Latest developments on carbon pricing as seen by EDF, Pedro Piris-Cabezas – EDF
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The document discusses two topics: 1. Modeling international carbon markets under Article 6 of the Paris Agreement. Modeling finds global carbon markets could double emissions reductions at the same cost as current policies. Limited trading among ready partners could still increase ambition. 2. Accounting of biofuels in carbon markets. Proper accounting is needed to avoid double counting emissions reductions from biofuels between national inventories and programs like CORSIA. Corresponding adjustments by host countries may be required.
![How are biofuels defined as being
eligible under CORSIA SARPs?
Paragraph 6 of the Assembly Resolution A39-3 requests,
“[...] that a methodology should be developed to ensure that
an aircraft operator’s offsetting requirements under the
scheme in a given year can be reduced through the use
of sustainable alternative fuels […]”
First edition of the SARPs: the mechanism is Paragraph 6
now applies to ”CORSIA eligible fuels” (CEF): (1)
sustainable aviation fuels and (2) “lower carbon aviation
fuels”, which are fossil fuels.
ICAO Documents with Implementation Elements still
missing.](https://image.slidesharecdn.com/cmp-may-2019-session2-pedro-piris-cabezas-210407103729/85/Latest-developments-on-carbon-pricing-as-seen-by-EDF-Pedro-Piris-Cabezas-EDF-18-320.jpg)
Latest developments on carbon pricing as seen by EDF, Pedro Piris-Cabezas – EDF
- 1. Latest developments on carbon pricing as seen by EDF Dr. Pedro Piris-Cabezas Senior Economist – Global Climate CARBON MARKET PLATFORM 2019 MAY 15-16, 2019 PARIS
- 2. Key questions 1. Modeling Article 6 of the Paris Agreement Estimating the Power of International Carbon Markets to Increase Global Climate Ambition 2. Biofuels and Carbon Markets Latest developments from ICAO- CORSIA on how to properly account for the contribution of alternative fuels in carbon markets
- 3. 1. MODELING ARTICLE 6 OF THE PARIS AGREEMENT
- 4. Source: EDF based on Enerdata/POLES, IIASA, FAO NDC ambition is perspective
- 5. Model overview and assumptions • Partial equilibrium model solving for intertemporal equilibrium (with risk premium to account for policy uncertainty); 36 countries/regions with global coverage, 6 GHGs; MACCs from POLES & IIASA • Banking (carry forward) of emissions units allowed based on emissions below annualized target trajectory of NDCs. • Nations achieve NDC targets based on an annual trajectory that establishes an absolute limit on emissions for each sector (and similarly for international aviation). • All traded units represent real mitigation, with no double counting of reductions.
- 6. 1.1 GLOBAL COVERAGE SCENARIO
- 7. Total emissions reductions from 2020-2035 in billion tonnes CO2e Source: EDF Global carbon markets can enable almost double the emissions reductions at the same total cost as current policies
- 8. • Ambition! But also… • Environmental and sustainable development benefits • Enhanced trade cooperation in other products and services of interest to cooperating jurisdictions • Strengthened political, economic, and cultural alliances • Synergies with other foreign policy priorities (food and energy security, innovation, regional air quality, etc.) “Co-benefits” of international carbon market cooperation
- 9. Source: EDF based on Enerdata/POLES, IIASA, FAO The role of banking to keep the 2ºC window open
- 10. 1.2 PARTIAL COVERAGE BASED ON ‘HEAT MAP’ ANALYSIS
- 11. MARKET READINESS AND PRIORITY “Carbon Markets Heat Map” Source: EDF
- 12. Breaking down Indicators… GOVERNANCE Capacity • Government Effectiveness (WB) • Political Stability (WB) • Regulatory Quality (WB) • Perception of Corruption (TI) • Control of Corruption (WB) • Ethics & Corruption (WEF) • Undue Influence in Government (WEF) • Rule of Law (WB) • Public Sector Performance (WEF) • Security (WEF) • Average Trust in Institutions * (E) • Total number of government organizations registered as an observer to the COP • Total number of government organizations as signatories to the UN Global Compact Motivation • Enforcement of Environmental Regulations (WEF) • Number of Ratified International Treaties (WEF) • Potential Revenue or Cost from full carbon pricing (WB) • Adjusted Trade with ETS countries • Stringency of Environmental Regulations (WEF) • Trends in Carbon Intensity (Yale) • Trends in CO2/kWh (Yale) ENTERPRISE Capacity • Macroeconomic Environment (WEF) • Financial Market Efficiency (WEF) • Strength in Private Institutions (WEF) • Business Sophistication (WEF) • Extent of Corporate Transparency (WB) • Herfindahl-Hirschmann Index • Total number of business / private organizations registered as an observer to the COP • Total number of business/ private organizations as signatories to the UN Global Compact Motivation • RECAI Score • GCII Score • Carbon Disclosure Project Score • Innovation Index (WEF) CIVIL Capacity • KPMG Change Readiness Score • Voice & Accountability (WB) • Number of Registered Economic Institutions • Higher Education Index (WEF) • Graduates in the Environmental Protection Field (OECD only) • Total number of civil organizations registered as an observer to the COP • Total number of civil organizations as signatories to the UN Global Compact • Environmental Democracy Index – Legal Score • Environmental Democracy Index – Practice Score Motivation • Public Concern for Climate Change • Average Exposure – NO2 Air Pollution (Yale) • Average Exposure – PM2.5 Air Pollution (Yale)
- 13. Carbon market readiness and priority score
- 14. Partial coverage scenarios • ‘Heat Map’ Scenario. – EU, US, China and 25 highest- ranking countries (79% coverage) • Asia-Pacific Scenario. – Current markets plus highest- ranking countries from heat map scenario in Asia-Pacific region (36% coverage). • Americas Scenario. – Current markets plus highest- ranking countries from heat map scenario in Americas (42% coverage). Asia-Pacific Americas Heat-Map c
- 15. Source: EDF ‘Heat Map’ Asia-Pacific Americas Significant increases in ambition could still be achieved even with limited international emission trading
- 16. Key findings on Art. 6 and ambition • Global use of carbon markets could allow nearly double climate ambition relative to current NDCs at the same total cost. – Significant increases in ambition could still be achieved even with limited international emission trading. • Reducing deforestation is a key driver (~1/2) of greater ambition. • Banking allows keeping the 2ºC window open, under certain conditions. • Priority to ensure the development of well-designed, high-integrity international market approaches.
