This webinar will review the various mechanisms agreed in the Kyoto Protocol with a particular focus on Clean Development Mechanism. The value at each stage of the CDM project will be explained, and market prices for carbon credits will be analysed. In order to illustrate this type of project, real case studies carried out by Deuman will be discussed. Voluntary carbon credits will also be analysed. http://www.leonardo-energy.org/webinar-carbon-market-and-cdm-projects

1. Consulting on Energy and Climate Change
July 2009

2. Agenda
DEUMAN at a Glance
Kyoto Protocol and the Clean Development Mechanism
Voluntary Carbon Market (Supply and Demand side)
The Carbon Market

3. About DEUMAN
Launched in the mid 1990’s
Main focus is the identification of activities to mitigate climate change
Business Units

4. About DEUMAN
Emission reduction
projects in:
 Chile
 Perú
 Ecuador
 Colombia
 Nicaragua
 Panamá
 Mexico
 Mozambique

5. Timeline

6. Agenda
DEUMAN at a Glance
Kyoto Protocol and the Clean Development Mechanism
Voluntary Carbon Management (Supply and Demand side)
The Carbon Market

7. Road to Regulation
1988 IPCC Foundation, first report 1991
1992 154 countries + UE adopt the UNFCCC
1994 UNFCCC enter into force, GHG target negotiations
1997 The KP is enacted establishing targets and flexible mechanisms
2001 Marrakesh Accords, M&P
2002 Legal documents are adopted, KP

8. Flexible Mechanisms Kyoto Protocol
The KP established three market-based mechanisms designed to ensure
that the industrialized countries (Annex I countries in the UNFCCC) meet
their emission reduction targets:
International emissions Joint Implementation The Clean Development
trading (IET) Mechanism (JI) Mechanism (CDM)
Article 17 Article 6 Article 12
Allows the purchase Allows Annex I countries Allows emission
and sale of emissions accounting for reductions reduction projects in non
among Parties included emissions that are Annex I, to sell their
in Annex I to the generated by investing in reductions to Annex I
UNFCCC, to fulfill their projects in other Annex I countries, helping them
commitments countries to meet their reduction
targets

9. CDM: Applicability Conditions
Voluntary Participation
Main focus is the identification of activities to mitigate climate change
Real, measurable and long term benefits
Contribute to the sustainable development of the host Country
Additional
Reduce GHG indicated by the KP
KP Ratification and DNA in place

10. CDM Project Cycle

11. CDM Statistics
• CDM Project Pipeline > 4.200 (2,900,000,000 CERs)
• 1717 Registered (1,620,000,000 CERs)
• 51 projects currently requesting registration

12. CDM Statistics

13. CDM Statistics

14. Santa Marta Landfill
Chile
Project Characteristics
• Capture and flaring of biogas in Santa Marta Landfill
• Approximately 70,000 tones of domestic solid waste disposed each month (2002-2022)
• World Class Landfill
• RCA – AN – PDD – Val& Reg - MR – Ver
• Currently 40kton were verified and 190kton in verification

15. Cementos Lima
Fuel Switching
Peru
Project Characteristics
• Change fuel in cement kilns, coal to natural gas
• High consumption of fossil fuels Potencial 300,000 tonCO2e/año
• AN – Meth - PDD – Val&Reg
• Marketing

16. Lessons Learned
Present conservative ER estimations in the PDD (ver. performance)
Need to design a robust Monitoring Plan
Be aware of calibration and maintenance of monitoring equipment
Implications in the Cash Flow (M&P):
•Withdraw
•Completeness Check by the Secretary (Issuance Req.)
VVM:
More evidences are requested
Longer on-site visits
Longer time periods for Registration and Issuance (Reports)

17. Agenda
DEUMAN at a Glance
Kyoto Protocol and the Clean Development Mechanism
Voluntary Carbon Management (Supply and Demand side)
The Carbon Market

18. Voluntary Carbon Market
A MARKET PARALLEL TO THE CDM
GHG REDUCTIONS ARE VERIFIED UNDER SEVERAL STANDARDS WHICH ARE NOT
WITHIN THE SCOPE OF THE FLEXIBLE MECHANISMS UNDER THE KYOTO PROTOCOL
CHICAGO CLIMATE OTC MARKET (Over
EXCHANGE the Counter)
• Cap-and-trade
System • Bilateral Accords
• Voluntary • Voluntary
• Legally Binding • Not legally binding

19. Voluntary Carbon Market
FACTORS THAT ORIGINATE THE VOLUNTARY CARBON MARKET
 Countries that have not ratified the KP
 No Approved Methodologies or not applicable
 Small Project Activities that cannot run with CDM transaction costs
 Agile certification process, through independent (non-UN) standards.
 Offsetting demand from non-compliance entities.

