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Date-27/2/2009
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A PROJECT ON
CARBON CREDIT
Market Structure and Business Importance
Submitted to,Rasananda Panda
Submitted By,Group 11
Shahid Ahmed (20081047)
Shashank Suman (20081048)
Shashank Tiwary (200810490)
Shashwat Chaturvedi (20081050)
Acknowledgement
We would like to thank Mr. Rasananda Panda for providing us the opportunity to
work on this report and guiding us throughout the preparation. His contribution
towards the topics to be covered and the way to complete the report was very
helpful for us. We would also like to thank our seniors particularly Mr. Amit Mandal
for helping us with our project. We would also like to thank our librarian who
provided us with the relevent reports. Also our sincere thanks to the college
administration for including this as a part of our course, because of which we were
able to gain a lot of knowledge in the field of oil and gas.
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Contents S. No. Topics Page Number
Executive Summary 4
Objective 41. Introduction of Carbon Market 5
1.1 Overview 61.2 Methods of trading 8
2. Market Structure 112.1 Kyoto Mechanisms 12
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2.1.1 Clean Development Mechanisms
1. Introduction2. Various Agencies, Boards and
Panels Involved and their responsibilities
3. CDM Participation Requirements
4. Scope of CDM Projects5. CDM Project Cycle6. Crediting Period7. Registration fees & SOP8. Types of CDM Projects9. Markets for CDM10.Overall Advantages and
Disadvantages11.Some statistics Related with
CDM
2.12 Joint Implementation 312.1.3 International Emissions Trading 36
2.2 Emission Trading Market
1. United Kingdom Emission Trading Scheme (UK ETS)
2. European Union Emission Trading Scheme (EU ETS)
3. New South Wales Abatement Scheme
4. California Climate Change Register
5. Chicago Climate Exchange (CCX)
37
38
39
41
4243
3. Market Dynamics 453.1 Demand Side 473.2 Supply Side 523.3 Pricing 55
4. CDM in India 62
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12
13
14
15
17
22
22
23
23
24
25
5. Issues & Risks Related With CDM Markets
69
5.1 Issues 705.2 Risks 705.3 Recommendations 73
6. Conclusion 74Exhibit 1 78Exhibit 2 86Exhibit 3 89Exhibit 4 90Exhibit 5 91List of Abbreviations 93References 95
Executive Summary
Continuing with our last project this time we have tried to understand the carbon
market, how does it work, who are the players, what are they doing how are they
doing the business. The carbon markets are dived into two categories based on the
regulation they are markets under Kyoto Mechanisms and Voluntary Markets.
Where are the credits being traded and how they are traded. We have tried to
concentrate on the Clean Development Mechanism as it is the one which is being
practiced in India. There are 8 steps which are involved in a CDM project which are
pre project and post project implementation. Various agencies like EB, DNA, and
DOEs are involved in it. The CERs which are issued are traded into two types of
markets Primary (contract based) and Secondary Markets (open markets). Then we
have tried to see India’s potential as to how it is trading who are the prominent
players etc.
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Nothing is perfect in this world so neither is CDM too. We have tried to summarize
the various issues related with CDM, the risks related with the projects which are
still causing a problem for arranging finance for these projects. The structural
issues, procedural issues and risk like the timeframe is too long for the projects to
get registered and issue of CERs. It is a high risk with the large amount of obligations
to be fulfilled. Then there are price related risks too. Various organizations like
IETA, World Bank and other major consultancies have tried to address these
matters and have come with certain recommendations which we have tried to
summarize in the report.
Objective
The objective of this project is to understand the concept of carbon credits. What is it, how it
is traded, what are its different mechanisms. What types of markets are there who the
players are? Who is buying, who is selling. How has the world reacting to this market
opportunity. As its CDM which is being practiced in India we have given special attention to
it. We have tried to understand how the projects are started, how the CERs are traded and
what are the issues and risks related with the projects. Looking at the present scenario we
have tried to find how India is capitalizing on it.
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1. INTRODUCTION
1.1 Overview
Carbon Credit- the concept of Carbon Credit emerged in 1997 at World Health
Summit held in Kyoto Japan. This idea could bring enormous changes to the
environment and society if practiced properly. The outcome of this was Kyoto
protocol, in which developed nations agreed to limit their green house gas (GHG)
emissions relative to the levels emitted in 1990 or pay a price to those that do. At
this point came carbon trading.
The idea was to make developed countries pay for their wild ways with emissions
while at the same time monetarily rewarding countries with good behaviour in this
regard. Since developing countries could start with the clean technologies so they
would be rewarded and would get paid by those who were still polluting the
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environment and did not meet the norms. This system can become a machine which
partially transfers the money from wealthy developed countries to the developing
ones. Say a company in India can prove it has prevented the emission of x-tonnes of
carbon, it can sell this much amount of points (or carbon credits) to a company in
say, Europe which has been emitting carbons.
As a result under the UNFCC (United Nations Framework Convention on Climatic
Change) industrialized nations entered into a legally binding agreement to reduce
the collective emissions of greenhouse gases (GHG) by 5.2% compared to the 1990
level; calculated at an average over the five year period of 2008-12. Separate
national targets have been given to US (7%), European Union (8%), Japan (6%) and
Russia (0%). The reduction is to be done on six greenhouse gases – carbon dioxide,
methane, nitrous oxide, sulphur hexafluoride, HFCs and PFCs. Further the protocol
reaffirms the principle that industrialized countries have to pay and supply
technology to other countries for climate related studies and projects. The Protocol
came into force in February 2005 giving GHG emission limits for each developed
(Annex I) country included in the protocol. In order to facilitate reaching emission
limits, three additional mechanisms were agreed upon in the Marrakesh Accords in
2001. These are the Clean Development Mechanism (CDM), Joint Implementation
(JI) and Emission Trading (ET).
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A flow chart showing how the carbon trading emerged
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1.2 Methods of trading
IET- international emission trading
CDM- clean development mechanism
JI- joint implementation
AAU- assigned amount units
CER- carbon reduction units
ERU- emission reduction units
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To start of the trading there are two methods which is followed:
1. Cap and trade system
2. Baseline and credit system
Cap and Trade System (Allowance Based Transaction)
The Kyoto protocol uses a cap and trade system to encourage the reduction of
greenhouse gas emissions. An absolute limit (a cap) is set on total mass emissions
for a group of sources for a fixed compliance period. The cap is then subdivided into
C-credit allowances, each representing authorization to emit a specific quantity of
CO2e emissions. The allowances are allocated to the participants in the program.
During the compliance period, the sources must carefully measure and report total
emissions. At the end of the compliance period, each source is required to surrender
allowances to cover each ton of CO2e emitted, or face penalties and fines. Each
emission source can design its own compliance strategy – emission reductions and
allowance purchases or sales – to minimize its compliance cost. And it can adjust its
compliance strategy in response to changes in technology or market conditions
without requiring government review and approval.
By allowing allowances to be bought and sold, an operator can seek out the most
cost-effective way of reducing its emissions, either by investing in 'cleaner'
machinery and practices or by purchasing C-credits from another operator. Trading
of C-credits between buyers and sellers establishes the market price per C-credit. If
it is cheaper for an emitter of greenhouse gases to buy a C-credit from another
company rather than controlling additional emissions, they will buy credits. A seller
will want to sell credits if they can reduce greenhouse gas emissions or sequester
additional C at a cost that is less than the price of the C-credit.
Baseline-and-credit system (Project Based Transaction):
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Baseline Emission Reduction trading systems are project-based, often incorporating
non-capped industries and entities. This type of system allows an entity to
voluntarily reduce emissions below an agreed baseline under business as usual. The
accreditation system is based upon the delta between two emission forecasts: with
and without the proposed project. The Clean Development Mechanism (CDM) relies
on such a mechanism.
Distinguishing Features of Cap-and-Trade and Baseline-and-Credit Systems
Features Cap-and-trade Baseline-and-credit
Exchanged
Commodity
Allowances Carbon Credits
Quantity
available
Determined by overall cap Generated by each new project
Market
dynamic
Buyers and sellers have
competing and mutually
balanced interests in
allowances trades.
Buyers and sellers both have an
interest in maximizing the offsets
generated by a project.
Sources
Covered
Usually high emitters such
as the energy sector and
energy intensive industries
As defined by each standard. Not
limited to just high emitting sectors.
Independent
third
Party
Minor role in verifying
emissions inventories
Fundamental role in verifying the
credibility of the counterfactual
baseline and thus the authenticity
(additionality) of the claimed
emission reductions.
Emissions
impact
of trade
Neutral, as is ensured by
zero-sum nature of
allowance trades.
Neutral, providing projects are
additional. Otherwise, net increase
in emissions.
Possible decrease in emissions in
the Voluntary market.
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2. MARKET STRUCTURE
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2.1 Kyoto Mechanism
2.1.1 Clean Development Mechanism (CDM)
2.1.1.1 Introduction
The Clean Development Mechanism was basically devised to support the
developed countries to fulfill their reduction commitments and also to help them
develop new technologies and methods for clean processes which would not only
reduce emissions but also help in the development of the developing economies.
CDM is defined in the article twelve of the Kyoto Protocol which states:
The purpose of the clean development mechanism shall be to assist Parties
not included in Annex I(developing countries defined in Kyoto Protocol) in
achieving sustainable development and in contributing to the ultimate
objective of the Convention, and to assist Parties included in Annex I in
achieving compliance with their quantified emission limitation and reduction
commitments under Article 3.
Under CDM
Countries not included in Annex I will benefit from project activities resulting
in certified emission reductions and Parties included in Annex I may use the
certified emission reductions accruing from such project activities to
contribute to compliance with part of their quantified emission limitation
and reduction commitments under Article 3, as determined by the
Conference of the Parties serving as the meeting of the Parties to this
Protocol.
The mechanism shall be subject to the authority and guidance of
the Conference of the Parties and be supervised by an executive board of the
clean development mechanism.
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Emission reductions resulting from each project activity shall be certified by
operational entities. Also the clean development mechanism shall assist in
arranging funding of certified project activities as necessary.
The COP shall be responsible for ensuring transparency, efficiency and
accountability through independent auditing and verification of project
activities. It shall ensure that a share of the proceeds from certified project
activities is used to cover administrative expenses as well as to assist
developing country Parties.
2.1.1.2 The Various Agencies, Boards and Panels Involved in the
CDM and their responsibilities are:
(i) Executive Board:
The Executive Board is has the responsibility of establishing committees,
panels or working groups to assist the performance of its functions. It
appoints the expertise necessary to perform its functions, including from
the UNFCCC roster of experts. It comprises people from different regions
so that proper importance is given to all the regions.
(ii) Designated National Authority : 1
As specified in the Kyoto Protocol every country
participating in the CDM must designate a national authority to authorize
the CDM project activity. In India the Designated National Authority
(DNA) is hosted by the Ministry of Environment and Forests (MoEF).
(iii) Designated Operational Entity : 2
It is one of the most important bodies as far as CDM is
concerned. It is basically either a domestic legal entity or an international
organization accredited and designated by the CMP, by Executive Board.
