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The World Region

The state of the carbon markets is Messy - not Messi

Andrew Steer's picture

Last week Barcelona brilliantly beat Manchester United to become the soccer Champions of Europe.  This week Barcelona hosted delegates at Carbon Expo, the annual jamboree for carbon marketers organized by the World Bank and others.  But sadly, the style, strength, efficiency and confidence shown by Messi, Villa, and Pedro are not much in evidence in global carbon markets today. More like my old fourth division club, Bexley United, which I believe has now ceased to exist.

  • There’s certainly a lot to be gloomy about in the world of carbon trading over the past year:
  • The overall size of the market worldwide shrank for the first time ever in 2010
  • The primary CDM market (Clean Development Mechanism) – the principal window of carbon markets to the developing world – fell another 46% to $1.5 billion, down from $7.4 billion in 2005, and the lowest since trading began in 2005.
  • Legislative disappointments in the USA, Australia and Japan, and the market have now become even more concentrated, with well over 90% of trades originating in Europe.
  • Serious irregularities and fraud in the European Trading System (ETS), and suspicions of monkey business in some CDM HFC (Hydrofluorocarbon) transactions.  

Above all, confidence in the post 2012 market, when the first Kyoto Protocol Commitment period comes to an end, is on the floor, and thus demand for post-2012 deliveries is close to zero.

These points are all documented in the Bank’s new State of Carbon Markets Report, 2011 launched this week. And yet 3,000 people turned up at the Carbon Expo this week, and seemed to doing deals and having a good time. Is there anything positive out there? Yes, actually.

First, the overall size of the market was still $142 billion, no small change, although overwhelmingly concentrated within the European Trading System.

A tale of three men and 40 cities

Dan Hoornweg's picture

Driving through Sao Paulo yesterday, I was struck by the power of cities. While cities are part of the climate change problem, they need to be part of the solution too. They are bigger and more energized than any individual or organization. Cities push and cajole; and cities act. Cities are where it all comes together.

Even more so when former President Bill Clinton, World Bank President Robert Zoellick, and New York City Mayor Michael Bloomberg joined forces in Sao Paulo. The accomplished gentlemen born less than a dozen years and 1,500 miles apart spoke and fielded questions with a worldly and gracious informality. The pleasant exchanges sat in contrast to the underlying gravity of their mission. Together they have determined to access their considerable resources to tackle one of the biggest challenges they’ve ever faced: climate change.

The location for the partnership launch is telling. With Mayor Kassab of Sao Paulo hosting this week’s C40 Large Cities Summit everyone reinforced the need for cities to be in this fight. C40 is a group of mayors of major cities of the world responsible for 12% of global emissions. It is not hard to imagine that the battle for sustainable development will be won or lost in our cities.

On behalf of the World Bank, President Zoellick and Mayor Bloomberg, representing the world’s most influential cities as Chair of C40, signed a Partnership MOU outlining how the two organizations will work more closely together and provide focused support to cities. The MOU outlines common tools and metrics, city- tailored finance, and enhanced city-to-city learning.

The `how-to' of renewable energy

Daniel Kammen's picture

Last month, I blogged about the Special Report on Renewable Energy Sources and Climate Change Mitigation of the Intergovernmental Panel on Climate Change (IPCC), for which I was a coordinating lead author. In that report we found that by 2050, roughly 80 percent of global energy demand could be met by tapping renewable sources. The IPCC’s best-case prediction is contingent on a big caveat, however. It is that government policies must “play a crucial role in accelerating the deployment of Renewable Energy (RE) technologies.”

Fair enough, but which policies work best? Which can be replicated widely? Which sectors need more radical new approaches? Given the complexity of energy technologies, and markets, modes of power generation, transmission, distribution, consumption, metering and billing, and the multiplicity of policies—feed-in tariffs, subsidies, ‘feebates’, renewable portfolio standards, and so on— policy makers are often scrambling for guidance.

