Overview of Global Carbon MarketPresented by:

Iftekhar Enayetullah, Director, Waste Concern

April 8, 2008

Presentation OutlinePresentation Outline

1. What is Carbon Financing?2. Structure of Global Carbon Market3. Carbon Market Relevant for Bangladesh4. How Big is the Global Carbon Market?5. Current Trends in the Carbon Market

web: www.wasteconcern.org

What is Carbon Financing?

Carbon financing can be defined as financial resources provided to projects generating (or expected to generate) green house gas emission reductions in the form of the purchase of such emission reductions.

In simple term, carbon finance is a purchase contracts whereby one party pays another party in exchange for a given quantity of Green House Gas (GHG) emission reductions.

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Payment made in different forms to abate GHGPayment made in different forms to abate GHG

EQUITYDEBT/

SOFT LOANIN KIND

CONTRIBUTION FOR TECHNOLOGIES

CASH

Global Warming Potential (GWP) of Key GHG

Green House Gas Global Warming Potential

Carbon dioxide (CO2 ) 1

Methane (CH4) 21

Nitrous Oxide (N2O) 310

HFC’s 140-11,700

Perflorocarbons (PFC’s) 7,000-9,200

Sulphur Hexafluoride (SF6) 23,900

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Emission reduction credits)

Industrialized country

Project Reducing GHG emissions in developing country

investment $$

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Structure of the Global Carbon Market

Global CARBON marketGlobal CARBON market

Compliance Markets

KyotoKyotoMarketsMarkets

New South WalesGHG Abatement

SchemeEU ETS

ChicagoClimate

Exchange

UKETS

CDM ->CERs

JI ->ERUs

AAUs +

RMUsEUAs VERsNGACs CCLAs

VoluntaryMarkets

Carbon Market

Compliance MarketCompliance Market Voluntary MarketVoluntary Market

CER VERCompliance markets generate and trade green house gas emission reductions known as Certified Emission Reductions (CERs) that are regulated and directly initiated under the Kyoto Protocol’s Clean Development Mechanism (CDM).

Voluntary markets generate and trade greenhouse gas emission reductions that are not regulated or directly initiated by the Kyoto Protocol and known as Verified Emission Reductions or (VERs).

Certified Emission Reduction (CERs): Green house gas reduction of any CDM project is measured according to internationally agreed methods and are quantified in standard units called Certified Emission Reductions (CERs). These are expressed in tons of carbon dioxide (CO2) equivalents.

Verified Emission Reduction (VERs): Green house gas reduction outside Kyoto Protocol is measured according to internationally agreed methods and are quantified in standard units called Verified Emission Reductions (VERs). These are also expressed in tons of carbon dioxide (CO2) equivalents.

Investment Opportunity from CDM/VER

Investment Opportunity from CDM/VER

0 50 100 150 200

Project Cost

Investment canbe obatined from

CDM

Investment canbe obatined from

CDMInvestment can be obatined fromCDM

Investment can be obatined fromCDM

Project Cost

maximum

minimum

Carbon Market at a Glance 2005-2007 and projected 2008

Type 2005 2006 2007 2008 (Projected)

Volume (MTCo2e)

Value (M US$)

Volume (MT Co2e)

Value (M US$)

Volume (MT Co2e)

Value (MUS$)

Volume (MT Co2e)

Value (MUS$)

AllowancesEU-ETSNew South WalesCCXUk-ETS

328 7971 1131 24620 2690 43000 3000 70,000

CDMJIOthers

382 2894 508 5477 947 17000 1200 22,000

Total 710 10,864 1639 30,098 3637 60,000 4200 92,000

CDM 351 2638 475 5257 947 17000 1200 22000

Source: 2005-2006 World Bank and IETA; 2007 and 2008 Point Carbon (Press Release Feb 26, 2008)

Annual Volumes and Values of Transactions

Bill

ion

US

$

Carbon Market at a Glance 2005-2007 and Projected 2008

Source: 2005-2006 World Bank and IETA, May 2007 and 2008 Point Carbon (Press Relaese Feb 26, 2008)

10.864

2.638

30.098

5.257

60

17

92

22

0

10

20

30

40

50

60

70

80

90

100

2005 2006 2007 2008

Total Market

CDM Market

Overview of the CDM market

• CDM has the largest CO2 project based offset system in the world

– 979 registered projects by April 1 2008– Approx. additional 2021 projects in pipeline

– 49 countries– 134,993,328 CERs issued (certified emission reductions)

– 2.7 billion CERs expected to end of 2012

• CDM has a legal basis in the Kyoto Protocol– Run by Executive Board (EB) answerable to KP Parties– EB back-stopped by UNFCCC secretariat with support for:

• Registration and issuance• Accreditation of third-party validators• Methodologies for emissions baseline setting and monitoring

Overview of the CDM market

39

471 530

183

750

940

685

1600

1900

979

2021

2700

0

500

1000

1500

2000

2500

3000

Dec-2005(COP/MOP1)

May-06 May-07 Feb-08

Registered project activities Projects in the pipelines Projected CERs

No

. o

f P

roje

cts/

C

ER

s

bef

ore

201

2 (

mil

lio

n)