DOEs have been granted certain sectoral scopes (for instance, energy
distribution or chemical industry) in which they are allowed to operate. The
DOE checks that the project fulfils the requirements set forth by the UNFCCC,
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additionality being the most important issue. In March 2008, 13 companies
have received DOE status world wide of which 7 are operating in India.
Thus a DOE has two key functions:
It validates and subsequently requests registration of a proposed CDM
project activity which will be considered for its validation by EB.
It verifies emission reduction of a registered CDM project activity, certifies as
appropriate and requests the Board to issue Certified Emission Reductions
accordingly.
Current rules prevent DOE from performing validation and rectification on
the same CDM project activity. However, upon request the executive Board
may allow, as an exception, a single DOE to perform all these functions within
a single CDM project activity.
The other panels involved in the CDM trading mechanism are
Methodologies Panel (Meth Panel): It focuses on the assessment of
proposed new methodologies for baseline and monitoring .
Afforestation and Reforestation Working Group (AR WG): this working
group is responsible for the development of the procedures and modalities
for the approval of Afforestation & Refforestation methodologies and
projects. It works alongside Meth Panel.
Small-Scale Working Group: this group is concerned with small-scale
methodologies and projects.
Accreditation Panel: It works with EB and groups of experts in the
accredition of Operational Entities. They provide recommendations to the
CDM EB on accredition of an AOE, suspension of a DOE etc.
2.1.1.3 CDM Participation requirements:
The main issues are which are related to participation in the CDM are:
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1: The List of DNA of various countries is provided in the Exibit at the end.
2: The list of DOE around the world is provided in the Exibit.
Participation in a CDM project activity is voluntary.
Parties participating in the CDM shall designate a national authority for
the CDM.
A Party not included in Annex I to the UNFCCC may participate in a CDM
project activity if it is a Party to the Kyoto Protocol.
A Party is eligible to transfer and/or acquire CERs issued in accordance
with the relevant provisions, if it is in compliance with the following
eligibility requirements:
a) It is a Party to the Kyoto Protocol.
b) It has established its assigned amount (Annex B Parties only).
c) It has in place a national system for the estimation of anthropogenic
emissions by sources.
d) It has in place a national registry.
e) It has submitted annually the most recent required inventory (Annex B
Parties only).
f) It submits the supplementary information on the assigned amount.
Private and/or public entities may only transfer and acquire CERs if the
authorizing Party is eligible to do so at that time.
2.1.1.4 Scope of CDM projects:
There are 15 sectors as defined by CDM EB in which a CDM project activity can be
undertaken.
The scopes are relevant because there are specific DOEs which are accredited in a
certain sector. Also the baseline and monitoring methodologies are organized
according to these scopes.
The various sectoral scopes in which a CDM project activity can occur are:
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1. Energy industries (renewable - / non-renewable sources)
2. Energy distribution
3. Energy demand
4. Manufacturing Industry
5. Chemical Industry
6. Construction
7. Transport
8. Mining and Mineral Production
9. Metal Production
10. Fugitive emissions from fuels (solid, oil, gas)
11. Fugitive emissions from production and consumption of halocarbons and
sulphur hexafluoride
12. Solvent used
13. Waste handling and disposal
14. Afforestation and Reforestation
15. Agriculture
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2.1.1.5 CDM Project Cycle:
The CDM project cycle can be divided primarily into two phases, namely:
I. Pre Project Implementation (One Time)
II. Post Project Implementation (Periodic)
Overall it consists of eight steps which are:
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1. Project Identification:
The CDM-project starts with a project identification phase. The parties keen
to promote the project activity, referred to as the Project Proponents (PPs),
should formulate a Project Ideal Note (PIN). This PIN is often referred as
Project Concept Note (PCN) in India. It should contain all the essential
elements of CDM-project. The UNFCCC does not provide any official PCN
guideline, but the DNA has its own PCN-template and the PP has to use the
same. The official CDM-cycle laid out by the UNFCCC does not formally
require the formulation of any kind of document in the project identification
phase, but the DNA requires it later. It is also a useful tool for the project
proponents when in dialogue with potential stakeholders such as CER buyers
and project financiers.
Generally CDM consultants are hired by the parties to develop a CDM project.
In India particularly 90% of CDM-projects so far have involved one.
2. Project Design:
The complete product of this phase is Project Design Document (PDD), in
which the PP has clearly and concisely described the intended project
activity.
The PDD includes the following elements:
General description of the project activity.
Application of a baseline methodology.
Starting date and durartion of the project activity/Crediting period.
Application of a Monitoring methodology and plan.
Estimation of GHG emissions by sources.
Environmental impacts.
Stakeholder Comments.
In case the Project Participant is not using an approved methodology it can
submit a new methodology. Which has to be approved by the EB first.
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3. Host Country Approval:
After the PDD is deemed satisfactory, the PP has to submit both PCN and
PDD to the host country DNA to apply for approval for the project. The
Indian DNA requires both the PCN and the PDD, even though the official
UNFCCC’s endorsed process requires only the PDD. The host country
approval process includes a hearing of the project proponents and an in-
depth analysis of the project by the DNA and other consultants. The DNA
holds these hearings on a monthly basis and it can approve over twenty
projects per session. It looks for two things in the project, its additionality
and whether it promotes sustainable development or not. There are three
dimensions for sustainable development: financial, environmental and
social. Additionally, in the country the project needs to be approved by the
local State Pollution Control Board (SPCB), before it can be submitted to the
DNA. For unilateral projects, the HCA is enough but for bilateral projects, the
PP should acquire an approval letter from the DNA of the CER buyer’s
country. However, that has to be done only at the stage when the PP
requests the CDM EB to transfer the CERs to the buyer.
4. Validation:
It the process in which independent evaluation of a project activity by a DOE
is done against the requirements of the CDM, on the basis of PDD. The
typical duration for the project validation phase ranges from 8 to 13 weeks.
Out of other things which a DOE looks for Addtionality (A project activity is
expected to result in a reduction in emissions of GHGs that are additional to
any that would occur in the absence of the proposed project activity).
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In case a new methodology has to be developed for the project, it has to be
approved by the CDM methodology panel. In this case, the validation phase
will take an additional 3–12 months. It also checks whether the Provisions
for monitoring, verification and reporting are in accordance with relevant
decisions of the COP. A written approval constitutes the authorization by a
designated national authority (DNA) of specific entity(ies)’ participation as
project proponents in the specific CDM project activity. Multilateral funds do
not necessarily require written approval from each participant’s DNA.
However those not providing a written approval may be giving up some of
their rights and privileges in terms of being a Party involved in the project.
Following a successful validation, the project proponents can apply for
project registration.
5. Registration:
Registration is the formal acceptance by the EB of a validated project as a
CDM project Activity. During the registration phase, the DOE submits all
necessary documents to the CDM EB and requests project registration. For
projects generating more than 15,000 tonnes of CO2e on average per year,
an administration fee of 0.164 Euros per CER is collected by the EB. The
registration fee is an advance payment for the reductions achieved during
the first year. The registration decision is made by the CDM Executive Board.
In case of rejection of a project, the costs of a review (estimated at 4500
USD) shall be borne by the DOE if it is to be found in the situation of
malfeasance or incompetence. The EB will bear the costs if the project is not
rejected.
6. Monitoring:
After the project is registered and starts functioning the job is not all done
then comes the responsibility of monitoring the project. It consists of three
things:
Monitoring Plan:
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Monitoring of a project is done according to the monitoring plan. The
monitoring plan is a part of the PDD which is based on a previously
approved monitoring methodology or a new methodology which is
submitted with the PDD and approved by CDM EB. It is a collection of all
relevant data during the crediting period. The identification of all potential
sources of GHG emissions, and the collection as well as archiving of data on,
increased GHG emissions outside the project boundary that are significant
and reasonably attributable to the project activity during the crediting
period; Documentation of all steps involved in the calculations. It also
consists of data necessary for the assessment of environmental impacts of
the project, quality assurance and control procedures etc.
Implementation:
The PP should give the monitoring plan contained in the registered PDD.
The DOE then verifies the data.
Report:
The DOE after verification prepare a report in accordance with the
monitoring plan for further verification and certification.
7. Verification and Certification:
Verification is the periodic independent review and ex post determination
by DOE of the reductions in GHG emissions that have occurred as a result of
the CDM project during the verified period.
Certification is the written assurance by the DOE that, during a specified
time period a project activity achieved the reduction in GHGs as verified.
Finally the DOE reports the results to the CDM EB. The same DOE cannot
take care of both the validation and verification work unless it is a small
scale CDM project. The certification report that the DOE prepares shall
constitute a request for issuance of CERs equal to the verified amount of
reductions of GHGs to the CDM EB.
For the verification the DOE must check PDD, go for onsite inspection. It
should check that the methodologies are followed correctly or not. Also
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recommend changes to the monitoring methodology for any future crediting
period, if necessary.
8. Issuance:
The final stage where the CDM EB issues a certified number of CERs within
15 days of receival of a request for issuance. The CDM EB deducts its own
fee from the issued CERs, as described in the registration phase.
2.1.1.6 Duration of the project activity / Crediting period
Project participants have to select a crediting period for a proposed project
activity from one of the following alternative approaches:
A maximum of seven years which may be renewed at most two times
(maximum 21 years), provided that, for each renewal, a DOE
determines and informs the CDM EB that the original project baseline
is still valid or that it has been updated taking account of new data
where applicable; or
A maximum of ten years with no option of renewal.
The starting date and length of the first crediting period has to be
determined before registration.
2.1.1.7 Registration fees & Share of Proceeds Admin (SOP)
COP/MOP 1 consequently agreed to initially set the SOPs at:
(a) USD 0.10 per certified emission reduction issued for the first 15,000
tonnes of CO2 equivalent for which issuance is requested in a given calendar
year;
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(b) USD 0.20 per certified emission reduction issued for any amount in
excess of 15,000 tonnes of CO2 equivalent for which issuance is requested in
a given calendar year;
Registration Fees:
For projects over 15,000 ton CO2 equivalent a registration fee of US$
0.20 per CER issued is being charged with a cap of 350,000 USD. In
the event that the project fails to get registered after a request for
registration the moneys paid in excess of US$ 30,000 would be
reimbursed to the project developer.
No registration fee has to be paid for CDM project activities with
expected average annual emission reduction over the crediting
period below 15,000 t CO2 equivalent.
Since the Board agreed that the registration fee would be an advance
payment on the SOP it also agreed that the registration fee shall be deducted
from the share of proceeds for administrative expenses for the emission
reductions achieved during the first year.
2.1.1.8 Types of CDM Projects:
The CDM projects can be divided on the basis of cooperation with
financers can be divided into three forms:
Unilateral: The industrial party in the non-Annex I country can execute the project
activity all by itself.
Bilateral: In this case a party from the Annex I country takes part in the project
through funding the project which in most of the cases is CER buyer himself. The
share of CDM financing from the CER buyer can vary from 1.5% in power generation
to 100% in municipal projects, but in general it is less than 10%.
Multilateral: Multilateral projects can be seen as bilateral projects where a third
party takes care of the finance.
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2.1.1.9 Markets for CDM:
There are basically two types of markets for the CERs issued from the projects.
