Alexandre Kossoy Philippe Ambrosi

2010: Overall market stalls

135

0.711

31

63

(in billion US$)

144 142

A global market driven by the EU ETS

CDM market value halved again

• CDM activity declined markedly

– reduced compliance needs due to slow economic recovery

– uncertainty re: post-2012 rules– less origination activity as buyers seek

predictable credits and less projects– competition with AAUs and secondary

CERs

• Following lower demand by EU ETS

– Segmentation due to qualitative restrictions (ban of CERs from industrial gases)

– Risk allocation reflects buyers’ market

Catalytic role of CDM & JI disappears without post-2012

clarity

CDM value(US$ billion

-12%

-59%

-46%

Contracted(nominal)

Contracted (risk-adjusted)

KM Demand2008-12

AAU

CDM&JI

CDM&JI

AAU

2,525 MtCO2e

1,330 MtCO2e1,392 MtCO2e

• Demand: 1.39 billion tCO2e until 2012

• Supply: 1.33 billion tCO2e contracted– 1.09 billion CERs & ERUs

contracted (risk-adjusted)

– 245 million AAUs contracted

• Residual demand of only136 MtCO2e

• Aggregate picture; not all buyers contracted the volume they need

Residual demand of 136 MtCO2e, mostly from EU governments

Balanced market: 2008-12

Supply Demand until 2012 (data in the S&T report)

Most offsets w/ priv. sec.

*Including Iceland, Liechtenstein, Norway, and Switzerland** Australia, New Zealand and United States

MtC

O2

e

Market projections indicateconstrained demand over 2013-20

Maximum demand (conservative scenarios)Low High

Potential supply 2013-20 (data in the S&T report)

Potential demand 2013-20 (data in the S&T report)

(1.7-750+800) (2.2-750+1.1)

A complex regulatory and policy scenario is affecting the market

2010 saw regulatory ups:

• Progresses in Cancun & EU commitments until 2050

And downs…

• EU ETS loopholes & oversight, security issues

Politically, a number of opportunities were missed:

• U.S., Japan, Australia, Republic of Korea

While others gained traction:

• California, developing countries such as Brazil, Chile, China, India and Mexico.

New initiatives signal that solutions to the climate challenge will emerge.

Still, let’s step back and look outside the box

• Cumulative CDM credits transacted of 2.3 bln tons CERs in 2002-2010 …

… which is the annual size of the EU ETS (40% of EU emissions) today

… and 75% of Kyoto’s total ER targets (~3 bln tCO2e over 2008-12)

• … resulting in US$27 bln (and benefiting to more than US$100 bln in low-carbon investments - mostly private sector) …

… which is in the same level of magnitude of the Green Climate Fund pledged by Parties in Cancun

• … at long-term average price of $10-$15 per ton …

… which is much lower than the marginal abatement cost for developed countries to reduce emissions through domestic measures only

• Depending on ambition of collective action, carbon flow to developing countries by 2020 could, at prices of US$20-30, can reach US$30-50 bln …

… vs. all RE investments to developing countries of US$77 bln in 2010 (US$143 bln in total and up 12-fold since 2004)

Full report available at

www.carbonfinance.org

Thank you

2011: Recent developments in the C-mkt

• “2011 is turning out to be a very noisy year“ for commodity markets:

– Political turmoil in the Middle East, – Japanese earthquake and nuclear crisis at Fukushima, – Phase-out of the German nuclear capacity (closure of 8.4 Gw), – European Union (EU) sovereign debt crisis (double-dip recession?),– The US credit downgrade.

• Translating into a very nervous carbon markets:

– Secondary market:• July: record options contracted (i.e., high volatility),

• August volumes at second highest monthly levels ever ~800MtCO2e (180Mt CERs),

• August prices close to historic all-time low of February 2009.

– Primary market (post-2012):• Development of deals previously originated; few new origination,

• Strong conditionality clauses (right of first refusal ?),

• Preference for floating prices (at 70-95% sCER at delivery);

• Fewer fixed-price deals in the 5-8 Euro range (most below 7.5 Euros),

• Illiquid market leads to lack of transparency and wider range of prices.