The Future of Carbon in China Presented by John Romankiewicz Bloomberg New Energy Finance April 28, 2010 Beijing Energy and Environment Roundtable

1. The Future of Carbon in China
Beijing Energy Network
John Romankiewicz
© Bloomberg New Energy Finance, 2004-2010 April 21, 2010

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2 Beijing Energy Network presents BEER April 21, 2010

3. Bloomberg New Energy Finance
150 staff in 9 offices worldwide
Clean energy, energy smart technologies, carbon markets
Data and analysis covering policy, finance, technology, markets, and supply chain
3 Beijing Energy Network presents BEER April 21, 2010

4. Agenda
Carbon: where do we stand?
EU ETS/Kyoto Market Summary
Price Scenarios
CDM uncertainty
China’s domestic market
4 Beijing Energy Network presents BEER April 21, 2010

5. Agenda
Carbon: where do we stand?
EU ETS/Kyoto Market Summary
Price Scenarios
CDM uncertainty
China’s domestic market
5 Beijing Energy Network presents BEER April 21, 2010

6. Under BAU, global emissions increase 33% by 2020
70,000
60,000
Global emissions (MtCO2e)
50,000
Oceania
Asia
40,000
Africa
Europe
30,000
Latin America
North America
20,000 GE2M 2010 Peak
Scenario
IEA WEO 2009
Reference Scenario
10,000
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Carbon market value is created when caps are put in place…
6 Beijing Energy Network presents BEER April 21, 2010

7. So…where are the carbon caps?
20-30%
1990
17% 40-45% 25% -
2005 intensity 1990
30% from
BAU 36% from 25%
BAU intensity
5-25%
2000
34% from
BAU
Copenhagen pledges fail the 2°C test
7 Beijing Energy Network presents BEER April 21, 2010

8. Agenda
Carbon: where do we stand?
EU ETS/Kyoto Market Summary
Price Scenarios
CDM uncertainty
China’s domestic market
8 Beijing Energy Network presents BEER April 21, 2010

9. Market prices trading flat
Spread remains narrow AAU trading activity picking up
Price (€/t) Spread Volume (MtCO2e)
35 80% 200
70% 180
30
160
60%
25 140
50%
20 120
40% 100
15
30% 80
10 60
20%
40
5 10%
20
0 0% 0
Feb-10
Sep-08
Nov-08
Aug-09
Dec-09
Oct-09
Jul-08
Mar-09
Jul-09
May-08
Jan-09
May-09
Jan-09
Nov-08
Jul-09
Nov-09
Sep-08
Sep-09
Mar-09
May-09
CER discount EUA CER
AAUs CERs
Source: Bloomberg, ECX
9 Beijing Energy Network presents BEER April 21, 2010

10. Agenda
Carbon: where do we stand?
EU ETS/Kyoto Market Summary
Price Scenarios
CDM uncertainty
China’s domestic market
10 Beijing Energy Network presents BEER April 21, 2010

11. Large range of potential demand given ETS possibilities
Offset demand (MtCO2e) Price (€/t)
1,200 20
1,000
15
800
600 10
400
5
200
- 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Economy-wide US ETS Power-sector US ETS
Australia Japan
EU Price (Power-sector US ETS)
Price (Economy-wide US ETS)
Source: Bloomberg New Energy Finance
11 Beijing Energy Network presents BEER April 21, 2010

12. Agenda
Carbon: where do we stand?
EU ETS/Kyoto Market Summary
Price Scenarios
CDM uncertainty
China’s domestic market
12 Beijing Energy Network presents BEER April 21, 2010

13. The future of CDM in China?
?
CERs
EU: 1.7 GtCO2e to 2020
Australia: 299 MtCO2e to 2020
Japan: 880 MtCO2e to 2020
US: Don’t count on it, legislation indicates sectoral, forestry, LDC preferences
13 Beijing Energy Network presents BEER April 21, 2010

14. The anatomy of an EB additionality crisis
Meeting Rejections Corr. requests Review Main developments
Beginning of reviews regarding tariff
EB46 0 0 7 issue
EB47 0 7 1 First Chinese wind project rejected*
EB notices certain reductions over
EB48 0 5 10 time
EB49 0 11 4 E+/E- policy discussion begins
EB50 0 6 7 “ Application of highest tariff ”
EB51 8** 7 20*** 10 rejections ahead of COP15
Clifford Mahlung replaces Lex de
EB52 6 27 6 Longe; decision on E+/E- policy
guidance postponed
Further evidence expected from
EB53 0 6 0 DOEs
Of 14 Chinese wind projects rejected to date, 8 were in Heilongjiang
Highest historic tariff was 18–30% higher than RMB 0.61/kWh.
Note: Table data points only include instances where tariff was main issue; *1st rejection not because of tariff issue; **2 unrejected; ***including 6 for 2nd review
14 Beijing Energy Network presents BEER April 21, 2010

15. Post-2012 uncertainty and wind controversy dampening new project activity
Number of projects Reductions (MtCO2e/yr)
200 40
150 30
100 20
50 10
0 0
2005 2006 2007 2008 2009 2010
Projects Reductions
Source: UNFCCC
15 Beijing Energy Network presents BEER April 21, 2010

16. Agenda
Carbon: where do we stand?
EU ETS/Kyoto Market Summary
Price Scenarios
CDM uncertainty
China’s domestic market
16 Beijing Energy Network presents BEER April 21, 2010

17. Will NAMA targets be met with market mechanisms?
Historic and projected carbon intensity
Historic and projected grid capacity (GW)
($GDP/tCO2e [1990 prices])
793GW 1520 GW (estimate)
0.9
1,600
0.8
0.7 32%
46% 1,200
0.6 reduction % renewables
0.5
800
0.4 45% target 24%
0.3
for 2020
400
0.2
0.1 0
0.0 2008 2020
1990 1995 2000 2005 2010 2015 2020 Thermal Nuclear
Historic EIA scenario Large Hydro Small Hydro
Wind Biomass and Waste
Solar
Source: Bloomberg, NDRC, EIA, NBS
17 Beijing Energy Network presents BEER April 21, 2010

18. The future of carbon in China?
? Traded markets
Regulation
18 Beijing Energy Network presents BEER April 21, 2010

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