Primary Market
Secondary Market
The primary CER market is the one in which there is transaction between the project
developer and investor. It is the transaction that carries the CER into the international market.
The contract to transfer ownership of a CER from seller to buyer is known as an Emissions
Reduction Purchase Agreement (ERPA). As the initial CDM contract is much like project
finance, ERPAs vary from case to case. But it does depend on the risk involved with the
project.
The secondary markets are the ones where the CERs are traded like EU ETS or CCX where it
is bought by the firms who will submit it to meet their targets. The buyers for this more
expensive, low-risk secondary CER tend to be European companies that face their specific
target under the EU ETS.
2.1.1.10 The overall advantages and disadvantages of CDM projects
can be stated as:
Advantages:
Better technologies for the firms which are registered into the projects.
Technology transfers from the developed countries to the developing one
enhance the development. The CDM funds can be channelized into building
or improving projects, thus reinvesting it for higher growth.
Development of cleaner technologies leading to sustainable development
where countries have a strategic advantage from now in terms of pollution.
At last but not the least, environmental benefits due to lesser GHG emissions.
Disadvantages:
Some critics who are not in favor of this mechanisms support their views by:
They say that it is provision of cheapest way of purchasing climate
destroying right.
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CDM investments can effect national development strategies, possibly
adversely in the decision making process. Like in the case long term
contracts, the CDM may not provide incentives for financing long term
development projects and strategies.
It may even not assist long-term strategies as the time frame is just till 2012.
The developed countries in some way or other are polluting the environment
of the world. So the whole idea of UNFCC and IPCC seems to be defeated.
2.1.1.11 Some statistics Related with CDMTotal numbers of projects registered under CDM are 1329 out of which the maximum numbers of projects (385) are in India, which is around 28.97% of the world. The diagram below gives a breakup of the number of projects among different countries of the world.
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Region Number of projects
Non Annex I(NAI)-countries Africa(AFR) 29
Non Annex I(NAI)-Asia and the Pacific (ASP) 977
Non Annex I(NAI)-Other 8
Non Annex I(NAI)-Latin America and the Caribbean(LAC) 396
From the above figure we can see that the Asian countries are really enchasing the CDM opportunities.
If we look at the number of projects from the investor’s pint of view UK is the largest investor having 30.01% share and EU as whole had around 40% of projects registered.
Each and every sector which is included under CDM in Kyoto Protocol is participating in the market opportunities of CDM if we see the breakup of the number of projects under every sector we will see that the energy sector by employing better technologies are not only reducing the emissions but even earning money, the most.
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By the size of the industry that is large or small scale projects we can see that both have equal proportion that means all types of industries are equally interested in investing into CDM projects.
Talking about DNAs the most number of DNAs are found in Non Annex I African countries which clearly shows that the whole purpose of CDM in turn the Kyoto Protocol is being fulfilled judiciously. The most number of countries involved in CDM projects are from Africa which needs development on a large scale.
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The diagram below, gives an overall picture of participating parties and DNAs.
Now looking at the market conditions as to how the market is performing which can be done by looking at the number of CERs issued. The total number of CERs issued is 260,483,736 which are around 96% of the total CERs requested. If the price of one CER is considered to be $8 then the worth of more than 2 billion has been done.
Title Number of CERs
Issued CERs 260,483,736
Total CERs Requested
270,159,174
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Looking at the breakup we see that CERs are being traded primarily through primary market and the HFC sector is producing the most number of CERs uptil now.
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Source: IEA Website
From the above diagram we can see that the number CERs being issued by china are the most, but India is not far behind. Hare one thing is notable, that though most number of projects is in India but the number of projects as compared to china is very low, one of the reasons behind this is that India has not yet issued the CERs and preserving it for selling it till 2012.
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2.1.2 Joint Implementation (JI)
Introduction
Joint Implementation (JI) is effectively an alternative project-based mechanism for
trading emissions between countries with a cap. Instead of directly purchasing
emission rights, i.e. assigned amount units (AAUs), a country gains emitting permits
through funding a part of a project activity which reduces greenhouse gas (GHG)
emissions or enhances removals by sinks. These emissions savings are measured in
tons of CO2 equivalent, which are credited with emission reduction units (ERUs)
after the actual emission reductions have been verified. An equivalent amount of
tons is deducted from the cap (the Assigned Amount) of the host country, and added
to the cap of the buyer country through the transfer of ERUs. The countries hosting
JI are mainly economies in transition (EITs) – countries of the former Soviet block –
which can provide cheaper emission reductions than the majority of the OECD
countries as a result of the inefficiency of their economies. There are also several
cases of OECD counties hosting JI projects, which are discussed in the study. While
the value of ERUs generated will generally not cover the investment costs of a
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project, it does provide an added incentive to invest in certain project types and this
in a competitive market can be a decisive factor in investment decisions.
Emission reductions are calculated by creating a baseline which is a forecast of the
future emissions in the absence of the project, and a project scenario based on the
measurement of the emissions after the project has been implemented. Article 6 of
the Kyoto Protocol enables Annex 1 Parties i.e. developed countries to agree to
jointly undertake emissions, with credits arising from cross border investments
transferred between them.
INSTITUTIONAL BASIS AND GUIDELINES
Eligibility and Tracks
To be eligible under the Kyoto Protocol, a JI project must have the approval of all the
Parties involved, i.e. the governments of the host country and of the buyer countries,
and lead to emission reductions that would not have occurred without the project.
Participating countries must have a cap under the Kyoto Protocol, i.e. a reduction or
stabilization obligation under the Annex B. The Marrakech Accords facilitate two
tracks for JI depending on the ability of the host and buyer countries to comply with
the UNFCCC GHG emission reporting requirements:
• Track 1 is open to countries that can fully account for their GHG emissions and
movements of units in their registry. It allows the host country government to
decide which projects qualify and issue ERUs without third party interference.
• Track 2 requires projects to be evaluated by the Joint Implementation Supervisory
Committee (JISC) supported by the United Nations Framework Convention on
Climate Change (UNFCCC) Secretariat and allows implementing JI projects when
Track 1 eligibility criteria are not met. Which countries are eligible for Track 1 or
Track 2 projects is decided by the Compliance Committee of the Kyoto Protocol
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based on the reports by the international expert teams, which check the fulfillment
of the six eligibility criteria, set out by the Marrakesh Accords. Since in both Track 1
and Track 2 JI the ERUs are transferred out of the national registry rather than from
the UN-administered registry like in the Clean Development Mechanism (CDM), the
first three basic eligibility requirements concern the ability of the country to
transfer units out of its registry, and form the basis of Track 2 eligibility:
• The host country is a Party to the Kyoto Protocol;
• It has calculated its Assigned Amount;
• It has in place a national greenhouse gas registry.
A country wishing to implement JI under its own rules, or to acquire Kyoto credits
(ERUs, Certified Emission Reductions (CERs), or AAUs), or to sell AAUs has to
demonstrate – in addition to the above - its ability to account for its emissions and
has to report the movements to the units in its registry. Thus fulfillment of three
additional criteria is required for Track 1 eligibility:
• The Party has in place a national system of greenhouse gas inventories;
• It has submitted the most recent required inventory, national inventory report and
the common reporting format; and
• It has submitted supplementary information on Assigned Amount.
Specific guidelines and rules adopted by the Conference of parties (COP) and CMP
decisions govern the application of the criteria on the basis of which the eligibility is
established. In addition to the eligibility requirements listed above, any Annex I
country wishing to participate in a JI project (concerns both host and investor
countries) must notify the UNFCCC secretariat about its Designated Focal Point
(DFP) and submit its national JI approval guidelines and procedures in order to be
eligible to utilize JI (both Track 1 and Track 2). Table below summarizes the
eligibility requirements under JI.
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Source: Adapted from JI Track 1/Track 2 eligibility in Eastern Europe, Point Carbon,
2007.
The JI Supervisory Committee was established by the Conference of Parties /
Meeting of Parties (COP-MOP) 1 in Montreal in December 2005 to fulfil the
requirement of the UN oversight over Track 2 approval. The JISC had its first
meeting in 2006 and since then has convened twelve times in total. JISC has an
Accreditation Panel for accrediting Independent Entities (IEs) operating as third-
party verifiers under JI, but not a Methodology Panel like in the CDM.
In the case of Track 1 the verification procedure under the JISC is not mandatory.
The host country can follow its own national guidelines and procedures for the
approval of JI projects, verification of the emission reductions, and transfer of ERUs.
Additionality
Additionality is a requirement for JI projects, as the Kyoto Protocol states: ‘Any such
[JI] project provides a reduction in emissions by sources, or an enhancement of
removals by sinks, that is additional to any that would otherwise occur’. When the
ERUs are transferred to another country’s account, the Kyoto cap of the seller
country is reduced because for every ERU transferred one AAU is cancelled during
conversion. But at the same time, an additional JI project generates emission
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reductions which would be reflected in the reduced national emissions. Thus, an
equivalent amount of AAUs is freed up in the national account, and the amount of
AAUs under the cap remains the same. If the project is not additional, no AAUs are
freed on the national account to replace those transferred, and thus the amount of
available permits under the cap is reduced. As most EITs have a surplus rather than
a shortage under the national cap, any such loss can be offset by the available
surplus, creating concerns that there is no incentive to ensure additionality. Some
projects which are regarded as additional might have materialized in any case, but
the sales of ERUs could have provided the incentive to implement the project earlier
than business as usual. In practice, additionality is a vague concept and difficult to
apply in the case of a transition economy which is undergoing a period of rapid
growth and change. Some project developers argue that a project design document
(PDD) consists of the ‘science’ of baseline and the ‘art’ of additionality. Many
projects are superficially attractive according to the Western economic logic. For
instance the lack of capital availability can distort the seemingly profitable
modernization activities. Indeed, it could be argued that the general Western market
logic does not always apply. Additionality rules and tests would work better in an
established market economy than in a transition economy where the rules of the
game remain unclear and where personal relations or practices from the previous
economic system can have a significant impact on decision making.
Full Track 1 compliance could solve most additionality problems as no external
verification of project is required under full compliance, and consequently, buyer
and host have more flexibility to decide between them on what constitutes
additionality. Some project developers are also skeptical of the concept of
additionality because of this. Should Track 1 become the track of choice for buyers
and sellers, some have argued that JI might actually turn out to be more like
international emissions trading under the Kyoto Protocol which allows trading
AAUs without links to projects.
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Rules for crediting
For crediting under JI the main requirements as defined by the Marrakech Accords
include the following:
- Additionality of the project,
- Only emission reductions generated between 2008-2012 can be credited with
ERUs,
- The project has not commenced prior to 2000 and
- The project involves no nuclear power.
Within this framework, the project participants can choose whether crediting
should begin when the project starts generating emission reductions or after that.
2.1.3 International Emission Trading
Greenhouse gas emissions – a new commodity
Parties with commitments under the Kyoto Protocol (Annex B Parties) have
accepted targets for limiting or reducing emissions. These targets are expressed as
levels of allowed emissions, or “assigned amounts,” over the 2008-2012
commitment periods. The allowed emissions are divided into “assigned amount
units” (AAUs). Emissions trading, as set out in Article 17 of the Kyoto Protocol,
allows countries that have emission units to spare - emissions permitted them but
not "used" - to sell this excess capacity to countries that are over their targets. Thus,
a new commodity was created in the form of emission reductions or removals. So
according to this carbon is now tracked and traded like any other commodity.
