1. Introduction to carbon finance
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2. Overview
• Project-based emission reduction mechanisms have successfully attracted investment
flows into low carbon projects, BUT:
 they have mostly benefited large stand-alone projects in advanced developing
countries
 they are deemed insufficient to curb carbon emissions trends in emerging
economies
• Small-scale and dispersed emissions reduction activities have suffered from limited
access to the international carbon market due to high transaction costs
• Uncertainty on the future of Kyoto-based project mechanisms in the post-Kyoto era:
scaling up or disappearing?
• In the medium-term:
 increased focus on sustainability issues and geographical distribution
 increased interest in voluntary markets, where demand is driven by consumer and
CSR trends rather than policy

3. Joint Implementation and Clean Development Mechanism
 JI and CDM projects involve developing and implementing projects that reduce GHG emissions
abroad, thereby generating carbon credits that can be sold on the International ET carbon
market and other regulated markets such as the EU Emissions Trading Scheme.
 These carbon credits generate an additional income stream for the project and provide a
cost effective means of assisting Annex I countries and companies within those countries to meet
their emission commitments.
• JI is a project mechanism where an Annex I country can benefit from
Joint emission reductions achieved through a project implemented in
Implementation another Annex I country
(JI)
Clean
• CDM is a mechanism where an Annex I country can benefit from emission
Development reductions achieved through a project implemented in a non-Annex I country
Mechanism (developing economies – China, India, South Africa…).
(CDM)
• Parties with commitments under the Kyoto Protocol have accepted targets for
reducing their emissions. These targets are expressed as “assigned amounts” over
Emission Trading the 2008-2012 commitment period.
Scheme (ETS) • Emissions trading allows countries that have excess emission allowances to sell
them to countries that are struggling to meet their targets
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4. CDM: how it works
• The achievement of emission reduction projects by Annex I Countries (industrialized and economies in
transition) in non-Annex I Countries.
• The achievement of projects allows to obtain “Certified Emission Reductions” (CERs)
• CERs are credited to the investor Country and can be used for compliance
• Legal entities authorized by Parties can participate in projects 4

5. CDM approval cycle
Origination and preparation of the
Project completion
Project Idea Note (PIN) and Host
Country Approval
Issuance
Preparation of project
documentation (PDD, Baseline
Study and Monitoring Plan)
Time till registration
Periodic verification ~ 18 months
& certification Validation process and
(Verification report other Parties approval
Supervision report)
Registration by EB
Complex registration procedure to ensure
transparency
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6. Example CDM: Grid-connected generation from RES
Registered projects
>1000 large-scale
> 900 small-scale
Example:
1 MW PHOTOVOLTAIC PLANT IN
SOUTH AFRICA
-The plant displaces 1 MW on the
grid, which would be otherwise
produced by coal power plants
(baseline for SA)
- The project will receive yearly an
amount of credits proportional to the
CO2 that the coal plant would
otherwise emit in the atmosphere (~
2000 credits/year)
Environmental additionality – the project produces fewer greenhouse gas emissions than the
baseline scenario. It is essential that the project achieve environmental additionality – otherwise, it
will not generate any carbon credits
However, the project developer must also usually demonstrate that, without carbon revenues, the
project would not be viable and/or commercially attractive – this is known as Financial
Additionality 6

7. The role of the Clean Development Mechanism (CDM)
Advantages for
CDM allows developed countries:
developed
Developed
countries can countries to relatively low-cost &
reduce generate politically acceptable
emissions „carbon credits‟
anywhere in (Certified
the world
Emission Advantages for
They can count Reductions, developing countries:
these CERs) in
reductions
developing inward investment,
towards their
own targets countries environmental &
technology benefits
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8. The Carbon Market, a “baby” already worth 150 bln $
Size of the global carbon market
Volumes and prices for Kyoto offset
transactions (CERs and ERUs)
Source: World Bank
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9. CDM in numbers
Registered CDM projects (2003-2010) Total cumulated CERs by project-type
Afforestation &
Middle East & North Reforestation
3000
Africa: Africa (MENA): 2800 Fuel switch
1% 2600
2% Latin America 2400
17% 2200 Energy Efficiency
Million CERs
2000
1800
1600 CH4 reduction &
1400 Cement & Coal
1200
mine/bed
1000 Renewables
800
600
Asia & Pacific: 400 HFC & N2O
200 reduction
80% 0
dic/03
giu/04
dic/04
giu/05
dic/05
giu/06
dic/06
giu/07
dic/07
giu/08
dic/08
giu/09
dic/09
mar/04
mar/05
mar/06
mar/07
mar/08
mar/09
set/04
set/05
set/06
set/07
set/08
set/09
Number (%) of CDM projects in each category
Afforestation &
Reforestation
Transport
• Total projects registered from 2006:
Demand-side EE 1,0%
4% 0,4%
Fuel switch
2% HFCs, PFCs & over 5000
N2O reduction
2% • Amount of CERs expected: approx
Supply-side EE
3.000.000 kCERs
• Uneven regional distribution - Africa is
11%
Renewables
CH4 reduction & 60% an unexploited market for CDM
Cement & Coal
mine/bed
20% 9

10. POST-2012 perspectives
• Although there is still uncertainty about a new global climate deal, Cancun provided encouraging
signals
• CDM is a self-financed mechanism, so it can survive as long as there is demand for credits (no Kyoto-2
is needed)
• Increased focus on African countries
“…the Kyoto framework allows the CDM to continue beyond 2012, even in absence of a 2nd
commitment period.. Environmental integrity of CDM must be improved and its use as an offsetting
mechanism should be increasingly focused on Least Developed Countries”
Comm. Hedegaard, DG CLIMA, EU Commission, Sept. 2010
• In the EU-ETS (the main source of demand for credits today) the post-2012 scenario in case of no
global deal is already set:
• Use of credits from projects registered before 2012 will be allowed through 2020
• Projects registered after 2012 will be allowed if:
• located in Least Developed Countries
• within the framework of bilateral agreements between EU and third countries
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11. Post-2012 perspectives: LDCs
• Currently <1% of developing country emissions, BUT
• Robust economic growth provides emission mitigation opportunities
• Generation Capacity additions >150 GW
• Potential CO2 emission savings >700 Mt/year against BAU
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12. Scaling up CDM: Programmes of Activities (PoAs)
Source: KfW
• Registered PoAs are applying project types that are considered as rather complex within the CDM.
• This trend is confirmed by projects applying for registration. PoAs allows for an overall reduction of
CDM transaction costs for project types with a high number of appliances in dispersed areas
• Typical projects are:
• efficient lightning (CFL)
• improved cooking (stoves)
• Off-grid renewables
• Methane avoidance

13. POA regional trends
Source: KfW
POAs can enhance geographical distribution of carbon finance