New ECN study: post-2012 carbon credit supply not depleted

The potential for carbon credits from developing countries is by far not depleted after 2012. It is likely to be sufficient to help industrialised countries meet strict greenhouse gas reduction targets. Depending on important political decisions however, the potential could be smaller than generally assumed. This is the main conclusion of a recently published report ‘Carbon credit supply potential beyond 2012 - A bottom up assessment of mitigation options’ by an ECN-led consortium.

Recently announced climate change mitigation commitments include a 20 to 30% greenhouse gas emissions reduction in 2020, compared to 1990 for the European Union. And a unilateral target of 30% greenhouse gas reduction in 2020, compared to 1990 for the Netherlands. It is likely that these commitments will, at least in part, be met through the international carbon market, in particular by purchasing carbon offset credits under the Clean Development Mechanism (CDM). Other mechanisms, such as International Emission Trading between countries with commitments, and Joint Implementation may also play a role.

Carbon Market beyond 2012
The study ‘Carbon credit supply potential beyond 2012 - A bottom up assessment of mitigation options’ was commissioned by the Dutch Ministry of Environment with the aim of studying the dynamics and potential of the carbon market beyond 2012. Taken a number of uncertainties into account, the study arrived at a CDM market potential estimate of 1.6 – 3.2 GtCO2-eq/yr at costs up to 20 €/tCO2-eq in 2020. There is a large amount of uncertainty regarding the demand and supply of carbon credits because decisive political decisions will not be taken within the next couple of years and there are serious data limitations. The potential market estimate, however, is significantly larger than the likely demand for emission reduction in the EU. If several other countries including the US take on commitments, the supply of these credits could be short. In this case, however, other carbon credits - generated notably through International Emissions Trading between countries with emission targets - could also play a significant role.

Improved bus systems in developing countries can generate
CO2 credits as well as contribute to renewable innovations.
^{Foto: Arief Darmawan (Jayasan Pelangi Indonesia)}

Uncertainties
The current carbon price in the European Emissions Trading Scheme is around € 20 per tonne CO2. Earlier work has estimated that the greenhouse gas reductions that are profitable at this carbon price level in 2020 in developing countries are likely to be very large. The current study, however, shows that the extent to which this potential can realistically be used in the CDM market depends strongly on a number of policy decisions. Notably whether avoided deforestation and other new technologies are allowed in the CDM and CDM regulations. The third Meeting of the Parties to the Kyoto Protocol, taking place in December in Bali, could make a start on these decisions. Apart from policy, external factors such as the adoption rate of technologies play a major role. CO2 capture and storage is considered to play a small role under the CDM before 2020 because the technology is in a demonstrating stadium.

The study was carried out by ECN, Ecofys, PointCarbon and four well-known organisations in developing countries: China Renewable Energy Industries Association, IT Power India, Environment and Development Action in the Third world (Senegal), and the Center for Integrated Studies on Climate Change and the Environment (Brazil).

Contact:
Stefan Bakker
ECN Policy Studies
bakker@ecn.nl
+31-224-564021