Other trading units in the carbon market:
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More than actual emissions units can be traded and sold under the Kyoto Protocol’s
emissions trading scheme. The other units which may be transferred under the
scheme, each equal to one tonne of CO2, may be in the form of:
A removal unit (RMU) on the basis of land use, land-use change and forestry
(LULUCF) activities such as reforestation
An emission reduction unit (ERU) generated by a joint implementation
project
A certified emission reduction (CER) generated from a clean development
mechanism project activity
Transfers and acquisitions of these units are tracked and recorded through the
registry systems under the Kyoto Protocol. An international transaction log ensures
secure transfer of emission reduction units between countries.
The commitment period reserve:
In order to address the concern that Parties could “oversell” units, and subsequently
be unable to meet their own emissions targets, each Party is required to hold a
minimum level of ERUs, CERs, AAUs and RMUs in its national registry. This is known
as the “commitment period reserve.”
II.2 Emission Trading Market
Various Emission Trading Schemes exist inside and outside the scope of the Kyoto
Protocol. These trading schemes are part of the commitment of States
or companies to reduce their GHG emission. As article 17 of Kyoto protocol makes it
clear that emissions trading "shall be supplemental to domestic actions" as a means
of meeting the targets established for the Annex I parties and thus domestic
emission trading market has been created. These trading schemes are based on
“Emission Allowance”, wherein there are fifty Annex-I countries who have been
assigned certain emission unit (allowances). The assigned amount for any Annex I
party can be calculated from its emissions reduction target specified under Annex B
of the Kyoto Protocol. For example, the "assigned amount" for Japan is calculated by
multiplying the total emissions of the Japanese target under Annex B (6 per cent
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below 1990 US net emissions) by 5 (for the five years of the commitment period:
2008-2012). These member countries, under their National Allocation Plans (NAPs)
assign these units to different industries. If the units (of carbon or other ghgs)
emitted by an entity are more than units assigned to it, that entity will have to buy
the extra units to meet the target committed. Similarly, if the units emitted are less
than the assigned quantum, the spare units could be sold internationally.
Source: IETA
Presently the following schemes are effective or are being developed:
1. United Kingdom Emission Trading Scheme (UK ETS)
2. European Union Emission Trading Scheme (EU ETS)
3. New South Wales Abatement Scheme (Australia)
4. California Climate Change Register
5. Chicago Climate Exchange (CCX)
And there carbon instruments are Assigned Amount Units (AAUs) and European
Allowances Units (EAUs).
1. United Kingdom Emission Trading Scheme (UK ETS): The UK Emissions
Trading Scheme commenced in April 2002, and was the first cross-industry,
national greenhouse gas emissions trading scheme in the world. It is a key
component of the Government’s Climate Change Programme, which sets out how
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the UK intends to meet its Kyoto Protocol Commitment of a 12.5 per cent reduction
on 1990 levels of emissions of all greenhouse gases by 2008-12. Under the scheme,
Companies could chose to enter the scheme either through a timed auction as a
direct participant (DPs) with absolute targets to deliver 11.88 million tones of
emissions reductions throughout the life of the scheme in return of a financial
incentive provided by the government totaling £215m which sets a nominal carbon
price (price x bids = 215 million fund), as 34 companies chose to do, or through
Climate Change Levy Agreements (CCAs) as the agreements have been negotiated
with some 40 industry sectors, covering 6,000 companies and effectively providing
'automatic entry' to the UK ETS. These negotiated agreements between business
and Government set energy-related targets. Companies meeting their targets will
receive an 80% discount from the Climate Change Levy, a tax on the business use of
energy. Climate Change Agreement companies can use the UK Emissions Trading
Scheme either to buy allowances to meet their targets, or to sell any over-
achievement of their targets. This scheme has run till December 2006 with final
reconciliation in March 2007. The fifth year (2006) results show that Direct
Participants have achieved emissions reductions of over 7.2 million tCO2e against
their baselines since the start of the scheme in 2002.
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Source: Point Carbon
2. European Union Emission Trading Scheme (EU ETS): The EU Emissions
Trading Scheme (EU ETS) started in 2005, with the phase I running from January
2005 to December 2007 called as Pilot phase, covers around 40% of EU’s CO2
emissions with 12,000 installations across the 25 Member States of the European
Union in Power generation, iron & steel, glass, cement, ceramics, paper industries.
This phase links to CDM. The phase II starts from January 2008 to December 2012
with tighter caps and including other sector e.g. domestic and transport sectors.
This phase links to JI. The phase III will commence on January 2013 to December
2017. Unit of Trade is called “EU Allowance”.
The EU ETS is a cap-and-trade system on the idea that creating a price for carbon
through a market-based system provides the most cost-effective way for EU
member states to meet their Kyoto obligations. EU Member States define their
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emission cap in the National Allocation Plans (NAPs) on which the number of
allowances given to installations covered by the scheme will be based, around 2.2
billion tonnes of allowances issued pa. Allowances traded in the EU ETS will not be
printed but held in accounts in electronic registries set up by Member States. All of
these registries will be overseen by a Central Administrator at EU level who,
through the Community independent transaction log, will check each transaction
for any irregularities. The Community Independent Transaction Log (CITL) records
the issuance, transfer, cancellation, retirement and banking of allowances that take
place in the registry. In this way, the registries system keep track of the ownership
of allowances in the same way as a banking system keeps track of the ownership of
money.
Although due to the grossly over allocation of the pollution credits by several
member states in the initial implementation phase, forcing carbon prices down to
2/3 of its value and undermining the scheme's credibility. In early May 2006, the
outlook for the EU ETS prices for 2008-2012 rebounded to around €20-24 as the
market focused on the likelihood of tighter compliance caps in EU ETS Phase II,
reflecting the commitment of Member States to meeting their Kyoto Protocol
targets. Also there is a fine of 40 euro for each excess tonne which rises to 100 euro
in 2008.
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Source: European Emission Trading Association
3. New South Wales Abatement Scheme (Australia): In 2003, the New South
Wales (NSW) Government introduced an emissions trading scheme building on an
existing emissions benchmarking program in connection with electricity retailer
licensing conditions i.e. Power sector. It is one of the first mandatory greenhouse gas
emissions trading schemes in the world. The benchmark system requires electricity
retailers to reduce annual emissions from 8.65 to 7.27 tonnes C02 equivalent per
capita. All six GHGs expressed as units of one tonne of CO2 are covered. They can
achieve these targets by offsetting their liability with credits created from
renewable energy and low emission generation, tree planting and energy efficiency.
Each participant has a benchmark obligation assigned to their operation, and will
have to submit emissions accounts equaling their target each year. According to the
supply electricity amendment act 2002, a State greenhouse gas benchmark,
expressed in tonnes of carbon dioxide equivalent (CO2-e) per capita, has been set.
The initial level was set at the commencement of GGAS in 2003 at 8.65 tonnes. The
benchmark progressively drops to 7.27 tonnes in 2007 which represents a
reduction of five per cent below the Kyoto Protocol baseline year of 1989- 90. The
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per capita amount continues at this level until 2021. And the expected reduction of
CO2e is around 108% of the 1990 level as per the Kyoto protocol till 2012. NSW
Government has also committed to reduce greenhouse gas emissions from 158.2
million tonnes (2005 level) to 63.3 million tonnes by 2050.
Source: NSW
The Independent Pricing and Regulatory Tribunal are responsible for license and
monitoring. There will also be independent verification of credits from carbon
sequestration, and an audit of the carbon sequestration methodology every two
years. The system will operate with a financial penalty of up to, but not higher than,
AUS$15 (about US$8.5) per tonne of excess tonne CO2e emitted.
4. California Climate Change Register: The California Climate Action Registry is a
private non-profit organization originally formed by the State of California. The
California Registry serves as a voluntary greenhouse gas (GHG) registry to protect
and promote early actions to reduce GHG emissions by organizations. The California
Registry provides leadership on climate change by developing and promoting
credible, accurate, and consistent GHG reporting standards and tools for
organizations to measure, monitor, third-party verify and reduce their GHG
emissions consistently across industry sectors and geographical borders.
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5. Chicago Climate Exchange (CCX): CCX is a self-regulatory exchange that
administers the world's first multi-national and multi-sector marketplace for
reducing and trading greenhouse gas emissions. CCX represents the first voluntary,
legally-binding commitment by a cross-section of North American corporations,
municipalities and other institutions to establish a rules-based market for reducing
greenhouse gases.
CCX is a cap and trade system whose Members make a legally binding emission
reduction commitment. Members are allocated annual emission allowances in
accordance with their emissions Baseline and the CCX Emission Reduction Schedule.
Members who reduce beyond their targets have surplus allowances to sell or bank;
those who do not meet the targets must comply by purchasing CCX Carbon Financial
Instrument (CFI) contracts.
In Phase I (years 2003-2006), Members committed to reduce emissions a minimum
of 1% per year, for a total reduction of 4% below Baseline. In Phase II, CCX Members
commit to a reduction schedule that requires year 2010 emission reductions of 6%
below baseline at minimum.
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Source: Climate Registry organization
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3. MARKET DYNAMICS
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The World Carbon market has started from essentially nothing to have become a
major business. Carbon trading has raised $14 billion in renewable energy
investment in developing countries between 2002 and 2006. The global carbon
trading market was worth an estimated $30 billion in 2006, a 200 % increase from
2005.
The global carbon market in 2008 grew substantially both in terms of volume and
value, fading the current downturn which has depressed most of the industries
globally. Overall, 2008 saw 4.9 billion tonnes (gigatonnes or Gt) of carbon dioxide
equivalent (CO2e) being traded, up 83% as compared to 2007, (according to a
recent report - Carbon Market Monitor - released by Point Carbon).
The whole market’s total value for 2008 was estimated at US$125bn, which showed
around 119% growth from 2007.
Talking about each market separately the EU ETS was the leader which accounted
for 2/3 of the total carbon market by volume and 75% by volume. The major
transactions were again through the different exchanges.
In the CDM segment of the market transactions worth $32bn took place, and around
1.6 Gt CO2e was traded. Of which around 70% of them was traded through
secondary markets. Overall the CER market was up by 70% from 2007 figures.
With such a huge growth already and a huge potential ahead let us have look at the
demand side and supply side of the market and also how the pricing of these
commodities done does and what are the factors affecting them.
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Deal structures prevailing in the carbon market:
3.1 Demand Side
As emissions trading is making its way into greenhouse gas emissions policies
throughout the world, project-based mechanisms are playing a significant role in
how governments and the private sector are planning to reduce emissions. And in
the process, major financial institutions, energy companies, and technology
developers are committing billions of dollars to enter the growing carbon market.
The private sector is primary driver for the demand for project-based credits, i.e.,
the CDM and JI. European and Japanese companies are investing heavily and guiding
the demand to offset their domestic programs in the comply period. It is estimated
that in the high case scenario, the demand from the private sector could reach 300
million tonnes per year.
