Carbon markets - opportunities and risksAre you up with the play? |
With the Kyoto Protocol coming into force in 2005, an emissions compliance cap (cap) was introduced and trade markets were formed for carbon emissions. These two areas have created substantial business risk and in some cases will reduce value for businesses that emit substantial amounts of carbon. On the flip side, these new markets, including the voluntary market, will create opportunities for businesses to increase value.
What this means for New Zealand business as a whole is that some business within certain sectors will be legally obligated under the proposed Emissions Trading Scheme (ETS) between now and 2013. However eventually the ripple effect will touch all businesses in varying degrees.
It is important that you understand the risks and opportunities associated with the introduction of regulatory regimes and the emerging voluntary markets outlined below so that you can understand the risks and maximise the opportunities for your business.
Compliance schemes
The Kyoto Protocol (Kyoto) legally binds most industrialised economies to limit their greenhouse gas (GHG) emissions to a certain level know as the emissions compliance cap (cap). On average this cap requires countries to reduce their emissions by 5.2% below their 1990 baseline between the 2008 to 2012 period. Although these countries must meet their targets primarily through national measures (e.g. the NZ Energy Strategy), to allow flexibility in reaching targets Kyoto introduced three market-based mechanisms:
- Emission Trading (known as the ‘carbon market’)
- Clean Development Mechanism (CDM)
- Joint Implementation (JI)
Voluntary schemes
Alongside compliance carbon markets, businesses are identifying initiatives to reduce their impact on climate change. They are offsetting their carbon by trading Verified Emission Units (VERs) on the voluntary market. The voluntary market was reportedly worth around $265 million in 2007 (World Bank: State and Trends of the Carbon Market 2008) and is expected to grow exponentially in years to come.
The difference between the compliance market and the voluntary market is that the voluntary market is wholly unregulated. Nevertheless, 2007 saw the emergence of increasingly used and recognised international standards such as the Voluntary Carbon Standard (VCS) or the Gold Standard making the voluntary market more appealing as to the quality and validity of emission units.
Currently the NZ ETS does not accept Verified Emission Units (VERs) and while the market is expected to continue to develop in parallel to the regulated carbon market, providing incentives for companies, individuals or other entities not subject to mandatory limitations to offset their emissions, the current international standards mostly recognise credits created in non-Annex 1 countries (i.e. developing countries).
How we can help you
Emission Trading Scheme
- Methodology development for monitoring, reporting, and verifying emissions
- Review of trading approaches and compliance strategies to manage emission obligations
Clean Development Mechanisms
Entire Clean Development Mechanism project cycle:
- Preparation of Project Design Document (PDD)
- Assistance in Host Country Approval
- Assistance in project validation process
- Guidance for registration with CDM Executive Board
- Assistance in project verification process
Certified Emission Reduction units (CERs) transaction - we offer assistance in the identification of potential buyers, and in negotiation and structuring of the CERs sales deal.
Talk to one of the team about carbon markets
Jacqueline Robertson – Carbon neutral accounting, risk and emissions audit
Brett Tomkins – Carbon assurance