The Kyoto Protocol Carbon Market

- reflections by its author -

Graciela ChichilniskyKey Note Presentation Green Economics Conference MEA and IIM

& Technical Session IIM Shillong IndiaAugust 7 2014

Human Dominated WorldHuman Beings are today the largest geological force in the planet

We are changing the planet’s atmosphere, its body of waters, and the complex web of species that makes life on earth

Climate Change

Global Risks• Climate Change• Biodiversity Extinction• Clean Water scarcity• Life in the Seas going extinct

Avoiding Extinction

URGENCY

Why are we being called to respond to

The Climate Question

Catastrophic Risks• Global sea level raise threatens the survival of 43 island

nations • Polar Caps melt - accelerating warming trend• Record breaking tornadoes, floods, droughts and

devastating fires• 30 million climate migration in 2011 • National Security at Risk US Pentagon 2009

Oceans - the origin of life – going extinct

Are Humans Next?• Need Action Now• Waited too long• Industrial economies 20% of world population

cause most of world’s C02 emissions

Energy from fossil fuels is 45% of global emissions

Clean Energy is the Only Solution

The AnthropoceneThe change we are producing is caused by economic forces – but will be read in rock formations for thousands of years

A new geological era - the ‘Anthropocene’ – follows the Holocene –it started in 1945

The Bretton Woods Institutions after WWII led to

Globalization of Western Economics

A Brief History of Western Economics

How an individualistic frontier societyGrows Interconnections & the Global Commons

Western Economicsan

Individualistic frontier Society

• Lacks connections with natural resources• Lacks connections between present and future• Lacks connections between people

Western Market Economics based on

– Competitive Markets - individualistic consumers trade private goods: no connection between people

– Optimal Growth Theory -- exponential growth of population and resource use – a frontier society without limits: no connection between the economy and ecological systems

– Cost Benefit Analysis and Financial Models Discount the Future – a short term vision: no connection between the present and the future

Dictatorship of the Present

So far Western economics

• Lacks connections between people • Lacks connections between economy and

environment• Lacks connections across generations

Sustainable Development requires building connections

WHY?

Because humans dominate the planet

• For the first time in recorded history• Following an era of rapid globalization

Humans dominate Planet Earth

• We are connecting and changing the planet’s atmosphere, its bodies of water, and the complex web of species that makes life on Earth

This means natural resource limits

• As we reach natural resource and environmental limits

The survival of humankind is at stake

• Need connections with the ecology, between people and with the future of our species

Can Western Economics adjust?

Can Markets become Sustainable?

Sustainable Economics

How to do it

Changes needed

• Change Economics – Sustainable

• Change GDP - environmental markets that provide prices - value the global commons.

• Change International Law - UNFCCC KP process

We CAN DO IT

Changes Articulated by the

United Nations

Kyoto Protocol

The Missing Signal• If we destroy all trees & make toilet paper our economy improves – why?• Because Toilet Paper has Market Value & Trees do not.

We lack Market Prices

New Market prices = New ValuesNew costs and New benefits

The Carbon Market Provides the Missing Signal

• 1997: UN Kyoto Protocol Placed Limits on industrial emissions• 2005: KP Carbon Market became International Law – now in 4 continents

December 2011:Kyoto Protocol extended 3 years

in Durban UN COP 17

• Existing KP limits valid until 2015

• New limits pledged for 2020

• UN COP 19 Warsaw 2013 confirms the North South nature of the earth’s climate crisis

Who Should Abate?

• The rich nations of the North?20% of the global population consume most natural resources and caused the majority of the global emissions

• The poor nations of the South?80% of the global population extract most of the world resources and export to rich nations could cause most emissions in the future.

The Carbon Market

•What is it?

•What it is not

Emission Limits are the basis of Carbon Market

How does it Work

CHANGES THE ENTIRE

GLOBAL ECONOMY

$25/TON EMITTED

CARBON PRICES ARE THE Missing

Signal

Carbon Makes Clean

Energy profitable

Dirty Energy expensive

and Undesirable

Dirty pays clean – ZERO

overall costs

The Carbon Market• EU ETS trades $250 Bn/year

• Reduced 30% EU emissions since 2005

• Its CDM transferred over $100 Bn for clean energy projects in poor nations

Carbon MarketLinks to Global Economy

Everything is made with energy Economic growth = Energy Use

Link to EnergyCarbon Market provides Missing Signal

New Market Prices = New Values

FOCUS of Carbon Market• Capping Emissions

• We can’t get there without emissions reductions

Markets for trading a Global Public Good: Using the planet’s Atmosphere

Creating Equity with Efficiency

REDD• Reducing Emissions from Deforestation and

Forest Degradation

• Limited effect on Climate

• Mot Important effect on Biodiversity

Not International Law

Where are We?