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SPOT Forward (full recourse -guaranteed delivery)
Forward (without recourse -Non guaranteed delivery)
• Most popular in
India
• Delivery in 3 -25
days and
immediate payment
• Sellers assumes full
market risk on CER
prices
• Preferred by
brokers
Agreement to deliver
CERs until 2012*
• Variable volumes &
delivery dates
• Payment upon delivery
of CERs
• Most popular in China
• Low risk low return
• Stable price over the
contract period
• Firm delivery date &
Firm
CERs volume
• Premium up to 30%
• No force majeure
Over 1,500 projects are under development, with significant success in Asia and
Latin America. CDM and JI processes are moving up the learning curve, and price
signals have stimulated interest from developing countries and project developers.
As of April 1, 2008 1,783 CDM and 156 JI projects were at various stages of
development in 68 countries. The number of projects is rising by the day, with the
potential to generate over 2.1 billion certified emission reductions and emission
reduction units by 2012. (Source: Point Carbon)
Buyers:
The typical buyers in the carbon markets both compliance and voluntary are:
European private buyers interested in EU ETS:
They dominated the CDM and JI market for compliance and at the close of
2007, their market share reached almost 90% (up from 2006).
Government buyers interested in Kyoto compliance:
Like EU-15 Member States are buying large amount of CO2e through CDM, JI
and AAUs. Even the Government of Japan is planning to buy huge amount of
credits to fulfill their commitments. The remaining industrialized Annex B
governments like those of Australia, Liechtenstein and Monaco, New Zealand,
Norway etc. are even buying the credits to fulfill their targets.
Japanese companies with voluntary commitments under the Keidanren
Voluntary Action Plan (which though a voluntary initiative is fully integrated
into the Government of Japan Kyoto Target Achievement Plan). Japan with its
market share nearly doubling from 6% to 11% market, with both public and
private sector intensifying their activity.
A number of intermediaries:
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A large amount of aggregators, trading houses, compliance funds and banks
(the latter entered the carbon market massively in 2007). Investment and
retail banks have started to issue notes with payouts based on the future
prices of carbon credits (i.e., investors get higher returns on coupons with
increase in carbon prices). These bonds are targeted to retail and
institutional clients seeking climate friendly investments.
Asset managers (investors, carbon funds, hedge funds), investing in a
new commodity market, also relatively recent entrants to the carbon market.
U.S. multinationals operating in Europe or Japan or preparing for the
Regional Greenhouse Gas Initiative (RGGI) in the Northeastern U.S. States, or
anticipating California Assembly Bill 32 which would establish a state-wide
cap on emissions.
Powers retailers and large consumers regulated by the New South
Wales (NSW) market in Australia and North American companies with
voluntary but legally binding compliance objectives under the Chicago
Climate Exchange (CCX).
CER Purchasers
CER purchasers can be divided into two groups: public and private CER purchasers.
The private CER purchasers can be further divided into traders and end-users, while
the public purchasers can be divided into governmental and multinational
organizations. The public CER purchasers are the various governmental purchasing
organizations, the most active ones being Japanese, Canadian and German
organizations. In the private sector, British broker companies have been active, and
they have organized tours with several potential purchasers visiting different areas
to find suitable projects. Cumulatively since 2002, EU buyers have accounted for
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nearly three-fourth of the primary CDM and JI market since 2002, while Japan has
accounted for about a fifth.
The basic buyers’ structure of CDM market can be shown through the following table.
Active CER Purchasers in India
Organization Type
Examples
Governmental purchase organizations
Japan Carbon Fund, UK DEFRA's CCPO,
Italy, Spain, Netherlands, Canada,
Austria, Portugal, Germany, France,
Belgium, Sweden
Multinational organizations World Bank
Brokers/Traders
Ecosecurities, CO2.com, Natsource, Akzo
Nobel, Barclays, HSBC, Pointcarbon,
Rabobank, Morgan & Stanley.
End-users Endesa,EDF, E.ON, Mitsubishi, Sony,
Reco, Kyoto Electric, Kepco, Depco, Shell
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Due to the extreme growth shown in the last few years and the potential to grow World
Bank in its report on Carbon Market has tried to project the demand of credits till 2012.
The below table has been derived from that report itself. It clearly shows the high demand
potential that is awaiting to be trapped from all over the globe.
Potential Demand from
Developed Countries (2008-12)
Country or entity
KMs
demand(MtCO2e)
EU 1940
gov't (EU-15) 540
private sector(EU ETS) 1400
P&Ms (200)
Japan 450
GoJ 100
private sector 350
additional demand (200)
Rest of Europe & New Zealand 45
gov't 20
private sector 25
(Norway and NZ ETSs) additional
demand (20)
Australia 0
Total 2435
Government 660
Private Sector 1775
additional demand (420)
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3.2 Supply Side:
The supply side of the market primarily consists of the developing countries. China
till now has clearly dominated the supply side of the market. It had a market share
of 73% in 2007 as compared to 54% in 2006. The primary market is still playing a
dominating role in the selling of CERs. In 2007 62% of primary CER supply so far
under contract. It is being estimated that the global carbon market will be worth 2
trillion pounds till 2020. And Asia’s role in global carbon trading will be prominently
that of a seller. These estimates largely rely on estimates of the observed “yield” of
issued CER from the emission reductions initially projected in Project Design
Documents (PDD) for projects in the pipeline.
Looking at the market reports of 2007 we can see that China still remains the
favorite destination for buyers of credit, who site its large size, economies of scale,
and its favorable investment conditions. China in order to continue its leading
position increased the number of CDM projects by nearly four times from January
2007 to March 2008 also pulled ahead of India in the number of projects.
India and Brazil :
Were the two second largest sellers with 6% market share, which was drop in the
levels from that of 2006. With CER issuances gradually ramping up and the market
infrastructure for spot CER transactions being operational; one could reasonably
expect higher volumes of spot primary transactions reaching the market in the
coming years. This may also indicate an inclination away from the conventional,
standalone ERPAs from the past, with implications for their value as project finance
instruments. Indian prospects look very bright with the emerging market. India is
considered to claim about 31% of the total world carbon trade, which can give
$25bn by 2010.
Africa had a share of 5%. A number of countries entered into the selling business for
the first time, particularly in Sub Saharan Africa and Central Asia and transacted
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volumes grew several-fold in a number of other countries, most notably in Malaysia
and Indonesia. Although they account for a much smaller share of the primary CDM
market, some countries in Africa (Kenya, Uganda, Nigeria), Asia (Malaysia,
Philippines, Thailand) as well as in Eastern Europe and Central Asia (Uzbekistan),
reported sharp increases in transaction volumes. Projects in Africa have contracted
to supply about 50 MtCO2e to the market so far, with more than 20 MtCO2e
transacted in 2007 alone.
The following diagram gives a picture of CERs traded by volume in 2007.
In JI trading it was Russia and Ukraine who topes the charts. Their transactions
tripled in volumes through 2007. This growth was primarily due to the EU policies
which restricted the growth of JI in that region. Hence the growth in the JI pipeline
occurred almost entirely in Russia and Ukraine which now account for 69% and
21% respectively of the project pipeline of expected 2012 supply.
The potential of the carbon market is clearly visible from the growth which it has shown
in the last two to three years. The world bank in its report on the market has tried to
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Data Source: State and Trends of Carbon Markets 2008.
project the potential supplies of the CERs and EUAs and other trading instruments till
2012 which can be seen from the table below which has been derived from the from that
report. It shows the potential various countries are having and going to have in the future.
Potential Suppliers (2008-2012)
Potential Surplus
of AAUs (MtCO2e)
Russian Fed 3330
Ukraine 2170
EU 1720
Other EITs 85
Total 7350
Potential CDM and JI Outputs (MtCO2e)
CDM 1600
JI 230
TOTAL 1830
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3.3 The Carbon Price
There is not one single price in the global carbon markets, but many. The reason for
this is that the tradable instruments each have different risks and usability which
has led to a fragmented price. There are 5 main types of emission reduction
certificate available:
Certified Emission Reductions (CERs)
Emission Reduction Units (ERUs)
Voluntary Emission Reductions (VERs)
EU-Allowances (EUAs)
Assigned Amount Units (AAUs)
In order to assure the highest quality certificate quality, various additional
standards can be applied. Currently one of the most well-known and strict
standards for implementation of JI, CDM and VER projects is the "Gold Standard",
which was launched by the World Wide Fund for Nature (WWF) in 2003. The table
below presents price ranges for various certificates, along with the Gold Standard
(June 2007):
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Price ranges and availability of various certificate types
Certificat
e
Price
(€/t)
Availability Standard
CER 5-15 medium Kyoto Protocol and Marrakesh Accords
15-21 low Additional voluntary standard: CER Gold
Standard
ERU 6-14 First predictable
from 2008
Kyoto Protocol and Marrakesh Accords as
well as country specific requirements
EUA 0,1 high country specific requirements (2005-2007)
ca. 22 high country specific requirements (2008-2012)
VER 3-6 high Specific standards depending on particular
verifier
6-8 low Additional voluntary standard: VER Gold
Standard
Source: Future Camp GmbH
The current market offers opportunities where either the abatements costs are
dearer or the carbon credits are costlier, which explains that market price for
carbon is not at the equilibrium level. The argument supporting this observation is
that, had the price of carbon at the equilibrium level, the difference between the
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abatement costs and the carbon prices would have ceased to exist, i.e., the marginal
abatement costs would have been equal to the prevailing market price of carbon.
regarding the prices of carbon is the prices differ significantly in different markets.
This variation in prices in different markets can be attributed to difference in
standards, regulations and many other critical issues, but difference is so significant
that it puts a question on the efficiency of the carbon market. In addition to this,
transparency of the market has been low in the CDM and JI market.
3.3.1 Carbon Price Dynamics
Phase I
2005-2007
Phase II
2008-2012
Phase III?
2013-
EUAs
Market is long
Low price
No quantitative
restrictions on
use of CERs
Incentives to
bank CERs into
Phase II
Market is short
Forward price determined by CER/ERU
supply and relative fuel prices for
power generation
Quota limit allows for more credits that
the aggregate short position provided
industrial sectors and the power sector
swap EUAs and CERs.
Supply limitations are likely to be more
relevant than restrictions due to the
initial allocation of credits.
•
CERs might be banked forward again,
once NAP 3 and post 2012 UNFCCC
framework is in place.
No supply/demand signals but
ambitious political targets set.
Linking of trading schemes, with
Kyoto project credits forming the
price link, is a possible scenario.
Allocation process is likely to be
further harmonized
CERs
ERUs Forward CER
prices reflect
delivery risks and
phase II
allowance price in
EU ETS
Spot CERs will probably trade at a
small discount to spot EUAs to reflect
differences in usability
There is a two-way price causality
between CERs and EUAs
Price should be equal to
marginal abatement cost.
