EcoSecurities Group plc · 1. Brief Introduction on the Kyoto Protocol and CDM 2. What kind of projects are eligible for CDM 3. Project Process & Pitfalls 4. The Importance of Asia

Carbon credits - origination to commercialisation© 2007 EcoSecurities Group plc

EcoSecurities Group plcCarbon Trading and CDM in AsiaInternational Conference on Climate Change 2007Hong Kong Convention & Exhibition Centre, May 2007


Presentation Overview

1. Brief Introduction on the Kyoto Protocol and CDM

2. What kind of projects are eligible for CDM

3. Project Process & Pitfalls

4. The Importance of Asia

5. Investing in CDM Projects : Where things stand

6. Conclusion : The Future of CDM in Asia


What is the Kyoto protocol?> In 1997, The Kyoto Protocol was adopted as part of the UNFCCC> Binding emission targets for industrialised countries (called Annex I: Western and

Eastern Europe, Japan, New Zealand, Canada)> On average reduce GHG emissions 5.2% below the 1990 levels in the period 2008-

2012> GHG’s regulated under Kyoto: carbon dioxide (CO2), methane (CH4), nitrous oxide

(N2O), and several fluorinated industrial gases (HFC, PFC, and SF6).> Voluntary participation of developing countries (called Non-Annex I countries:

Malaysia, Indonesia, China, India, South Africa, Brazil etc.) > Flexible mechanisms to allow countries to achieve their emission targets cost

effectively:– Emission trading (trading of allowances between Annex I governments)– Clean Development Mechanism (CDM) (projects in Non-Annex I countries with

participation of Annex I countries) – Joint Implementation (projects between Annex I countries)


Annex I

The Kyoto protocol

Non-Annex I

Not ratified


Objectives of the CDM

Purpose of the CDM is twofold:

1. To assist developing countries to support sustainable development and to contribute to the objective of the UNFCCC;

2. To assist industrialized countries to fulfill their emissions limitation and reduction commitments


Emission cap

Actual emissions

Buyer

Carbon Credits (CERS)

Carbon value ($)

Annex I Non – Annex I

Seller

A CDM project reduces the GHG emissions in the CDM country

The principle of the Clean Development Mechanism


How can CDM impact the financing of projects?

Required return oninvestment threshold

Projectreturn

excludingCDM revenue

Projectreturn

includingCDM revenue

CDMrevenue

CDM cash flowThe gap betweenthe project return and the required

return oninvestment threshold

The CDM cash flow increase as reported in a series of PDDs studies varies from 1 – 40%


Can my project benefit from CDM?> A few key criteria to check initial eligibility

1. Project should reduce one of the 6th Kyoto Greenhouse Gases

2. Project should generate minimum amount of Emission Reductions to overcome CDM transaction costs – general rule of thumb is 10,000 – 15,000 CERs/yr

3. Project should be in line with the National CDM criteria

4. Project should be additional and not the Business As Usual Scenario or Common Practice

5. Project should not be a result of compliance with mandatory regulations

6. Are you the entity that has the rights and can claim the CERs?


The concept of BaselinesG

HG

em

issi

ons

TimeProject commissioned

“With project”emission level

“Without project”emission level(e.g. grid baseline)

Carbon credits

Project based emission reductions need to be calculated and verified hereafter they can be sold on the open market.


CDM Status - Globally> 679 Projects Registered

> ~50 million credits issued (CERs)

> >930 million CERs in the pipeline – till 2012 from registered projects


CDM Status - Globally


Number of Registered CDM projects – by Host Country


What Kind of Projects are eligible for CDM> Clean energy

> Alternative material for cement production

> Biomass energy

> Biofuels

> Biogas

> Methane mitigation

> Nitrous oxide mitigation

> Industrial Gases

> Energy efficiency


Project Process & Pitfalls

Development Project Documentation (PDD)

Project ActivityCertified Emission Reduction (CER)

Verification and

Certification(DOE2)

Project Monitoring

Validation (DOE1)

