1. Carbon Market 101Climate Change, CDM & Carbon Trading Immanuel Edward. J.A Climate Change/Sustainability Advisory HMR Environmental Engineering Consultants

3. Global Carbon Market

4. EU – ETS

5. CER Supply & Demand

6. CER Pricing

7. EUA price & Impact on CER Price

8. CER Transaction Models

9. CER Delivery Structure

11. CO2 Levels in the Atmosphere

12. Earth’s temperature

15. Sea level rise of 9 - 88 cmThis projected temperature rise is greater than that experienced in the last 10,000 years !!! IPCC : Intergovernmental Panel on Climate Change

16. Impact of Climate Change

17. Response to Mitigate Climate Change 1992 1979 1997 1988 1954 2005

21. Kyoto Mechanisms Overall target - at least 5.2% reduction below 1990 levels in net anthropogenic emissions* of Annex I countries by 2008-2012. No targets for developing countries Joint implementation

22. Emissions Trading: Article 17 Allowances Annex I countries Annex I countries Allowances Allowances allocated by Annex I Govts. to Emission Intensive Industries Allowances allocated by Annex I Govts. to Emission Intensive Industries Within an Annex I country and between Annex I countries Allowance based mechanism

23. Joint Implementation: Article 6 ERUs Annex I countries Annex I countries Investment Implement projects or carbon sequestration ERUs removed from the national budget Project based mechanism

24. Clean Development Mechanism: Article 12 CERs Developed countries Developing countries Resources High cost of domestic emission reduction Low cost of emission reduction Guiding principles Achieve SD, TT, Investment Meet ER targets in a cost effective way Project based mechanism

25. Carbon Credits Emissions trading (among Annex I countries) Assigned Amount Units (AAUs) Joint Implementation (between Annex I countries) Emission Reduction Units (ERUs) Clean Development Mechanism – CDM (between Annex 1 and non-Annex 1 countries) Certified Emission Reductions (CERs)

26. UNFCCC’s CDM Institutional Setup

27. CDM Executive Board

28. PP : Project Promoter DOE : Designated Operational Entity EB : Executive Board COP/MOP : Conference of Parties / Meeting of Parties DNA : Designated Operational Entity CER : Certified Emission Reductions

29. Key Players in CDM Process

30. How to Indentify a CDM Project CDM Project Requirements Project implemented in developing nations – Non-Annex 1 countries Project should result in net CO2 Emission Reduction (real, Measureable, Verifiable) Contribute towards sustainable development of the nation Annex I public funding for CDM to be additional to ODA and financial obligations No nuclear projects in CDM

31. CDM Project Requirements…. Establishment of a credible emissions baseline Project should establish Additionality Contribute towards Sustainable Developmentof the Host Country Concept of CDM, Emission reductions and Carbon revenue should be incorporated in the Planningstage of the project

32. CDM Prior Consideration Within 6 month from the project start the DNA and UNFCCC must be informed EB49 annex 22: The project participant must inform the Host Party DNA and the UNFCCC secretariat in writing of the commencement of the project activity and of their intention to seek CDM status. Such notification must be made within six months of the project activity start date and shall contain the precise geographical location and a brief description of the proposed project activity, using the standardized form F-CDM-Prior Consideration.

33. Emissions Baseline emissions (most Plausible scenario/existing project) Emissions from a green / new project Time Baseline

34. Additionality STEP 0: Claiming credits for project with start date prior to date of registration – if not applicable go to step 1 directly CDM consideration proved: Pass STEP 1: Identification of alternatives consistent with current laws and regulations - If proposed CDM project only alternative left: NON-ADDITIONAL (NA) More than one alternative: Pass STEP 3: Barrier Analysis No barriers: NA STEP 2: Investment Analysis CDM financially attractive CDM financially not attractive CDM faces Barriers STEP 4: Common Practice Analysis – credibility check - If similar activity observed with no essential difference: Project NA No similar activity or similar activities present but difference in circumstances STEP 5: Impact of CDM registration - If CDM benefits have no impact: Project NA