US participation could boost
demand
AAUs No AAU market Market is long
Limited private sector participation (except possibly in Japan)
Price will be dependent on whether there is a market and how ambitious the commitments are made from the Annex-1
61 | P a g e
Bilateral government-to-government trades expected
Supply from Russia and Ukraine will be important
Few price signals
countries (including new ones) •
Banking from Russia and Ukraine and US participation will have major impacts on supply and demand
Chinese and Indian participation unlikely but possible
3.3.2 Pricing in the EU emissions trading scheme:
In the context of the EU ETS, The two main areas of price formation in the EU ETS
are:
• Policy decisions, and
• Fundamentals, being the energy complex (weather, energy and economic
activity).
POLICY DECISIONS
Like other environmental markets, the EU ETS is created through political decisions
and has to be framed in law. It must then be implemented through a series of
regulatory decisions and operating guidelines, which could potentially have an
impact on market price and developments.
As a result, the market responds to occasional price signals from issues such as the
number of EUAs that are issued, the EU ‘linking’ directive which allows for the use of
Kyoto credits in the EU scheme, rules on banking EUAs from one trading phase to
the next as well as what happens when the Kyoto Protocol’s first commitment
period ends on 31 December 2012.
However, these political price signals occur only occasionally. On a daily basis, it is
the broader energy complex that provides price drivers.
THE ENERGY COMPLEX
The power generation sector accounts for 60% of the emissions covered in the
scheme. As a result it is the most important sector in the scheme and the
relationship between the price of EUAs and the prices for oil, natural gas, coal,
freight for coal and electricity itself has been established.
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Source: Point Carbon
After the introduction of EU ETS, power generators are able to calculate each day
whether they would be more profitable generating from coal plants (including the
cost of emissions resulting from the generation), or natural gas. This decision
determines the intra-day demand for EUAs and is the major price driver in the EU
carbon market on a daily basis.
Figure below shows price development of the headline contract in the EU emissions
trading scheme
Source: Point Carbon
Figure below shows the monthly EUA 08 price range from Jan 07 to Sep 07
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Source: Point Carbon
3.3.3 Pricing in the Clean Development Mechanism
Participants in the market talk of two market segments, the primary market and the
secondary market.
THE PRIMARY CER MARKET
The primary market refers to the initial transaction between the project developer
and the investor. It is the transaction that carries the CER, the commodity in
question, from the project in the developing country to the international market.
The contract to transfer ownership of a CER from seller to buyer is known as an
Emissions Reduction Purchase Agreement (ERPA). As the initial CDM contract is
much like project finance, ERPAs vary from case to case. Typically, however, the
price agreed in most primary ERPAs is a function of the apportionment of the
various risks inherent in generating a CER and delivering it to the buyer, as well as
contractual issues.
THE SECONDARY CER MARKET
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The secondary market refers to any further transaction after the primary
transaction: the onward sale of the CER until eventually it is bought by the final
consumer who will submit it to meet their target. Typically, the buyer in the
secondary market (secondary CERs) carries much less risk as the CER is either
already in existence, or its delivery is guaranteed in some way with replacement or
compensation for non-delivery written into the contract. As a result, the buyer pays
much more for the secondary CER.
The buyers for this more expensive, low-risk secondary CER tend to be European
companies that face their specific target under the EU ETS. The secondary CER
market has grown up as an offshoot of the EU emissions trading scheme and prices
are often quoted as a percentage of the price of EUAs.
Figure below illustrates the recent price histories of the EUA and the secondary CER,
and the spread between the two.
Source: Point Carbon
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4. CDM In India
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CDM in India
India comes under the third category of signatories to UNFCCC. India signed and
ratified the Protocol in August, 2002 and has emerged as a world leader in reduction
of greenhouse gases by adopting Clean Development Mechanisms (CDMs) in the
past few years.
According to Report on National Action Plan for Clean Development
Mechanism(CDM) by Planning Commission, Govt. of India, the total CO2-equivalent
emissions in 1990 were 1001352 Gg, which was approximately 3% of global
emissions. If India can capture a 10% share of the global CDM market, annual CER
revenues to the country could range from US$ 10 million to 300 million (assuming
that CDM is used to meet 10-50% of the global demand for GHG emission reduction
of roughly 1 billion tonnes CO2, and prices range from US$ 3.5-5.5 per tonne of
CO2).
India has generated some 30 million carbon credits and has roughly another 140
million to push into the world market. Waste disposal units, plantation companies,
chemical plants and municipal corporations can sell the carbon credits and make
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money. The number of CERs issued by India is 24.55% of the world which is second
best to that of China with 43%.
More than 200 Project Idea notes and large numbers of PDD’s are floating in India.
The wide range of possible project types and sizes in India allows international
buyers to find the project of their choice which acts as a competitive advantage for
India.
• There is a large potential for renewable energy generation from agriculture
wastes, hydro and wind.
• Thermal electricity generation and industry offer countless opportunities to
improve energy efficiency, for example, regarding coal-fired power plants and of the
transmission and distribution system.
• The chemical industry and aluminum production allow reductions of industrial
greenhouse gases with high warming potentials.
Moreover, the availability of skilled consultants and a fierce competition of
validators allow getting high-quality services for each step of the CDM project cycle
at very competitive prices.
India has a well set structure for the CDM projects.
Indian DNA:
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Data Source: CDM India Website
The Indian Designated National Authority is named as National Clean Development
Mechanism (CDM) Authority for the purpose of protecting and improving the
quality of environment in terms of the Kyoto Protocol. Which is headed by Secretary
(Environment and Forests Ministry of India) with other board members to assist
him. It is responsible for day-to-day activities of the Authority including constituting
committees or sub-groups to coordinate and examine the proposals or to get
detailed examination of the project proposals. The NCDMA receives projects for
evaluation and approval as per the guidelines and the general criteria defined by
both the CDM Executive Board and CoP serving as Meeting of Parties to the United
Nations Framework Convention on Climate Change. The evaluation of the project is
carried out by an assessment of the probability of eventual successful
implementation of CDM projects and of extent to which projects meet the
sustainable development objectives, as it would seek to prioritize projects in
accordance with national priorities. It can also give further guidelines for additional
requirements to ensure that the project proposals meet the national sustainable
development priorities and comply with the legal framework. Apart from carrying
out the financial review of the project proposals to ensure that correct measures are
being adopted it also carries out activities like creating databases on organizations
designated for carrying out activities like validation of CDM project proposals and
monitoring and verification of project activities, and to collect, compile and publish
technical and statistical data relating to CDM initiatives in India.
Its powers include:
To invite officials and experts from Government, financial institutions,
consultancy organizations, non-governmental organizations, civil society,
legal profession, industry and commerce, as it may deem necessary for
technical and professional inputs and may co-opt other members depending
upon need.
Interacting with concerned authorities, institutions, individual stakeholders
for matters relating to CDM.
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Take up any environmental issues pertaining to CDM or Sustainable
Development projects as may be referred to it by the Central Government,
and
To recommend guidelines to the Central Government for consideration of
projects and principles to be followed for according host country approval.
Up till now NCDMA has approved an about 1115 projects in various states in
India and in a variety of scopes.
The above figure shows the number of projects which have been approved in
various states and the below one shows the percentage of projects in various states
out of the total of 1115.
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Data Source: CDM India Website
The below two diagrams shows the scope wise breakup of the projects approved by
NCDMA.
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Data Source: CDM India Website
Data Source: CDM India Website
Market Players:
All types of players are found in the Indian Markets which operate in either primary,
secondary or both. Out of the total of 184 buyers in the world 5 Indian firms are into
the buying business. But when you look at the sellers around 23 percent of Indian
firms are selling the credits (57 out of 250) in both primary and secondary market.
Various types of sellers are found in the market, major players like TATA Steel,
Reliance Energy etc, even Government undertakings like Hindustan Zinc Limited etc.
But a great revelation can be seen in the terms of the number of service providers
found in India. Not only out of world’s thirteen, seven DOEs are from India but
around22% of service providers are Indian firms which include industries, banks
like IDBI bank, ICICI Bank ltd, government players like Ministry of Power and even
institutions like UPES. (Data Source: CDM Bazaar)
The graph below shows the Market structure of Carbon Market in India and its
comparison with the world scenario.
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Data Source: CDM India Website
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Data Source: CDM Bazaar
5. Issues and Risks
Related with the CDM
Markets.
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5.1 Issues
Though the CDM is projected as a great opportunity to earn as well as cleaning the
environment it has some issues related to it. That is why though the projects are
emerging at a fast pace but then also the financers are not that much interested in
them.
First of all registering a project under the CDM is a long and complex process with a
number of additional steps compared to conventional projects. In addition costs for
the additional procedures are around $50,000 to $250,000 also it takes about one to
three years before the registration of the project which is a long time. Even the
future of CDM is not clear after 2012. The CDM process, which is long and often
perceived to be inefficient, gives further barriers to project implementation and
financing. Secondly, the heavy and steadily increasing workload of the CDM
Executive Board with number of application for registration increasing and such a
complex process is creating much of a back log. The problems are also being created
due to the lack of institutional capacity both in host and buyer countries.
5.2 Risks
That is why the CDM in turn the sale of CERs offers an additional income stream for
the financers but then also they are not that many risks this is basically due to some
risks involved in the projects. The risks can be categorized according to the nature
like
Performance risk
Registration risk
Host country political risks
Contractual risks.
Performance Risk:
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The performance risk relates to how the project performs in relation to the
expectation. It has a risk of whether the finance can be raised by the developer or
not. It also looks whether the plant will operate as foreseen in the project plans and
the expected number of CERs is issued to it, even the creditworthiness of the
counter parties also is a risk factor.
Registration Risk
It includes risks related to the administrative levels. That is whether the project
registered will be approved by EB or not. The emissions reductions, which
determine the number of CERs the project is issued, depend on what ‘business as
usual’ scenario the CDM authorities decide is appropriate to judge the project
(baseline risk). The project must be executed according to a ‘methodology’ which in
turn must be approved by the CDM methodology panel
Country Risk
Once these challenges are overcome, there remains the investment climate in the
country hosting the project. The level of risk is higher in developing countries due to
the often less developed legal and political infrastructure. It can include
confiscation, expropriation and nationalization
civil war
contract repudiation/frustration
host country sovereign risk
administrative barriers
Contractual Risks
It is also noteworthy that each ERPA contract may have different provisions that
affect the price. For example, where the buyer is willing to commit to upfront
payment they will command a lower price than payment on delivery. Similarly, a
higher price will be paid by one company seeking to be the preferred claimant if a
project with several buyers under-performs. That company will pay more to be the
76 | P a g e
first in line to receive CERs if there are not enough for the seller to meet all of its
obligations.
Each CER in the primary market is therefore worth a different amount reflecting the
risk profile of each individual project, depending on various factors, including:
1. the risk inherent in each project, how that risk is apportioned between buyer
and seller;
2. At what stage of development the project has reached when the ERPA is
agreed;
3. the risk profile that project type, host country etc offer;
4. Other contractual details of each individual ERPA, e.g whether it covers the
first 30% of the CERs to be generated or the last 30%.
The diagram below shows the resultant of different risks which can cause delay in
the CDM projects and thus trading of CERs.