National Host country Approval

DesignImplementation

CDM Registration with the EB


Developing a CDM project involves managing certain complexities and risks

Key Process Steps & Issues are:

• Methodology Selection or Creation

• Additionality

• Baseline Selection

Project Process & Pitfalls


The Importance of Asia> With a population base of over 3 billion and the most consistent economic growth

rates in the world, the industrializing economies of China, India, South Korea and the ASEAN nations provide fertile fields for emission mitigation opportunities

> Asia has exploded to be a major provider of CERs into the global marketplace

> The continuing high economic growth alongside the widening coverage of access to modern energy systems requires a constant supply that will most likely come from fossil fuels

> The CDM is clearly positioned to incentivize the fuel usage switch, from fuel with high carbon-content, such as coal, to much lower ones such as renewable and biomass-based sources

> This contributes to the building up of carbon assets in Asia

> Biomass based energy resources — biomass, biogas, and biofuels — are particularly important in the region due to its dependence on agricultural economies


> Given the projected gap(s) between energy supply and demand in many of Asian nations, energy efficiency may also be the emergent CDM opportunity in Asia

> Efficiency projects can be executed relatively rapidly and will lower - or at least defer -aggregate capital requirements of energy provision, which will be positively regarded by many governments

> Asia also has wide potential in fugitive methane capture.

> In the areas of landfill gas, wastewater treatment and agricultural effluent management, there is tremendous potential for rapid CDM market participation via these assets

> Coal mine methane and pipeline gas management projects are similarly well positioned, particularly in India and China

> With a significant size of the oil and gas sector, reduction of unnecessary off-gas flaring may prove to be both environmentally and financially sound - significant amount of carbon assets can be developed simply by capturing and making use of the gases

The Importance of Asia


The Importance of Asia> The emerging industrializing Asia, with increasingly stronger industrial and electronics

sectors give rise to increased emissions of fluorinated industrial gases. This is especially significant in China, India, South Korea, Singapore, and Malaysia.


Investing in CDM Projects : Where things stand> Investors are attracted to countries where there are significant number of

opportunities and where investment risk appears manageable

> The key concern is whether the country and/or project risk profile can support the requisite investment based on conventional analysis

> For Asian countries that are generally perceived as being less conducive to outside investment, developing a place in the CDM market will likely require some form of external incentives

> Large-scale renewable energy projects (i.e. those that simply provide bulk electricity to the grid – large hydro, wind, or geothermal) have short-term challenges to entering the market (under the present Kyoto regime) with the bulk of their emissions value, due to requisite time lags between project conception and operation

> Wave and tidal power potential – while significant in the region and under early stage investigation - is similar to solar technology in not being cost effective under current technology price point parameters, even with the added benefits of carbon trading


The Future of CDM in Asia> The hockey stick of CDM development will continue to take shape in Asia

> India & China are immensely important components in the market - other countries in the region are catching up

> There are institutional hurdles in certain parts of the region

> However things are moving forward and competition is emerging from the major ASEAN nations in particular

> Some sectors are more strategic than others

> Because of the significant role of agriculture in the region, he three “bios” — biomass, biogas, and biofuels — appear to be a strong bet in the Asian context

> While mitigation of industrial gases is currently a very strong market, those opportunities are ultimately limited by the fairly small number of relevant facilities


The Future of CDM in Asia> Competition will be tougher as project developers “smarten up” with a more balanced

information flow

> The key to sustaining the market position is to add value on both sides of the carbon markets — the selling and the buying sides

> From a project owners’ point of view, developers that come with combinations of CDM financing, underlying project financing as a package will gain interest.

> The lead time for structuring the financing will be the main hurdle for this type of project development from gaining an aggressive portion of the market share.


Thank you For further questions, please contact:

Ramesh Nadarajah

Email: [email protected]

Phone:

Office +603 22820612

Documents

EcoSecurities Group plc · 1. Brief Introduction on the Kyoto Protocol and CDM 2. What kind of projects are eligible for CDM 3. Project Process & Pitfalls 4. The Importance of Asia