Overview of the CDM market

Map and statistics accessible at http://cdm.unfccc.int/

Overview of the CDM market

Overview of the CDM market

Overview of the CDM market

Overview of the CDM market

Bangladesh 0.2%

Registered CDM projects all over the World

Sectoral ScopeRegistered

Projects

1 Energy Industries (renewable -/ non-renewable sources) 650

2 Energy distribution 0

3 Energy demand 16

4 Manufacturing industries 69

5 Chemical Industries 23

6 Construction 0

7 Transport 2

8 Mining / mineral production 7

9 Metal production 1

10 Fugitive emissions from fuels (solid, oil and gas) 98

11Fugitive emissions from production & consumption of halocarbons &

sulphur hexafluoride16

12 Solvent use 0

13 Waste handling and disposal 256

14 Afforestation & reforestation 1

15 Agriculture 83

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Overview of the CDM market

carbon trading

Present Price of CERs and VERs (Carbon Credits)

Crediting Period for CERs and VERs

Both the CERs and VERs are represented in terms of carbon dioxide equivalent (CO2e).

The present price (As of 1 April, 2008):

CERs : US $ 18.50-23/ton

VERs : US $ 7 to US $ 10/ ton

Emission reductions can be claimed for maximum ten years, without revision of the project baseline,

or

for a period of seven years with two extensions of seven year each, provided the project baseline is revised at the time of each extension.

4200

3637

1639

710

$11.00

$7.50

$17.80 $18.50

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2005 2006 2007 2008

0

2

4

6

8

10

12

14

16

18

20

Volume (MT Co2e) Price of CER

Carbon Market at a Glance 2005-2007 and Projected 2008

Source: 2005-2006 World Bank and IETA, May 2007 and 2008 Point Carbon (Press Relaese Feb 26, 2008)

Price drivers – Evolution of the CER Price (secondary market, in EUR)

0

2

4

6

8

10

12

14

16

18

20

Mar

-07

Mar

-07

Apr

-07

Apr

-07

May

-07

May

-07

Jun-

07

Jun-

07

Jun-

07

Jul-0

7

Jul-0

7

Aug

-07

Aug

-07

Sep

-07

Sep

-07

Oct

-07

Oct

-07

Nov

-07

Nov

-07

Nov

-07

Dec

-07

Dec

-07

Jan-

08

Jan-

08

Feb

-08

Source: Reuters – TFS Energy

Overview of the CDM market

CURRENT TRENDS IN THE CARBON MARKET

• CDM experienced a strong growth (from US $ 5 b to 17b) throughout 2007.

• With increase in the volume of emission reduction, price of carbon credits ( CERs and VERs) is also increasing ( $ 7.5 in 2005 to $ 23 in 2008).

• CERs have consolidated as a reliable carbon asset class.

• Increasing interest in CERs for voluntary offsetting purposes may constitute another price driver in the future.

• Voluntary GHG market has also seen strong performance based on:

National/regional/domestic initiativesCorporate social responsibility (CSR) issues

Country Number of Projects

Sri Lanka 4

Thailand 5

Tunisia 2

Uganda 1

United Republic of Tanzania 1

Uruguay 1

Viet Nam 2

Country wise Number of CDM projects

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• Assigned Amount Units (AAUs) – Each Annex I Party that ratifies the Kyoto Protocol has a GHG emissions limitation commitment for 2008-2012, which is its "assigned amount." If a country's emissions are lower than that amount, it may sell the unused units.

• Certified Emission Reductions (CERs) - These are credits issued for emission reductions achieved by a project under the CDM. CERs can be used by an Annex I Party to help meet its emissions limitation commitment under the Kyoto Protocol. The credits issued for sink enhancements achieved by afforestation or reforestation projects under the CDM are either temporary CERs (tCERs), or long-term CERs (ICERs) that are subject to provisions to protect against possible reversals of the sink enhancements.

• Emission Reduction Units (ERUs) - These are credits issued for emission reductions or removals achieved by a project under the JI mechanism as defined in Article 6 of the Kyoto Protocol. ERUs can be used by an Annex I Party to help meet its emissions limitation commitment under the Kyoto Protocol. Each ERU equals 1 tonne of carbon dioxide equivalent (CO2 e).

• Removal Units (RMUs) - These are credits issued for net sink enhancements achieved by eligible activities under Articles 3.3 and 3.4 of the Kyoto Protocol. RMUs can be used by an Annex I Party to help meet its commitment under the Kyoto Protocol. Each RMU equals 1 metric tonne ofCO2e.

Country wise Number of CDM projects

Country Number of Projects

Argentina 10

Armenia 3

Bangladesh 2

Bhutan 1

Bolivia 2

Brazil 113

Cambodia 1

Chile 21

China 139

Colombia 6

Costa Rica 5

Cuba 1

Cyprus 2

Dominican Republic 1

Ecuador 9

Egypt 3

El Salvador 4

Fiji 1

Georgia 1

Guatemala 5

Honduras 12

India 296

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Country Number of Projects

Indonesia 11

Israel 7

Jamaica 1

Lao People’s Democratic Republic 1

Malaysia 21

Mexico 99

Mongolia 3

Morocco 3

Nepal 2

Nicaragua 3

Nigeria 1

Pakistan 1

Panama 5

Papua New Guinea 1

Peru 8

Philippines 14

Qatar 1

Republic of Korea 16

Republic of Moldova 3

South Africa 12

Country wise Number of CDM projects

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