U.S.-FocUSed Biochar report - BioEnergy Lists

UNCERTAINTY IN CARBON MARKETSAt present, carbon markets are rife with macro-scale uncertainties that go well beyond offset projectspecificrisks. These uncertainties, which can destabilize the price of offset projects that produce emissionsreductions well into the future, are detailed in this section. While the uncertainties are substantial, they are notnecessary fixtures of a carbon market per se. Rather, they all stem from the political uncertainties surroundingthe establishment of carbon markets as permanent fixtures of the global financial system. If politicians succeedin establishing a functioning, mandatory, long-term global carbon market, many of these uncertainties will disappearor be greatly reduced. On the other hand, to the extent that emissions agreements continue to have shortlife spans and only near-term targets, these uncertainties will persist.No country has committed to emission reductions beyond 2012. In two years, the driving force behind theestablishment of both international and domestic carbon markets will evaporate. (Lokey 2009). Efforts to providea new climate treaty to contain emissions post-2012 have thus far been unsuccessful. (Doyle & Wynn 2010).Countries will meet again at the end of 2010 to attempt another round of negotiations. In the absence of bindingemissions targets, compliance carbon markets will collapse. This has a dramatic effect on the current pricing ofoffset credits that will be generated post-2012 in multi-year offset projects: post-2012 CERs are worth very little incomparison to pre-2012 CERs. (Lokey 2009).The United States is the present “elephant in the room” of the global carbon market. As both the largestdeveloped country emitter of GHGs, as well as the only developed country in the world that is not a party to theKyoto Protocol, its actions have massive impacts on the carbon market. Entry of the United States into a bindinginternational agreement, backed up by a domestic carbon market such as that contemplated in ACESA, wouldsignificantly increase global demand for emissions offsets. (Lokey 2009, CBO 2009).Advanced developing countries (ADCs) will be the “elephants in the room” in the coming decades. Asrapidly developing countries such as China, India, and Brazil become developed, they will eventually need tomake the switch from producers of global carbon offsets to capped, Annex 1 type countries. No one is certainexactly when or how this will happen. When it does happen, demand for emissions offsets will increase due tothe need of ADC-based entities to reduce emissions to comply with new caps. There is a possibility that thesuccessor agreement to the Kyoto Protocol will begin taking steps toward this transition through the utilizationof carbon intensity targets, which cap and reduce the GHG emission per unit of GDP ratio rather than overallemissions. Carbon intensity targets would allow ADCs to continue to raise their overall emissions in pursuit ofdevelopment, but would aim to reduce the rate of emissions per unit of development (Herzog 2007). It is unclearwhether ADCs would be able to use carbon offsets to meet carbon intensity targets.The number of excess allowances is unknown in a carbon market until the near end of a complianceperiod. Because the internal cost of emissions reductions by covered entities is difficult to predict in the absenceof historical data, it is also difficult to predict whether a compliance market will have a lot of excess allowancesor very few allowances for purchase as the compliance period draws to a close. As the number of allowancesbecomes known, the price of offsets can plummet or skyrocket accordingly over a very short time period. (Lokey2009).Offset price uncertainty can cause gaming behavior by offset producers. Farmers and foresters expectthat GHG prices will rise over time, provided there is a binding emissions treaty, and so are likely to delay mitigationpractices until prices rise so as to maximize GHG payments. Thus at relatively low GHG prices ($15/t CO 2 e), afforestation becomes the dominant strategy. In either case, by2055, EPA estimates that afforestation and sequestration become less feasible due to carbon saturation, harvesting,and practice reversion. At $30 and $50/tCO 2 e, biofuels dominate the mitigation scene.Biochar relevance in GHG markets in: Carbon Market Implications for Biochar73