Joint Implementation and the Clean Development Mechanism

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Presentation transcript:

Joint Implementation and the Clean Development Mechanism Ben Feldman Managing Director Natsource LLC UNFCCC Technical Workshop on Joint Implementation Bonn, Germany February 14, 2007 Some new thinking from Natsource. More growth. Less pollution.

Overview Comparison of CDM and JI Duration of Risks Side By Side Comparison Buyer (Investor) Preferences: Track I and II Conclusions Some new thinking from Natsource. More growth. Less pollution.

Comparison of CDM and JI I and II Major Risk(s) Minor Risk(s) CDM Project Registration Issuance Host Country* JI (I) Country JI (II) JISC/AIE Some new thinking from Natsource. More growth. Less pollution.

Duration of Risks All projects involve investment in activities that must persist over time, therefore all projects entail inherent technology/performance risk Distinction between CDM and JI relates to regulatory and country risks CDM Major regulatory risks “ends at registration” Host country approval is irrevocable Potential tax liability/credit retention may continue JI Track I Major regulatory risk “ends at country acceptance” Country risk continues JI Track II Country risks persist throughout crediting period Major JISC/AIE risks “end at final determination” Some new thinking from Natsource. More growth. Less pollution.

Side by Side Comparison CDM Mature process, though significant risks remain due to EB’s project by project approach JI Track I Limited experience Counterparties experience risk differently (government to government vs. government to private) JI Track II JI risk plus JISC issues Some new thinking from Natsource. More growth. Less pollution.

Buyer (Investor) Preferences: Track I and II Strength of sovereign guaranty (perceived and actual) Reliability of project/ technology and counterparty Relatively short payback (short carbon revenue window from 2008- 12) Track II Same as Track I, but take account of JISC risk Project activities with existing methodologies Some new thinking from Natsource. More growth. Less pollution.

Conclusions Once issued CERs, ERUs, likely fungible Differential value function of when investment is made and who carries risk At present JI carries more uncertainty (therefore risk) than CDM and this will be reflected in pricing, all else being equal Track II carries more risk than Track I Risk is attractive to investors that understand how to mitigate JI is thus viewed as a value opportunity Some new thinking from Natsource. More growth. Less pollution.

For Additional Information: Ben Feldman Managing Director Natsource LLC bfeldman@natsource.com +1-202-496-1423 www.natsource.com