$0

$60

$120

$180

2005 2006 2007 2008 2009 2010 2011

Other project-based

Other allowances

Secondary CER

Primary CER post-2012

Primary CER pre-2013

EU Allowances

Steady increase of global market value

135

176

11

31

63

(in Billion US$)

144

159

0.3 0.3

EU and other markets increasing value

EU ETS Allowances

147.8

JI AAU

pre-2013 CDM

1.0

-32% +11%

Secondary

CDM + JI

23.1

(in Billion US$)

N. America

0.5

-18%

New Zealand

0.4

+249%

-36% -49%

post-2012

CDM

2.0

+63%

+12%

EU ETS: how to deal with oversupply

• Oversupplied Phases II + III

reflected in historic low

prices

• Increasing trading volumes

as demand shrinks:

financially-driven trades

• Policy intervention under

discussion to deal with the

imbalance: supply set-aside

(€ per tCO2e)

EUA, secondary CER & primary CER prices

€2

€7

€12

€17

€22

€27EUA

Secondary CER

Primary CER

An emerging post-2013 CDM market

• Pre-2013 market closing and a

post-2012 market emerging

• EU ETS oversupply and

uncertain non-EU eligibility

criteria and volumes lead to

weak contractual obligations

– Provisional safety clauses

– “Quasi-options”

• More prominent Africa as

buyers seek risk management

and portfolio diversification

Pre-2013 and post-2012

market values (US$ million)

0

2,000

4,000

6,000

8,000

2007 2008 2009 2010 2011

Pre-2013 CER

Post-2012 CER

Who’s sellingPre-2013

0

100

200

300

400

500

600

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Pre

-20

13

vo

lum

es t

ran

sa

cte

d (

MtC

O2

e)

Other & Unsp.

Africa

Latin America

Others Asia

China

Latam2%

China87%

Others Asia7%

Africa4%

Post-2012

China43%

India5%

Vietnam7%

Others Asia13%

Latam11%

DRC5%

Nigeria2%

South Africa

1%

Others Africa13%

CDM Sectors (pre-2013)

2011

0

100

200

300

400

500

600

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

pre

-20

13

vo

lum

es tra

nsa

cte

d (

MtC

O2

e)

Other & Unsp.

LFG + waste mng't

E.E. + Fuel switch

Renewables

Industrial gasHydro26%

Wind30%

Biomass energy

5%

Other Renewables

2%

E.E. + Fuel switch

7%

LFG and other waste

mg't11%

CMM and other fugitive

9%

N2O1%

HFC3%

Others6%

CF Impact on Project’s IRR

5y ('08-'12) 7y 10y 14y 21y Impact per Unit

$5.00 0.5% 0.6% 0.8% 1.0% 1.2% $3.16 / MWh

$10.00 1.0% 1.4% 1.7% 2.1% 2.3% $6.33 / MWh

$15.00 1.6% 2.1% 2.7% 3.1% 3.3% $9.49 / MWh

$20.00 2.2% 2.9% 3.6% 4.1% 4.5% $12.65 / MWh

5y ('08-'12) 7y 10y 14y 21y

0.58 tCO2e/tSW 0.74 tCO2e/tSW 0.93 tCO2e/tSW 1.11 tCO2e/tSW 1.29 tCO2e/tSW Impact per Unit

$5.00 17.9% 24.1% 29.2% 31.7% 32.8% $41 / MWh

$10.00 52.3% 59.1% 62.4% 63.5% 63.8% $82 / MWh

$15.00 88.2% 93.3% 95.4% 95.9% 96.0% $124 / MWh

$20.00 123.7% 127.3% 128.6% 128.8% 128.9% $165 / MWh

*tSW = ton solid waste

5y ('08-'12) 7y 10y 14y 21y

$5.00 110.8% 112.3% 112.7% 112.7% 112.7%

$10.00 176.7% 177.3% 177.4% 177.4% 177.4%

$15.00 227.3% 227.6% 227.7% 227.7% 227.7%

$20.00 270.0% 270.2% 270.2% 270.2% 270.2%

*65% tax applied on carbon revenues

ER PricesPurchase period

INCREMENTAL IRR - CARBON FINANCE

Renewable Energy

Purchase period

INCREMENTAL IRR - CARBON FINANCE

Solid Waste

ER Prices

ER PricesPurchase period

INCREMENTAL IRR - CARBON FINANCE

HFC23

…but Secured Underlying Finance:

