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.

62 | P a g e

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

63 | P a g e

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

65 | P a g e

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

67 | P a g e

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:

68 | P a g e

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.

69 | P a g e

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.

70 | P a g e

Data Source: CDM India Website

The below two diagrams shows the scope wise breakup of the projects approved by

NCDMA.

71 | P a g e

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.

72 | P a g e

Data Source: CDM India Website

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Data Source: CDM Bazaar

5. Issues and Risks

Related with the CDM

Markets.

74 | P a g e

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.

77 | P a g e

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

79 | P a g e

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

80 | P a g e

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

81 | P a g e

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) 

83 | P a g e

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

86 | P a g e

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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