Financing early opportunity CCS projects in emerging economies through the carbon market: Mitigation potential and costs

Abstract The Kyoto Protocol’s flexible mechanisms allow projects that reduce greenhouse gas emissions to generate ‘carbon credits’. The most well known of the schemes is the clean development mechanism (CDM), which applies to emission reduction projects in developing and emerging economy countries that have ratified the Kyoto Protocol. The eligibility of carbon dioxide (CO2) capture and storage (CCS) technologies within the CDM has been a protracted process. One of the concerns hampering progress relates to the possible market implications of inclusion because of the potentially very large number of certified emission reduction units (CERs) that could be generated from CCS projects, which could potentially destabilize the global carbon market, for example, by depressing global carbon prices due to over-supply relative to demand. Drawing on these concerns, this paper provides a summary of analysis undertaken to assess the potential scale of such effects in both 2012 (the end of first commitment period of the Kyoto Protocol to the United Nations Framework Convention on Climate Change) and in 2020, with a view to evaluating the legitimacy of concerns in the short- to medium-term. It also provides some views on the potential alternative mechanisms that could evolve post-2012 for incentivizing and financing investments made in CCS technologies in developing and emerging economies.