What comes Next?GREEN CAPITALISM

Economy, the Earth and our Species

• Need to develop connections with the earth’s resources, between people and with the future of our species

Basic needs• The Basic Needs of 80% of Humankind who live in developing nations• Undermined by resource intensive economics: over-extraction of raw

materials from the poorest nations in Africa and Latin America• Resources exported and over-consumed by 20% of world population

in the industrial world

Women and Survival• Women are the only Link to the Future• War on Women • Threatens the Survival of the Human Species• Women key to the New Economy• Green Capitalism• Survival of the Human Species

What to do?

• Change International Law• Change Economics

We just have to do it

• For the survival of our Species

Change International LawBasic Needs

• In 1974 I created the Bariloche Model of the World Economy

• Based on my new concept of Basic Needs• Was the basis of Sustainable Development voted by

150 nations at the 1992 UN Earth Summit in Rio Brazil• Adopted by the G – 20 in 2009

Sustainable Development

Change International LawThe Carbon Market

• The Carbon Market I designed and wrote into the UN Kyoto Protocol in 1997- international law since 2005

• Productive clean CDM transfers to developing nations $50 Bn since 2005

• EU ETS Trades $200 Bn/year, decreased 37% EU emissions since became law in 2005

• Makes profitable the use of clean energy for the production of all goods and services

• Changes the energy foundation of the Global Economy• China ratified the Kyoto Protocol and since 2005 leads the World

in Solar and Wind markets• US did not and we are left behind in clean technology

The Green Power Fundbecame international law in Durban

• I proposed it in 2009 Copenhagen COP15• Was accepted and officially endorsed by Hillary

Clinton US Sec of State two days later at COP 15• It is a $200 Bn per year Fund to build carbon

negative power plants in Africa, LA and Small Island States - economic growth that cleans the atmosphere

• The technology exists, and the funding exists in the EU ETS trading system - $250Bn/year

Need political support to make my Green Power Fund a reality

• It is already international law since Durban 2011• Must be linked to UN Kyoto Protocol to use the

$250 Bn/year to fund negative power plants in LA Africa and AOSIS

Key: promote new technology & new economics create growth while cleaning the atmosphere

Changing Economics is Key

HOW?

• Provide Missing Connections• Between people, with the environment • Between the Present & the Future

Sustainable Development

The Present and the Future

• Cost Benefit Analysis and Optimal Growth theory exist that do not discount the Future

A Formal Theory of Sustainable Development has been developed that provides

Equal treatment for future generationsConnects the present and the future

I created the formal Theory of Sustainable Development in 1996

Sustainable Development (Chichilnisky 1996, 2000, 2006, 2009, 2010)

Formal Theory of Sustainable DevelopmentCreated in Chichilnisky 1996*

Axioms for Sustainable DevelopmentA mathematical formulation

• 1. No Dictatorship of the Present• 2. No Dictatorship of the Future• 3. Continuity and Linearity

* Chichilnisky “What is Sustainable Development” Social Choice and Welfare, 1996

A complete characterization of all Criteria that satisfy all my three axioms

• Theorem (Chichilnisky 1996)There exists criteria of optimization that satisfy all of my three axioms. They are new, and they are all of the following form:

New types of Markets + New GDP• Market economics can be made consistent with sustainable goals• But markets themselves must change

• Individualistic markets must evolve into new types of markets that I postulated - markets for public goods – which incorporate

connections between people and value Valuing the Global Commons

• They are slowly emerging due to new scarcities: carbon market I created within the Kyoto Protocol, international law since 2005

trading $200Bn/year; SO2 markets in CBOT, new markets for water and for biodiversity (Chichilnisky (1992, 1996, 2000, 2002, 2009, 2010, 2011)

Global markets that value privately produced public goods the Global Commons

The Carbon Market Changes the measurement of GDP

• Carbon Market puts a (new) economic value to a clean atmosphere that changes GDP

• With the carbon market, in two identical nations the one that produces clean energy has a much higher GDP

New Markets change Capitalism

• Markets trading privately produced public goods are new

• They combine equity with efficiency

Connecting People• They require limits on resource use

Connecting Economics with Ecological Systems

Green Capitalism in the 21st Century

• The basis exists: international law and economics

• Theoretically and in practice• New markets for the global commons, new

growth theory, new cost benefit analysis and new GDP measures, new international law

