Finexpo Green City Panel on Emissions Trading Chris Leeds Head of Environmental Markets Sales 10 April 2008

2 Agenda  Barclays Capital Emissions Capabilities  The link between carbon trading and other asset classes  How OTC and exchange traded markets are likely to expand and change  Cap and Trade vs. a Tax system

3 Barclays Unrivalled Experience in the Carbon Market A broad range of offerings in the Environmental Markets  Barclays Capital has been at the forefront of emissions trading since the inception of the EU emissions trading scheme in 2004  Barclays Capital is one of the largest liquidity providers in the carbon market  We have traded over 600 million tonnes of carbon credits, with a total notional value of $14 billion  Access to a large network of customers across all industries within Europe and beyond  Unrivalled primary origination team. Two of our team are members of the Methodology Panel to the UNFCCC CDM Executive Board.  Standardised the secondary CER market with the launch of the “Standard CER Forward Agreement”  Recognised as a key player in the emissions market through various industry awards  Established the Barclays Capital Global Carbon Index (the “BGCI”) which has been designed as an international benchmark for the carbon industry

4 Team rankings / awards Pioneers in Emission Dealing December 2005 No 1 Europe ETS allowances trading for two years running Energy & Commodity Rankings March 2007 Environment No. 1 Europe CERs trading Energy & Commodity Rankings March 2007 Emissions Trading House of the Year Investment Banking Awards October 2007 Best Trading Company for two years running Carbon Market Awards March 2007 Best Trading Company for EU Emissions December 2006

5 Weather Economic growth C02-free electricity production High gas prices High coal prices CER/ERU Imports Demand Price The link between carbon trading and other asset classes

6 €/MWh €/Mt

7 The link between carbon trading and other asset classes €/Mt p/th

8 EUA CO 2 spot price behaviour during Phase I (EUR/MT) Fundamental trading activities by the shorts (utilities) led to rising prices at beginning of Phase I EU published emissions data showed conservative allocations (98 million MT excess) leading to structural fall The depreciation was compounded by the industrials (longs) only becoming active towards the end of Phase I Source: Barclays Capital The link between carbon trading and other asset classes

9  Brent crude trades around 50 billion barrels annually worth $5 trillion  German power trades around 5 times underlying (the ‘churn’) - 450TWh = 2250TWh = €135 billion  EUAs traded 2.4 bn tonnes, around 100% of total allocation in 2007 worth around €24 bn What can we realistically expect?  Physical underlying defined as the shortfall in the market - 1 bn tonnes. Churn will be ~ 5 x underlying – 20M tonnes per day – 5 billion tonnes pa => €100billion annualised  Spread trading of inventory and CERs could add another 5M tonnes per day = €25 billion  At around €125billion this is as big as the size of the German power market  Auctions may increase churn as allowances may be bought by intermediaries who will have to onward sell OTC and exchange traded markets

10 OTC and exchange traded markets

11 Market Shares Carbon Exchanges OTC and exchange traded markets

12 Emissions after trading (40tCO2) 50 Units sold Units bought Emissions before trading (50tCO2) Emissions after trading (60tCO2) Cap Emissions (tCO2e) Installation 1 – abatement costs < permit price Installation 2 – abatement costs > permit price Principles behind emissions trading: Cap and Trade Cap and Trade vs. a Tax system

13  “A modest carbon tax of $15 per ton of CO2 emitted would result in an 11 percent decline in CO2 emissions” - AEI UK diesel price, taxation and consumption Sources: SCOTTISH TRANSPORT STATISTICS No 24: 2005 Edition, National (UK) Statistics Online Cap and Trade vs. a Tax system

Finexpo Green City Panel on Emissions Trading Chris Leeds Head of Environmental Markets Sales 10 April 2008

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