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5.3 Recommendations:
Looking at the issues and the risks involved in the CDM projects we feel that there
must be some potential steps taken to overcome the difficulties. Institutions like
IETA and World Bank and many other consultancies have come up with various
recommendations to improve CDM so that it can become more popular as it was
proposed to be. It can be done by:
A thorough review of the CDM, simplifying, standardizing and streamlining
the process. It will not only decrease the time duration but also the
complexity of the process which creates much of confusion
Redefining the Role of Various Boards like EB, Meth Panel etc. making them
permanent so that they can operate freely.
The management should based on a tiered management structure within
each ‘body’ of the CDM include clear, fixed procedures and timelines for
every aspect of the CDM process,
Communication, as the various and boards ant teams are not permanent
there is a big communication gap between both between both the bords and
parties so a clear cut communication line must be established.
The staffs should be well trained include training programs for staff,
differentiated by the body and position within which they work;
Even Developing PPs knowledge base is also an issue. Which can be done by
organizing regular seminars on various issues.
Include internal review systems for each body, with performance-based
indicators and automatic triggers for new staff hiring.
Providing prompt and clear guidance on the CDM regulations beyond 2012.
Not much has been brought into picture yet so the people are sckeptive about
the future i.e after 2012.
Fostering the development of institutional CDM capacities in host and
investor countries.
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6. Conclusion
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Future Prospects
The rising pressure on countries to address climate change has paved the way for
the rise of a multimillion dollar international market for buying and selling
emissions of greenhouse gases. Ever since its establishment in 2001, the carbon
market has captured the attention of Indian entrepreneurs. Majority of projects
selling carbon credits so far include renewable energy (such as wind power,
biomass cogeneration and hydropower), energy efficiency measures in several
sectors (such as cement, petrochemicals and power generation) as well as the
reduction of industrial gases that contribute to climate change.
About 34% of the total numbers of CDM projects that have been approved are from
India. Environmental finance as an asset-class is pegged at USD 1 trillion globally by
2012. A carbon credit, or certified emissions reductions (CER), licenses the owner to
emit one tonne of carbon dioxide in a year.
Certified emissions reductions issued through the clean development mechanism
programme will be in short supply by the end of 2012, when the Kyoto Protocol will
expire, carbon market intelligence firm Point Carbon predicts in a report.
Continued strong demand for those emissions offsetting units in Europe's carbon
market would translate into robust prices for the rest of the period, ensuring a
healthy trading environment, the report suggests.
Analysts were confident that while the economic slowdown would affect the supply
side and potentially push up the price of carbon that the demand side had
experienced little change, even in the face of severe economic downturn.
Preliminary findings from IETA’s recent Market Sentiment Survey indicate that
more than 90% of respondents believe that the GHG Market is an established
instrument that will continue post 2012. In addition, more than 65% of those
surveyed anticipated that a global market will be established in the next 10 years. In
this context, the recent EU announcement regarding its climate and energy policy
for 2012-2020 and beyond appears to been taken seriously by the business
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community. Investment decisions are now more likely to take into account the high
likelihood of a carbon-constrained environment, at least in the EU. Similarly, the
recent announcement by the Government of Canada, including a role for CERs,
banking and credit for early action may also trigger efforts by Canadian companies
to start identifying and pursuing abatement options at home and abroad.
Developments in the EU, USA, Canada and Australia have helped kick off a modest
post-2012 market in abatement domestically; however there is much ambiguity
about the extent to which CDM and JI will play a role in compliance.
Since there is still some uncertainty at play about details of each of these post-2012
regimes, there is some risk that origination of new carbon projects tapers off. This
should not imply however a weakening of prices for CERs and ERUs in the short run
as there still is some strong residual demand before 2012 to be met. Further, if the
emerging North American regimes encourage early action and banking of CERs, this
could stimulate further demand.
Some buyers have been purchasing post-2012 vintages, extending the horizon of the
stream of carbon revenues and improving the financial viability of projects that
require additional help to meet hurdle rates. The uncertainty about demand post-
2012 may justify a lower price – given the uncertain compliance value of the credits
that may be generated. The most common way to address post-2012 uncertainty in
the market is through a zero premium call option provided to the buyer in which the
strike price is at the same level as the contract price for pre-2013 vintages or at the
prevailing market price should there be a system in place in which the reductions
can be used for compliance. Some buyers do not put a value on this option at the
moment, and sellers are essentially giving away the option. But this may evolve
quickly as more confidence appears on the post-2012 front.
Conclusion
Carbon credits emanating from CDM projects can be considered as enhancers of
equity returns rather than as a reliable long term source of cash flows for projects.
As soon as the future trends for carbon credits are frozen after year 2012, they
would be viewed as source for long term cash flows as well. Projects ought to be
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developed so that they are CDM compatible. Due to OTC markets, the market is
illiquid and non transparent, firms need to negotiate deals with knowledge of the
market trends and potential problems arising after year 2012 deadline for current
round of emissions reduction. The CERs are also heterogeneous in nature depending
on origin and quality of CERs and quality of project. The CDM cycle is perceived to
be long and the complexity of rules and regulations is a barrier to usage of this
opportunity. With the expectation of the maturity of the carbon market, carbon
credits will become an important consideration in project financing in developing
countries especially India.
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Country Organization's Name Country Organization's Name
Albania Climate Change Unit,
Ministry of Environment
Liberia Environmental Protection
Agency of Liberia
Algeria Déveleppement durable et
des Affires scientifiques et
culturelles
Liechtenstein Office of Environmental
Protection
Antigua and Barbuda Environment Division,
Ministry of Tourism and
Environment
Luxembourg Ministère de
l'environnement
Argentina Oficina Argentina del
Mecanismo para un
Desarollo Limpio
Madagascar Ministére de
l'Environnement, des Eaux
et Forets
Armenia Ministry of Nature
Protection
Malawi Environmental Affairs
Department
Austria Federal Ministry of
Agriculture, Forestry,
Environment and Water
Management
Malaysia Ministry of Natural
Resources and
Environment
Azerbaijan Climate Change and Ozone
Centre of the Ministry of
Ecology and Natural
Resources of the Republic of
Azerbaijan
Maldives Ministry of Home Affairs,
Housing and Environment
Bahamas The Bahamas Environment,
Science and Technology
Commission (BEST),
Ministry of Energy and
Environment
Mali Secrétariat Technique
Permanent du Cadre
Institutionnel de la Gestion
des Questions
Environmentales
(STP/CIGQE)
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EXHIBIT 1
List of DNAs
Bahrain General Directorate of
Environment & Wildlife
Protection
Malta Malta Environment &
Planning Authority (MEPA)
Bangladesh Department of
Environment
Mauritania Ministère delégué auprès
du Premier Ministre chargé
de l'Environnement
Barbados Ministry of Family, Youth,
Sports and Environment
Mauritius Ministry of Environment &
National Development Unit
Brazil Comissão Interministerial
de Mudança Global do
Clima
Mexico Comisión Intersecretarial
de Cambio Climàtico
Burkina Faso le Secrétariat Permanent du
Conseil National pour
l'Environnement et le
Développement Durable
(SP/CONEDD)
Monaco Direction des Relations
Extérieures, Coopération
Internationale pour
l'Environnement et le
Développement
Combodia Ministry of Environment,
Climate Change Office
Mongolia Ministry for Nature and
Environment of Mongolia
Cameroon Comité National chargé de la
mise en oeuvre du
Mécanisme pour le
Développement Propre au
Cameroun (ou AND du
Cameroun)
Montenegro Ministry of Tourism and
Environment
Canada Environment, Energy and
Sustainable Development
Bureau
Morocco Direction of Partnership,
Communication and
Cooperation, Ministry of
Territorial Planning, Water
and Environment
Chile Comisión Nacional del
Medio Ambiente (CONAMA)
Mozambique Ministério para a
Coordenação da Acção
Ambiental (MICOA)
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China National Development and
Reform Commission of the
People's Republic of China
Myanmar Ministry of Forestry,
Planning & Statistics
Department
Colombia Ministerio de Ambiente,
Vivienda y Desarrollo
Territorial
Namibia Ministry of Environment
and Tourism
Costa Rica Ministerio del Ambiente y
Energia (MINAE)
Nepal Ministry of Environment,
Science and Technology
Côte d`Ivoire National Agency for
Environment (ANDE)
Netherlands Ministry of Housing, Spatial
Planning and the
Environment
Cuba Ministerio de Ciencia,
Tecnología y Medio
Ambiente (CITMA)
New Zealand Ministry for the
Environment - Manatü Mö
Te Taiao
Cyprus Ministry of Agriculture,
Natural Resources and
Environment
Nicaragua Ministerio del Ambiente y
los Recursos Naturales
Czech Republic Ministry of Environment of
the Czech Republic
Niger Cabinet du Premier
Ministre
Democratic People's
Republic of Korea
Secretariat of the National
Coordinating Committee of
Democratic People's
Republic of Korea for
Environment
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Nigeria Federal Ministry of
Environment, Housing &
Urban Development
Democratic Republic of
the Congo
Ministère de
l'Environnement,
Conservation de la Nature et
Tourisme
Norway Royal Ministry of the
Environment
Denmark Ministry of Climate and
Energy
Pakistan Ministry of Environment
Djibouti Direction de l'Aménagement
du Territoire et de
l'Environnement (DATE)
Panama Autoridad Nacional del
Ambiente
Dominican Republic Oficina Nacional del
Mecanismo de Desarrollo
Limpio (ONMDL), Consejo
Nacional para el Cambio
Climático y el Mecanismo de
Desarrollo Limpio
(CNCCMDL)
Papua New Guinea Office of Climatic Change
and Environment
Sustainability
Ecuador Ministro de Ambiente del
Equador