As author for the Policy and Deployment chapter of the IPCC report, as well as a member of the Summary for Policymakers’ team, I am pleased to suggest a useful source: a recent Discussion Paper No. 22 produced by my World Bank colleague Gabriela Elizondo Azuela, along with Luiz Augusto Barroso, Design and Performance of Policy Instruments to Promote the Development of Renewable Energy: Emerging Experience in Selected Developing Countries.

Elizondo and Barroso studied grid-connected RE policy options used in six countries—Brazil, India, Indonesia, Nicaragua, Sir Lanka and Turkey. They find that sound governance is an essential condition for the success of policy incentives that aim to accelerate the integration of renewable energy. “For example,” Elizondo says, “legal and regulatory frameworks for grid connection and integration have to be in place before RE policy is introduced.” In the IPCC report we called this the ‘enabling environment’.

80% of all energy could be from renewables by 2050...with the right policies

Daniel Kammen's picture

In just one day, the sun delivers about as much energy as has been consumed by all human beings over the past 35 years. So why haven’t we exploited more than a tiny fraction of this potential? There are many reasons: cost, storage, transmission, distribution, entrenched subsidies and technological challenges are but a few of them.

But the reasons not to take advantage of renewable energy are falling away. A report published this week by the Intergovernmental Panel on Climate Change (IPCC) found that close to 80% of the world’s energy demand could be met by tapping renewable sources by 2050, if backed by the right enabling public policies. I served as a Coordinating Lead Author for the Policy and Deployment chapter of the report, as well as member of the Summary for Policy Maker’s team, and I can attest to how much rigorous analysis and effort comparing data and sources went into this process and document.

The same Special Report on Renewable Energy Sources and Climate Change Mitigation found that the technical potential of renewable energy technologies “exceeds the current global energy demand by a considerable amount—globally and in respect of most regions of the world.”

These encouraging findings were released Monday, May 9, after being studied carefully, examined, and then approved by member countries of the IPCC in Abu Dhabi, United Arab Emirates.

Shutterstock Images, LLC 

Cold comfort for islanders

Angus Friday's picture

Nero fiddled while Rome burnt. The band played while the Titanic sank. And today, it could be said that a cacophony of international climate voices muse in discord, while the sea level rises. These were my thoughts when colleagues and I received the news of the latest report by Arctic Monitoring and Assessment Program (AMAP), the scientific arm of the eight-nation Arctic Council, asserting that sea-level rise could reach 1.5 metres by 2100. This is from the executive summary of their report while the full version is awaited. It is a sharp contrast to the Intergovernmental Panel on Climate Change (IPCC’s) 0.58 metres in its worst case scenario.  This latest warning from the Arctic Council must now serve as a new score, with an urgent tempo, with which to conduct, orchestrate and harmonize international efforts towards rapid action on climate change.

The IPCC’s 2007 findings on sea level rise in its fourth assessment report was an important milestone helping to mobilize political momentum and to build a robust international process around the climate challenge. But at the time, as related to us in a recent presentation byDr. Robert Bindschadler, Emeritus Scientist on Hydrospheric and Biospheric Sciences at the NASA Goddard Space Flight Center, ice sheet dynamics were not accounted for in these projections. 

In the tropics, far away from the polar ice caps, the difference between “accounted for” and “not accounted for” is not merely a margin of error in a report. For the 41 million people living on the 43 island nations that girdle the planet, it is a matter of survival. With this new information, low-lying coral atolls in the Indian and the Pacific Oceans are facing a real and present danger of sovereign extinction. Caribbean islands face inundation with storm surges heightened by more intense hurricanes due to sea temperature rise. 

Diet for a low-carbon planet

Alan Miller's picture

Most of the proposed solutions to climate change such as substitution of fossil fuels require large investments, policies that are politically contentious or difficult to enforce, and years to fully implement. However, some of the most effective and lowest cost opportunities for greenhouse gas (GHG) reductions are lifestyle choices that can be made today that cost little, and that are actually good for us. Chief among them is the decision to adopt a healthier, less meat intensive diet. 

