Carbon Markets and Mexico Key Issues for Market Design Mark C. Trexler Director of Climate Strategies and Markets DNV Climate Change Service North America 24 August 2009

2 Key Points It s All About the Price of Carbon GHG Markets Are Policy Markets Policy Makers Determine (Strongly Influence!) the Price of Carbon Be Very Careful In Relying on Abatement Cost Curves It s All About the Policy Objectives Start There 2

3 It s All About Carbon Prices! Can Society Afford Emissions Targets? What Will Cap and Trade Compliance Cost Companies? Will Carbon Costs Promote New Technologies? What Should Private Sector be Investing In? 3

4 GHG Markets Are Policy Markets Demand is (Obviously) a Function of Policy Decisions But (Less Obviously) So Is Supply! Few Other Commodities With These Characteristics 4

5 Policy Makers Determine Price of Carbon Demand Variables (growth, fossil prices, targets) Supply Variables (what counts, how counted, rules) Technology Variables (R&D spending, incentives) Transaction Variables (fees, taxes, transaction risks) Political Variables (market lifetime, price floors, certainty of rules) 5

6 The Key Question for Public Sector Policy Makers What Carbon Price Do We Want to Implement to Correspond With Our Policy Objectives? - Compliance cost minimization for industrialized countries? - Revenue maximization for offset sales? - Compliance cost minimization against future national targets? - Favor very specific technologies/policies and measures - Send a general technology price signal? How Can Policy Makers Structure Carbon Markets to Deliver Specific Carbon Prices? - Modify demand - Offset quality constraints - Offset supply constraints, overall or sector specific These Questions Hold for Public Sector Policy Makers at All Levels, Although Perspective and Answers Can be Very Different 6

7 Policy Decision What Counts as an Offset? $140 $120 $100 $80 $/ton CO2 $60 $40 $20 $0 -$20 -$40 0 1,125 2,250 3,375 4,500 5,625 6,750 7,875 9,000 Million Metric Tons of CO 2 Low Stringency Moderate Stringency Severe Stringency 7

8 Policy Decision Where Offsets Come From? Mitigation Costs for a 500 MW Coal Plant (assum ing 8% discount rate) Source of Offset Pro ojects CCS RE + EE C alifornia US International $0 $1,000 $2,000 $3,000 $4,000 NPV of mitigation costs (million) 8

9 Mitigation Costs Often a Fragile Number Natural Gas Price Typical Project $2.00/MMBtu $4.00/MMBtu $8.00/MMBtu Coal Mine Methane Capture $5.80 $0.70 negative Large-Scale Wind Energy $45.78 $19.11 negative Coal-to-Gas Fuel-Switching * $15.12 $72.44 $ Pulverized Coal CO 2 Capture ** $52.31 $59.76 $74.64 * Assumes coal prices stay constant. ** Lost electricity sales are assumed due to the energy penalty associated with CO 2 capture. 9

10 Policy Scenario 1 - Policy Stalemate $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $

11 Policy Scenario 2: Political Realism $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $

12 Policy Scenario 3 - Atmospheric Stabilization $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $

13 Key Points It s All About the Price of Carbon GHG Markets Are Policy Markets Policy Makers Determine the Price of Carbon It s All About Mexico s Policy Objectives When It Comes to Designing Market Mechanisms, or Choosing to Participate in Carbon Markets These Objectives Aren t Necessarily Consistent in Their Direction - Maximize market participation by loose rules and low prices - Maximize real emissions reductions through strict rules and higher prices - Incentivize new technologies through higher prices Start With Clarity of Objectives 13

14 Safeguarding life, property and the environment Dr. Mark C. Trexler Director, Carbon Strategies and Markets 14