One sign of this was the change in fortunes of the Chicago Climate Exchange (CCX), which announced in October 2010 that it would be ending its operations as a clearing house for a voluntary cap-and-trade scheme among industrial members. At its inception in 2003, CCX was viewed as a proving ground, and at one time more than 400 members, including many large utilities and to learn how a cap-and-trade system would work. Their emission reductions accounted for about 88 per cent of the nearly 700 million metric tonnes of carbon dioxide reduced by CCX since 2003 (Chicago Climate Exchange 2011). Carbon offsets account for the rest. The voluntary members’ scheme was scheduled to terminate in 2010 and, after cap-and-trade legislation failed to pass in the US Senate, renewal was deemed infeasible. The exchange will continue trading voluntary carbon offsets, a different kind of contract created by projects, such as planting trees, to reduce carbon dioxide or other GHGs.
In the U.S. Regional Greenhouse Gas Initiative (RGGI),
a mandatory programme capping power plant CO2 emissions in 10 north-eastern states, permit volumes exchanged slumped to 36 million metric tonnes in the third quarter of 2010, down from 329Mt in the same period of 2009 (Bloomberg New Energy Finance 2009). However, in addition to regulatory uncertainty, carbon markets have flaws (Dag Hammarskjold Institute 2009). Within the UNFCCC system key issues are the credibility of offsets from industrial gas projects under the CDM and the surplus in emissions allowances held by former Soviet countries. However, the EU seems determined to continue with its own scheme. The potential for evolution of the EU ETS system is explored in the final section of this chapter. It is noteworthy that in the first three years of trading, emissions in Europe were estimated to have been reduced by around 120 to 300 million tonnes (Pew Center on Global Climate Change 2008).
New initiatives such as the UK’s Green Investment Bank are also providing potential foundations for more co- financing and risk sharing between the private banking sector and public entities (see Box 4).
Low carbon transport Measurement of finance flowing into low carbon transport is challenging. The measures required for increasing financial flows in this sector are different in developed and developing countries. In developed countries low carbon solutions would need to be grafted on to existing transport networks.
In the UK for example, two-thirds of GHG emissions savings under road transport would come from more efficient and low carbon vehicles, particularly electric/plug-in hybrid vehicles (Parliament Committee on Climate Change, UK 2010). Given the current state of electric car technology, to develop an electric car market would only require
1000 2000 3000 4000 5000 6000 7000 8000 9000
0 2004 EU ETS 2005 2006 Other 2007 Other CDM
Figure 2: Global carbon market Source: World Bank Carbon Finance Unit
2008 2009
Project- based
Allowance- based
Box 4: Green Investment Bank, UK
In 2010, the UK government announced that it would create a £ 1 billon Green Investment Bank (GIB) that would make direct financial interventions to help the government meet its ambitions for green infrastructure. Although at the time of writing the specific governance structure of the GIB were still unpublished, it is expected to have a mandate to deliver and debt products, and share the risk in financing green infrastructure where the market on its own currently
cannot adequately accommodate
such a risk. Areas of investment are expected to include the offshore wind sector and the carbon capture and storage (CCS) industry. The UK government is also reported to be examining types of de-risking products for construction and operating phases to help the private sector introduce cheaper forms of low- risk capital. As well as reducing risk to mobilise additional capital in the market, the GIB will also seek to make a return on investment and to reinvest the proceeds into further green infrastructure financing. It has also been suggested that the GIB take a role in developing marketplace standards for green bonds by creating environmental integrity standards that would increase the product’s credibility with institutional investors.