The significance of this opportunity was emphasized in a recent presentation at the World Bank by Jonathan Foley, director of the University of Minnesota Institute on the Environment. According to analysis by the Institute, every pound of meat is equivalent to about 30 pounds of grain production in its contribution to climate change when allowance is made for the full life cycle of livestock production. This is primarily because methane emissions from ruminants have a GHG impact roughly 25 times that of carbon dioxide.

Another expression of the resource intensity of meat production, Foley explained, is that even highly efficient agricultural systems like that in the US only deliver about the same calories per hectare in human consumption terms as poor African countries with more grain based diets. The surprisingly large role of livestock in global warming was explored in a 2009 article by Robert Goodland, formerly a World Bank economist, and Jeff Anhang, an IFC environmental specialist. They estimate that when land use and respiration are taken into account and methane effects are properly calculated, livestock could account for half of current warming when using a 20 year time-frame. According to Goodland and Anhang, replacing 25% of livestock products with alternatives would liberate as much as 40% of current world grain production with comparable benefits in reduced burdens on land, water, and other resources. 

Three 'tribes' within development can work together

Robin Mearns's picture

Social protection, disaster risk reduction, and climate change adaptation – how do they relate to one another? Are they still largely separate communities of practice or ‘tribes’ within development or humanitarian contexts? Are there signs that they are beginning to work together to help us deal with the increasingly risky and uncertain world in which we live – one in which life comes at you fast?

 

The devastating earthquake and tsunami in northeast Japan have reminded us just how precarious people’s lives and well-being can be, even in the world’s richest countries. But in the world’s poorest countries and communities, the threat of drought, floods and other climate risks looms large in everyday life, and is a major reason why many people are held back from transforming their livelihoods and permanently escaping poverty.

 

Rehabilitating degraded lands by water  harvesting in Lemo Woreda, Ethiopia. Picture by Cecilia Costella

Last week in Addis Ababa, 120 people from 24 countries gathered in UNECA’s historic Africa Hall – an architecturally significant symbol of African independence and optimism – to learn from each other how best to make social protection work for pro-poor disaster risk reduction and climate change adaptation. Ethiopia was the ideal venue for this international workshop. One in three people in Ethiopia lives in poverty, largely dependent on rain-fed agriculture for a living, and is highly susceptible to droughts, floods and other climate vagaries.

 

As the President of Ethiopia, H.E. Girma W/ Giorgis, remarked in his welcome address, Ethiopia is also proud to be breaking new ground in social protection for climate risk management through the flagship Productive Safety Nets Project (PSNP). In his video message to the workshop, the World Bank’s Special Envoy for Climate Change, Andrew Steer, applauded Ethiopia for its part in being a “pioneer in the revolution that is under way in social protection programs for the poor”. Ethiopia also displays global leadership in the ongoing climate change negotiations under the UN Framework Convention on Climate Change. As Andrew Steer observed, just as the Government of South Africa is determined that the Durban Conference of the Parties (COP) in December this year be seen as “Africa’s COP – just like the World Cup”, the agenda discussed in this workshop was very much “Africa’s agenda, and the agenda of all vulnerable countries everywhere”.

Your local power source may be responsible for climate change but it gets impacted by it too

Daniel Kammen's picture

Brazil relies heavily on its abundant hydropower resources to meet electricity demand, which is rising by about 5% a year. These resources have helped Brazil hook up more than 2.4 million rural homes since 2003, in addition to delivering electricity to its big cities. But hydropower is vulnerable to drought too, and the Brazilian Amazon—home to most of the country’s hydropower potential—has had two devastating droughts since 2005.

 

That’s just one example of the exposure of the energy sector to climate impacts. Up to now, most of the focus for the discussion of the energy-climate nexus has been on the impact of fossil-fuel energy use on climate change, the need to mitigate it, and the shift to renewable energy sources. This week, two World Bank colleagues of mine have just launched a new study that looks at the issue from the opposite side of the equation: climate impact on energy systems.