35. Typical Projects

36. Project Scale Small-Scale CDM (SSC) project categories RE projects up to 15 MW Energy efficiency projects reducing energy consumption by up to 60 GWh/yr Other project activities that reduce emissions less than 60 ktCO2eq

37. CDM Transaction Cost

38. Emissions Trading

39. Carbon Market Theory

41. ETS - Scopes Source: WBCSD/WRI GHG Protocol, 2005

42. How Emission Trading works? Emissions limit after trading (60tCO2) +10 Units bought Emissions limit before trading (50tCO2) -10 Units sold Carbon dioxide/ GHG emissions Emissions limit after trading (40tCO2) 50 50 Company 2 Company 1 Source: UK Emission Trading Group

44. Another illustration for ETS Company A can reduce 1000 tons CO2e at $2/ton = $2000 Company B can reduce 1000 tons CO2e at $6/ton = $6000 BUY SELL 1000 tons CO2e at $4/ton = $4000 $2000 Profit $2000 Savings Company B - Buyer Company A - Seller

45. The Way of Emission Trading Make or Buy decision Developing countries Carbon market Company CO2 € Carbon Credit € Invest in energy efficiency Fuel switching Modification of operation procedure Emission trading Sustainable Development

47. and then distributes permits for a “right to emit” the global atmosphere, which can be traded as private property.

49. Africa & Middle East

50. CDM Projects Data Source: UNEP Riso Dec 2010

51. CER Volume 41 Data Source: UNEP Riso Dec 2010

52. Primary CDM/ JI Buyers

53. Carbon Trading: Unilateralism

55. Host government approval

56. Strong project partners, technology supplier, EPC, Operator, etc.

57. Good Credit

58. Ability for buyer to become a Project Participant

59. Project is registered

60. Guaranteed delivery schedule with punitive damages for non-delivery

61. Payment on delivery into buyer’s national registry account

62. Only a PIN (or less) available

63. Project developing new methodology

64. No Host government approval

65. Poor Credit or No Credit

66. Project not registered

67. Flexible CER delivery schedule

68. No punitive damages

69. Unilateral

70. Advance payment

72. CER prices are likely to shoot up due to increase in crude prices. CER rates and crude prices are inextricably linked.

73. Some buyers have postponed their purchases due to financial constraints.

74. Some sellers have also made distress sales of CERs since they needed immediate cash to get over the current credit crunchSource: GTZ Newsletters

75. EUA-CER Price Trend Source : http://www.pointcarbon.com/news/marketdata

76. Carbon Price

78. CDM Projects : Typical Risks CDM Regulatory Country / Political Risk regulatory process PDD development Registration(CDM EB) regulatory change Tax / revenue share implications tax change FDI Rules validation monitoring & verification host country approval Issuance Financial crediting period FEX / currency Technology Cost/Delay price precedence Legal compliance cost Project related performance Delays (project / delivery) ERPA

80. Restored confidence in the multilateral process

81. Effectiveness of market mechanisms emphasised

82. Targets pledged by developed countries that have ratified the Kyoto Protocol, have been formally recognised, anchoring commitments covering the large part of global emissions

83. Establishment of a Global Climate Fund to support pollution reduction in developing countries with goal of mobilising $100bn by 2020 (reconfirmation & progress)

84. New program established to reduce emissions from deforestation and forest degradation (REDD+)

85. Increased emphasis on "adaptation" support for vulnerable countries Whatz Next in South Africa Dec-2011 ??

86. Uncertainty in Future CO2 Emissions

87. USEFUL WEBSITES CDM http://cdm.unfccc.int/index.html http://www.iges.or.jp/en/index.html http://www.cdmrulebook.org/ CER: TRADING & MARKEThttp://cdmpipeline.org/ http://www.cd4cdm.org/ CARBON NEWS http://www.pointcarbon.com/ http://www.gtz.de/

88. Immanuel Edward. J. A Manager – Climate Change Advisory HMR Environmental Engineering Consultants edward@hmrenv.com Thank you