IIC Ecuador Abanico Hydro

30 MW ROR hydro

85% capacity factor

$33.3 m cost

IRR 15.6%

• 800,000 tCO2e ERs

• ERPA $4.3 m

• rIRR 0.7% => 16.3%

CER payments helped project meet IIC (IADB) investment criteria

Impact of Carbon Finance in the Project's Debt Service

($2,000)

($1,000)

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

Year

US

$ (

'000)

Loan amortization

Loan disbursement

CERs

33.3% 19.4% 41.4% 44.5% 48.0% 52.1% 57.0%

CF Impact in Annual Debt Service, including interest (%)

Impact CDM RE/EE

• Quantitative impact: Additional annual streams and IRRs

– Up to 4% incremental IRR in RE

– ~3,000 tCO2e/year at $5-20/ton ($3-10 per MWh)

– NPV of $80k to $500k per MW = 5%-25% CAPEX

• Qualitative impact: High quality cash flow and contract

– VERs (no regulatory risk; bankable)

– OECD buyers (investment-grade, creditworthy payers)

– Hard currency $ or € denominated (mitigates devaluation risk)

– Long-term contract with fixed price (no price fluctuation)

Payments abroad eliminate currency convertibility & transfer risks

Monetization of future receivables to support CAPEX

CF revenue streams + Financial engineering allow access to capital markets and boost project bankability

Impact of Carbon FinanceImpact CDM RE/EE

New data shows demand until 2012

Contracted

(nominal)

Contracted (risk-

adjusted)Demand for Kyoto

Assets 2008-12

• Demand: 1.64 billion tCO2e

• Supply:

– 2.6 billion CERs & ERUs +

280 million AAUs =

2.86 GtCO2e (nominal)

– 1.15 + 0.28 = 1.43 GtCO2e (risk-

adjusted)

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

• Residual demand: 290 MtCO2e (136 Mt in 2011)

290 MtCO2e,

mostly from EU

governments

CDM

&

JI

CDM

&

JI

AAU

1.43 GtCO2e

1.64 GtCO2e

2.86 GtCO2e

AAU

0.28 Gt

2.6 Gt

0.28 Gt

1.2 Gt

*Including Iceland, Liechtenstein, and Norway

** Including New Zealand, North America, and Switzerland

MtC

O2e

Market projections indicate

constrained demand over 2013-20

Maximum demand (conservative scenario) Supply

CDM others CDM ETS-eligible

0

1000

2000

3000

4000

Other Annex B** Japan AustraliaEU gov* EU ETS

3.2 GtCO2e

Regulatory improvements & new

markets popping up worldwide

• Durban decisions increased the

regulatory clarity on existing market

and advanced on new market

instruments

• Several jurisdictions passed climate

bills, including market initiatives

– Australia, California, Quebec, Republic

of Korea, Mexico

• AU – EU linkage no later than 2018

• New initiatives signal that solutions

to climate challenge will emerge.

Full report available at

www.carbonfinance.org

Thank you

Potential demand Contracted CERs and ERUs AAUs/RMUs Residual demand

nominal Adjusted for

performance

(MtCO2e) (MtCO2e) (MtCO2e) (MtCO2e) (MtCO2e)

EU 1,293 2,175 969 79 245

Government (EU-15) 428 259 141 79 208

Private sector (EU

ETS)

865 1,916 828 0 37

Japan 300 380 169 194 9

Government of

Japan

100 34 15 76 9

Japanese private

sector

200 346 154 119 0 (-73)

Rest of Annex B and

others

51 29 13 4 35

Government 46 24 11 0 35

Private sector 5 5 2 4 0 (-1)

Total 1,644 2,584 1,151 277 290

Government 574 316 167 154 253

Private sector 1,070 2,267 984 122 37

Who buys until 2012 (+1-3y for govs.)