- 17. 2. BIOFUELS AND CARBON MARKETS
- 18. How are biofuels defined as being eligible under CORSIA SARPs? Paragraph 6 of the Assembly Resolution A39-3 requests, “[...] that a methodology should be developed to ensure that an aircraft operator’s offsetting requirements under the scheme in a given year can be reduced through the use of sustainable alternative fuels […]” First edition of the SARPs: the mechanism is Paragraph 6 now applies to ”CORSIA eligible fuels” (CEF): (1) sustainable aviation fuels and (2) “lower carbon aviation fuels”, which are fossil fuels. ICAO Documents with Implementation Elements still missing.
- 19. SARPs approach to CEF in a nutshell • Under CORSIA, all aeroplane operators report all CO2 combustion emissions from fuel use (both conventional aviation fuel and CEF). (Part II, Chapter 2) • Aeroplane operators can reduce their offsetting obligations by claiming emissions reductions from the use of CEF. (Part II, Chapter 3)
- 20. Computing CEF Emissions Reductions • To compute CEF emissions reductions (ER) the aeroplane operator multiplies the total mass of net CEF (MS) by the CEF emissions reduction factor and the fuel conversion factor (FCF) to CO2 emissions (CORSIA SARPs Part II, Chapter 3) The CEF emission reduction factor (1-LS/LC) is inversely proportional to the CEF life cycle emissions benefit as compared to a baseline of 89 gCO2e/MJ (representing conventional jet fuel. The CEF life cycle emissions value accounts for both core-LCA and Induced Land Use Change values. “The offset test” …if it looks like a offset, swims like a offset, and quacks like a offset, then it probably is an offset.
- 21. A note on avoiding double-counting of CEF reductions • If an alternative fuel reduces emissions over its life cycle, that’s good for the climate. • When the fuel is burned in an aircraft, emissions come out the back of the engine. Any fuel-related reductions occur in the territory of the country where the fuel is produced. • If the host country reports those reductions under Paris (by claiming zero CO2 emissions from combustion), and an airline also claims those reductions under CORSIA, that’s double-counting. • Double-counting can and must be addressed.
- 22. STATE YEAR X International Bunker (fossil fuel) MEMO ITEM IN NATIONAL INVENTORY International CO2 emissions (ICAO) National GHG emissions inventory
- 23. STATE YEAR X International Bunker (fossil fuel) MEMO ITEM IN NATIONAL INVENTORY CEF mitigation outcomes for CORSIA National GHG emissions inventory The national GHG inventory of the host State will capture mitigation outcomes that occur over the lifecycle of the CEF. DOBLE CLAIMING: To avoid double-claiming, the host State must make a corresponding adjustment (see next slide) to its emissions account for the mitigation outcomes of the CEF transferred to CORSIA. International CO2 emissions (ICAO)
- 24. STATE YEAR X International Bunker (fossil fuel) MEMO ITEM IN NATIONAL INVENTORY Operator must inform the host State about CEF mitigation outcomes for CORSIA and the State must make a corresponding adjustment STATE YEAR X + n Transferred mitigation outcomes (emissions balance) National GHG emissions inventory CEF mitigation outcomes for CORSIA CORRESPONDING ADJUSTMENT International CO2 emissions (ICAO)
- 25. Discussion • Double Counting. Paragraph 77d - enhanced transparency framework: Corresponding adjustment and authorization. • The economics of biofuels for aviation are changing swiftly. – Since Jan. 2019, opt-in under California Low Carbon Fuel Standard and Oregon Clean Fuels Program. – EU Renewable Energy Directive II (EU RED): “1.2 multiplier” and opt-in. • Biofuels in EU ETS & California ETS: zero CO2 emissions from combustion following IPCC guidance meant for national GHG emissions inventories… • …meanwhile CORSIA only recognizes actual emissions reductions.
- 27. Carbon Market Model: Extensions/caveats • Politics of resource transfers. • Considering other economic/co-benefits. • General equilibrium and trade in goods provides more complex picture. • Role of ‘bundled” mitigation transferred via trade in biomass/biofuels. • Uncertainty/shocks will increase gains from linking (Doda, Quemin and Taschini 2018) • Considering radiative forcing contributions as ultimate target provides further opportunity for cost savings.
- 28. Carbon market model overview • Partial equilibrium model with banking solves for intertemporal equilibrium – market clears in each period – price rises at the rate of interest (plus risk premium to account for policy uncertainty) • Mitigation potentials (MACCs) – Energy, transport and industry sectors (from POLES-Enerdata model) – Avoided tropical deforestation and forest degradation (i.e. REDD+) (from IIASA model) – Six major GHGs (CO2, methane, nitrous oxide, SF6, HFC and PFC). • 36 countries/regions • NDC scenarios – Emissions trajectory consistent with NDC pledges (POLES- Enerblue) – Forsell et al. (2016): NDC global goals for land sector.