Paraguay Secrearia del Ambiente -
Programa Nacional de
Cambio Climático
Egypt Egyptian Environmental
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Affairs Agency (EEAA)
Peru Ministerio del Ambiente
El Salvador Ministry of Environment
and Natural Resources
Philippines Department of
Environment and Natural
Resources (DENR)
Equatorial Guinea Ministerio de Minas,
Industria y Energía
Poland Ministry of the
Environment
Ethiopia Environmental Protection
Authority (EPA)
Portugal Casa do Ambiente e do
Cidadão, Ministry of
Environment, Spatial
Planning and Regional
Development
European Community Directorate General
Environment
Qatar Supreme Council for
Environment and Natural
Reserves
Fiji Ministry of Local
Government, Housing,
Squatter Settlement and
Environment
Republic of Korea Environment Cooperation
Division, Ministry of
Foreign Affairs and Trade
Finland Ministry of Foreign Affairs,
Department of Global
Affairs
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Republic of Moldova The State
Hydrometeorological
Service, Ministry of Ecology
and Natural Resources
France MINISTÈRE DES AFFAIRES
ÉTRANGÈRES
Rwanda Unité Environnement au
Ministére des Terres, de
l'Environnement, des
Forêts, de l'Eau et des
Mines (MINITERE)
Gabon Ministère de
l'environnement, du
developpement durable de
la protection de la nature,
de la prevention et de la
gestion des calamites
naturelles
Saint Lucia Ministry of Physical
Development, Environment
and Housing
Gambia Department of Water
Resources
Senegal Direction de l'Environment
et des Etablissements
Classés
Georgia Ministry of Environment
Protection and Natural
Resources
Serbia Ministry of Environment
and Spatial Planning
Germany Umweltbundesamt -
Deutsche
National Authority for
Implementation of Projects
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Emissionshandelsstelle under the CDM of the Kyoto
Protocol (Serbian DNA)
Ghana Environmental Protection
Agency, Ministry of
Environment, Science &
Technology
Sierra Leone Meteorological
Department
Greece Hellenic Ministry for the
Environment, Physical
Planning and Public Works
Singapore National Environment
Agency (NEA)
Guatemala Ministerio de Ambiente y
Recursos Naturales
Slovakia Mininstry of Environment
Guinea Ministére du
Developpement Durable et
de l'Enviornnement
Slovenia Ministry of the
Environment and Spatial
Planning
Guyana Hydrometeorological
Service
South Africa Department of Minerals
and Energy
Honduras SECRETARIA DE RECURSOS
NATURALES Y AMBIENTE
(SERNA)
Spain Oficina Española de Cambio
Climático, Ministerio de
Medio Ambiente y Medio
Rural y Marino
India National Clean Development
Mechanism (CDM)
Authority
Sri Lanka Ministry of Environment
and Natural Resources
Indonesia National Commission on
CDM (KOMNAS MPB)
Sudan High Council of
Environment and Natural
Resources (HCENR)
Iran (Islamic Republic
of)
Department of the
Environment
Swaziland Ministry of Public Works
and Transport
Ireland Environmental Protection
Agency
Sweden Swedish Energy Agency,
Department of Energy
system Analysis and
Climate Change
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Israel Ministry of Environmental
Protection
The former Yugoslav
Republic of Macedonia
Ministry of Environment
and Physical Planning
Italy Ministry for the
Environment and Territory,
Department for Global
Environment, International
and Regional Conventions
Togo Direction de
l'Environnement
Jamaica Ministry of Land and
Environment
Trinidad and Tobago Ministry of Public Utilities
and the Environment
Japan Tunisia Ministère de
l'Environnement et du
Développement
Jordan Ministry of Environment Uganda Ministry of Lands, Water
and Environment
Kenya National Environment
Management Authority
United Arab Emirates Environment Agency - Abu
Dhabi
Kuwait Environment Public
Authority (EPA)
United Kingdom of Great
Britain and Northern
Ireland
Global Carbon Markets
Kyrgyzstan National Climate Change
Committee (NCCC)
United Republic of
Tanzania
Division of Environment,
Vice-President's Office
Lao People's Democratic
Republic
Science Technology and
Environment Agency
(STEA), Prime Minister's
Office
Uruguay Unidad de Cambio
Climático (UCC)
Lebanon Ministry of Environment Uzbekistan Ministry of Economy
Lesotho Ministry of Natural
Resources
Viet Nam Ministry of Natural
Resources and
Environment of Viet Nam
Zambia Ministry of Tourism, Department
of Environment and Natural
Resources Management
Yemen Environment Protection
Authority (EPA)
Zimbabwe Ministry of Environment &
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Tourism
List Of Designated Operational Entities:
Entity Name (short name) Sectoral scopes for validation Sectoral scopes for
verification and
certification
Japan Quality Assurance
Organization (JQA)
1, 2, 3, 4, 5, 6, 7, 10, 11, 12, 13, 15
JACO CDM., LTD (JACO) 1, 2, 3, 14 1, 2, 3
Det Norske Veritas
Certification AS (DNV)
1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,1
3, 15
1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 1
1, 12,13, 15
TÜV SÜD Industrie Service
GmbH (TÜV-SÜD)
1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,1
3, 14, 15
1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 1
1, 12,13, 15
Deloitte Tohmatsu
Evaluation and Certification
Organization (Deloitte-
TECO)
1, 2, 3
Japan Consulting Institute
(JCI)
1, 2, 4, 5, 10, 13
Bureau Veritas Certification
Holding SAS (BVC Holding
SAS)
1, 2, 3, 4, 5, 6, 7, 10, 11, 12, 14 1, 2, 3
SGS United Kingdom Ltd.
(SGS)
1, 2, 3, 4, 5, 6, 7, 10, 11, 12, 13, 14
,15
1, 2, 3, 4, 5, 6, 7, 10, 11, 12
, 13, 14,15
The Korea Energy
Management Corporation
(KEMCO)
1
TÜV Rheinland Japan Ltd.
(TÜV Rheinland)
1, 2, 3, 13
KPMG Sustainability B.V. 13
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EXHIBIT 2
(KPMG)
British Standards
Institution
(BSI) — withdrawn (EB44)
1, 2, 3
Spanish Association for
Standardisation and
Certification (AENOR)
1, 2, 3, 13 1, 2, 3
TÜV NORD CERT GmbH
(TÜV NORD)
1, 2, 3, 4, 5, 6, 7, 10, 11, 12, 13 1, 2, 3
Lloyd’s Register Quality
Assurance Ltd (LRQA)
1, 2, 3, 4, 5, 6, 7, 10, 11, 12, 13
Colombian Institute for
Technical Standards and
Certification (ICONTEC)
1, 2, 3
Korean Foundation for
Quality (KFQ)
1, 2, 3
PricewaterhouseCoopers -
South Africa
(PwC) — withdrawn (EB44
)
1, 2, 3
RINA S.p.A (RINA) 1, 2, 3, 13
Sectoral Scopes:
1. Energy industries (renewable - / non-renewable sources)
2. Energy distribution
3. Energy demand
4. Manufacturing industries
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5. Chemical industry
6. Construction
7. Transport
8. Mining/Mineral production
9. Metal production
10. Fugitive emissions from fuels (solid, oil and gas)
11. Fugitive emissions from production and consumption of halocarbons and
sulphur hexafluoride
12. Solvents use
13. Waste handling and disposal
14. Afforestation and reforestation
15. Agriculture
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List of Projects on the basis of different sectors.
Sectoral Scope* Registered
Projects
(01) Energy industries (renewable - / non-renewable sources) 1040
(02) Energy distribution 0
(03) Energy demand 18
(04) Manufacturing industries 86
(05) Chemical industries 42
(06) Construction 0
(07) Transport 2
(08) Mining/mineral production 15
(09) Metal production 3
(10) Fugitive emissions from fuels (solid, oil and gas) 123
(11) Fugitive emissions from production and consumption of
halocarbons and sulphur hexafluoride
18
(12) Solvent use 0
(13) Waste handling and disposal 321
(14) Afforestation and reforestation 2
(15) Agriculture 94
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EXHIBIT 3
Number of CERs issued by Country:
Country CERs Country CERs
Argentina 638,777 Jamaica 127,580
Bhutan 474 Malaysia 648,718
Bolivia 725,875 Mexico 5,498,686
Brazil 29,332,150 Morocco 26,213
Chile 2,949,920 Nicaragua 372,056
China 112,255,160 Pakistan 962,221
Colombia 295,200 Papua New
Guinea
215,424
Costa Rica 1,531 Peru 159,161
Cuba 166,744 Philippines 64,568
Ecuador 500,910 Republic of
Korea
36,239,123
Egypt 2,368,833 South Africa 675,092
El Salvador 215,782 Sri Lanka 182,039
Fiji 18,176 Thailand 815,224
Guatemala 644,397 Uruguay 40,613
Honduras 147,127 Viet Nam 4,486,500
India 59,471,990 Israel 41,982
Indonesia 195,490 Pakistan 962,221
Israel 41,982 Papua New
Guinea
215,424
Jamaica 127,580 Peru 159,161
Malaysia 648,718 Philippines 64,568
Mexico 5,498,686 Republic of
Korea
36,239,123
Morocco 26,213 South Africa 675,092
Nicaragua 372,056 Thailand 815,224
Sri Lanka 182,039 Uruguay 40,613
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EXHIBIT 4
Viet Nam 4,486,500
Number of parties with DNA by region:Region KP
partiesParties with DNA
Parties with project experience
Parties with registered projects
Annex 1 parties (AI) 38 27 n/a* 17Non Annex I-Africa (NAI-AFR)
50 40 21 8
NAI-Asia and the Pacific (NAI-ASP)
50 35 29 23
NAI-Latin America and the Caribbean (NAI-LAC)
33 26 19 19
NAI-Other 9 9 7 3
Number of Projects Investing Countries:Country Number Of Projects
Austria 35
Belgium 11
Brazil 1
Canada 38
Denmark 28
Finland 26
France 34
Germany 78
Italy 37
Japan 184
Luxembourg 12
Netherlands 183
Norway 21
Spain 56
Sweden 105
Switzerland 387
United Kingdom of Great Britain and Northern Ireland
530
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EXHIBIT 5
List of Projects By the Host Countries:
Country Number Of Projects
Country Number Of Projects
Argentina 14 Malaysia 41Armenia 4 Mexico 111Bangladesh 2 Mongolia 3Bhutan 1 Morocco 4Bolivia 2 Nepal 2Brazil 150 Nicaragua 3Cambodia 3 Nigeria 2
Chile 28 Pakistan 2China 431 Panama 5Colombia 14 Papua New
Guinea1
Costa Rica 6 Kenya 1
Cuba 1 Lao People's Democratic Republic
1
Cyprus 2 Dominican Republic
1 Peru 16
Ecuador 13 Philippines 20
Egypt 4 Qatar 1El Salvador 5 Republic of
Korea23
Fiji 1 Republic of Moldova
4
Georgia 1 Singapore 1Guatemala 8 South Africa 14
Guyana 1 Sri Lanka 4Honduras 14 Thailand 13India 395 Tunisia 2Indonesia 23 Uganda 1Israel 13 United Republic
of Tanzania1
Jamaica 1 Uruguay 3Jordan 1 Viet Nam 3
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List of Abbreviations
AAU - Assigned Amount Unit
CCA - Climate Change Levy Agreements
CCS - Carbon Capture and Storage
CCX - Chicago Climate Exchange
CDM - Clean Development Mechanism
CDM EB - CDM Executive Board
CER - Certified Emission Reduction
CFI - Carbon Financial Instrument
CITL - Community Independent Transaction Log
DOE - Designated Operational Entity
DP - Direct Participant
EC - European Commission
ERPA - Emission Reduction Purchase Agreement
ERU - Emission Reduction Units
ETS - Emission Trading Scheme
EU - European Union
EUA - European Union Allowance
EU ETS - European Union Emission Trading Scheme
GGAS - Greenhouse Gas Abatement Scheme
GHG - Greenhouse Gas
JI - Joint Implementation
LULUCF - Land Use, Land-Use Change and Forestry
MEP - Member of the European Parliament
NAP- National Allocation Plan
NSWGAS - New South Wales Gas Abatement Scheme
PoA - Programme of Activities
REDD - Reducing Emission from Deforestation in Developing Countries
RGGI - Regional Greenhouse Gas Initiative
RMU - Removal Unit
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UK ETS -United Kingdom Emission Trading Scheme
UN - United Nations
UNEP - United Nations Environment Programme
UNFCCC - United Nations Framework Convention on Climate Change
WCI - Western Climate Initiative
WWF - World Wide Fund
VER - Voluntary Emission Reduction
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