20. Voluntary Carbon Market
 rapid growth and depth.
 Its reduction units are VER and each VER equals 1 ton of CO2e
reduced.
 The levels of demand in many cases are similar to the CDM.
 Prices are roughly between 25% and 30% of the CERs.
15
4
42 34 38 5
22

21. Voluntary Carbon Market Standards
PLAN VIVO

22. Corporate Climate Change Strategy
“Companies that quantify their emissions footprint sent a strong
signal that they recognize the importance of climate change as a
business risk, as well as an opportunity”
Climate Change
 Global Impact
 Long Term Problem
 Irreversible damage
Risks associated with climate change
 Regulatory risk.
 Risk in the supply chain (suppliers of steel, aluminum, glass, etc.).
 Risks of litigation.
 Reputation risk.

23. International Scenario
CDP and Carbon Tax

24. Corporate Carbon Management

25. Voluntary Carbon Market
Al Gore event on
Climate Change - Chile
Expoambiental 2007 II Renewable Energy Meeting
Cono Sur Vineyard Tarapacá Vineyard Casablanca Vineyard

26. Agenda
DEUMAN at a Glance
Kyoto Protocol and the Clean Development Mechanism
Voluntary Carbon Management (Supply and Demand side)
The Carbon Market

27.  Recently Founded. Privately Owned. Solely dedicated to the carbon market.
 For the time being, acting as primary CER and VER brokerage and advisory
firm.
 Brokers in firm have closed deals in excess of 5 million CERs/ERUs, 2 million
VERs, and 1.2 million EUAs.

28. CER Price Drivers
WHY ARE CERs WORTH SOMETHING?
 European National Allocation Plans (PNAs) allow the use of CERs
for compliance purposes, enabling a swap between CERs and
EUAs (credits traded under the European Trading Scheme)
 Some buyers, such as Japanese, purchase CERs for voluntary
offsetting their carbon footprint.
 CERs are considered a by-product of a CDM project, whose final
objective is to reduce emissions in the host countries.

29. CER EUA Correlation
CER vs EUA
30
25
EUA SPOT
20
EURO
CER SPOT
15
MAX PRIMARY CER
10 MIN PRIMARY CER
5
0
8/12/2008
10/12/2008
1/12/2009
2/12/2009
9/12/2008
11/12/2008
12/12/2008
FECHA MM/DD/YR

30. CER Correlation
SOME ANALYSTS CLAIM THAT CERs ARE CORRELATED TO:
 The EUA. If it weren’t for the EUA-CER swap, the CER would lose it’s
main price driver. If the EUA falls, the CER should fall in order to maintain
a certain spread (price difference) among both credits.
Coal-Gas Fuel Switch. Depending on the price of the EUA, power generators,
theoretically, use coal or gas for power generation. In fact, this switch is hardly
employed.
 Oil Prices. Most gas supply contracts are indexed to oil prices. Building
on the coal-gas switch, oil should have an impact on the EUA through the
Coal-gas switch. In reality if the correlation with coal-gas switch is flawed,
so is this.
 Power prices. Utilities make up most of the European Trading Scheme, if
they sell less power, they need less demand for EUAs and start selling,
provoking an increased offer.

31. CER Price Assessments
Price of CER (in Euros). Secondary Market

32. CER Market at a Glance
WHAT DEFINES THE CER MARKET:
 (Lack of) Liquidity. Secondary CER Market is small, daily liquidity as
shown in Bluenext is currently at around 50k-100k CER daily. Most
deals are done in OTC. However, the secondary market is valued at
approximately 50 billion Euro for the year 2008. Primary CER Market
is even smaller, roughly valued at 5 billion Euro for the year 2008
 Large amount of legal and administrative hurdles, affecting the timely
issuance of CERs and therefore affecting the market offer side.
 Legal uncertainty. We lack a post-Kyoto (2012) legal framework
that will assure us we can still use CERs for compliance within the EU
ETS.
 CERs require a multi-faceted approach, including financial,
engineering, legal and administrative expertise.