• Need to implement it through carbon market and Green Power Plants through UN COP

The Global Commons

New Economics

From maximizing profits toeconomic progress

that ensures survival of our species

Technology Urgently Needed

• To Reduce Carbon from the Atmosphere

• In a Profitable Way

The Word needs Energy

CLEAN ENERGY FOR DEVELOPING NATIONS

Global Thermostat Pilot Plant, SRI International - Menlo Park CaliforniaFebruary 2011

What is a Carbon Negative Solution

Global Thermostat Company Confidential Page 45

Carbon Neutral is not enough• Neutralizing emissions does not prevent

further increases in atmospheric CO2

• Even the most aggressive efficiency improvements and renewables adoption are unlikely to keep CO2 concentration at the generally agreed 450ppm to avoid catastrophic climate risk

Negative Carbon is the solution1

• Air capture enables direct and rapid reduction of CO2 concentration

• GT allows for the capture of even more CO2 than we are loading into the atmosphere or that the earth’s systems can absorb – Negative Carbon GT’s technology directly reduces

carbon concentration in the air, making carbon negative possible

Pre-Ind Ti

mes2030

20800

100

200

300

400

500

600

700

800

Reducing CO2 Concentrations in the Atmosphere

Business as UsualConstant GrowthWedges Approach / StabilizationGlobal ThermostatHazardous Level 450 ppm

CO2

Part

s per

Mill

ion

(PPM

)

1 United Nations Headquarters, New York, November 12, 2009. Presentation by G. Chichilnisky on"The Rising Tide at Copenhagen: A Win-Win Solution for Industrialized and Developing Nations"

Closing the Carbon Cycle• GT Technology Captures Carbon from Air• Inexpensive: Uses Low Process Heat • Cogenerates Power Production withCarbon Capture• The More Power is Produced – the More Carbon is

reduced• Makes Coal Plants Carbon Negative• Makes Solar Power Plants even more Carbon

Negative

GT’s Air Capture TechnologyThree-Step Process Produces Concentrated CO 2 Stream

Step 1Air Input

Transport and Injection

Compression Other Applications

Key to GT’s technology is cogeneration using

low temperature process heat to

capture CO2

Subsequent steps are shared by all CO2 capture methods though pipelining costs can be reduced by co-locating

where CO2 is stored or used

Step 2CO2 Capture

Step 3CO2

Regeneration

Absorbing CO2

Pipes to oil well or algae

UP

Releasing CO2

Pipes to oil well or algae ponds

DOWN

Applications & Markets for Captured CO2

Global Thermostat Company Confidential Page 50

Storage Enhanced Oil Recovery*

Algae-Based Biofuels*

Hydrogen-Based Fuels

Products cement, fertilizer, plastics,

greenhouses

*EOR and Algae-based biofuels represent most

significant opportunities for commercial applications

of CO2 captured using GT’s technology

Unique Advantages of GT’s Technology

Measurable advantages over other forms of carbon capture

Low-Cost Provider•Powered by low cost & widely available process heat

Scalable Design•Modular design adapts to different sized applications

Carbon Negative Solution•An energy or industrial plant can capture even more CO2 than is emitted – a carbon negative solution

Flexible Integration• Fossil, renewable, nuclear plants, industrial plants, (cement, steel) – anywhere heat is available

GT Pilot Plant at SRI - October 1, 2010

Global Thermostat Company Confidential Page 52

Strategic Partners

Global Thermostat & Algae Systems

Global Thermostat Company Confidential Page 54

Desalination

CO2

Wastewater

Algae Production Dewatering Fuel

Production

Fuels,Electricity &

Biochar

TreatedWastewater

Drinking Water

•Produces carbon negative transportation fuels (gasoline diesel)•Treats municipal wastewater and produces drinking water•Generates green electricity and biochar fertilizers

GT is developing fully-integrated biorefinery in partnership with Algae Systems

Provides critical municipal services while producing energy

As Green As It Gets

Solar Energy

Closing the Carbon Cycle

Carbon Negative Power Plants – reduce 45% of the global CO2 emissions caused by power plants

Green Power Fund provides PPA to build Carbon Negative Power Plants

Channel EU ETS $250Bn/year funding to poor nations through Carbon Market CDM

Carbon negative fuels – the more you drive and fly the cleaner is the atmosphere

Economic Growth that cleans the atmosphere

Creating the Future

Green CapitalismThe carbon market

Environmental Markets for Biodiversity and Water

Implement Sustainable DevelopmentFunding from Carbon Market can build carbon negative power plants and fuels

globally