 

The study is entitled Climate Impacts on Energy Systems, Key Issues for Energy Sector Adaptation, by Jane Ebinger and Walter Vergara. It provides a framework for further analysis of vulnerability indicators for climate impacts on hydropower, wind, solar, wave and tidal energy. It also offers analytical tools that experts and policymakers can use to construct vulnerability and impact metrics for their energy sectors, along with a review of emerging adaptation practices.

To address climate change, we need to measure poverty better

Otaviano Canuto's picture

Increasing food and oil prices are making life miserable for millions of people. According to our World Bank estimates, the food price hike since last July has already pushed another 44 million people around the globe into extreme poverty –those living on less than US$1.25 a day. But beyond these latest shocks, the truth is that poverty reduction overall had continued in most countries, even after the financial, food, and fuel crises of 2008-2009.

In 1981, for instance, the percentage of the world population living below $1.25 a day was 52 percent. By 2005, that rate had more than halved to 25 percent. However, a growing concern is that climate change could slow or possibly even reverse progress in poverty reduction. Why? Because most developing countries are highly dependent on agriculture and natural resources. And also because poor countries lack sufficient financial and technical capacities to manage climate change.

 

For example, climate change may have a negative effect on agricultural productivity, particularly in tropical regions, and also affect poor people’s livelihood through its effects on health, access to water and natural resources, homes, and infrastructure.

So as long as we are unable to measure the poverty impact of climate change better, we run the risk of either overestimating or underestimating the resources that will be needed to face it.  So that’s why at the World Bank we are exploring new approaches to measure how current climate variability affects poverty, as my colleagues do in this week’s Economic Premise. According to The Poverty Impacts of Climate Change, different estimates project the poverty increase between 9 and 10 million people by 2055, as the result of climate change.

 

These numbers might not seem like much, considering the catastrophic scenarios that have been portrayed by some. But  climate change will indeed slow the pace of global poverty reduction. And much of the poverty expected to occur will be concentrated in Africa and South Asia. In addition, the “modest” numbers of the poverty increases mentioned above correspond to baseline scenarios –they could be much higher if more extreme climate change damage occurs. So in light of all of this, more efforts have to go into measuring the poverty impacts of climate change better. Otherwise, we will certainly pay the consequences.

 

(This was originally posted on the World Bank Institute's Growth and Crisis blog)
 

A bond for climate solutions

Laura Tlaiye's picture

Why would a group of large investors care about climate change when their primary concern is ensuring adequate returns for their investment portfolio to meet their future financial obligations? This group includes pension funds, insurance companies or foundations. Pension funds alone are estimated to hold over US$25 trillion globally

 

As Alan Miller indicated in his recent blog, a report published by Mercer (a well-known investment advisor) estimates that uncertainty around climate policy could contribute as much as 10% to overall portfolio risk for investors to manage over the next 20 years. So, investors are beginning to pay attention. Choosing to support investments that help address climate change or increase climate-resilience also helps reduce the exposure of portfolios to this risk. 

 

Green bonds issued by the World Bank is one such instrument. Funding raised through green bonds is earmarked for eligible low-carbon and adaptation projects financed by IBRD in its member countries. For example, the money could be used for funding an eco-farming project in China, or improving the solid waste management in Amman, Jordan. On the mitigation side, eligible projects could include solar and wind farms. On the adaptation side, it could be protection against flooding or droughts.

 

Earlier, this month, a 'Green Bond Summit' gathered about 110 representatives of the investment community. The event was hosted by State Street Global Advisers -- an asset manager with over $2 trillion under management in different asset classes. The goal was to discuss how green bonds could attract greater participation from large investors to scale-up financing of climate solutions through the capital markets. The World Bank, a pioneer of the green bond, and other issuers such as ADB, EIB, and IFC deliberated with the participants on prospects for common green bond standards, the financial characteristics investors expect, and the policy issues that underlie the demand for climate investments.  

 

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