ECOPLAN 1 Measuring the Risks of Investments in Climate Change Mitigation Technology Transfer and Investment Risk in International Emissions Trading Work Package 1 Brussels, 30 November 2006 Robert Oleschak, Ecoplan (Switzerland)

ECOPLAN 2 1.Introduction 2.Components of the Indicator 3.Methodology 4.Results 5.Comparison to other Rankings 6.Summary and Conclusions Overview

ECOPLAN 3  Objectives –Develop a composite indicator of the investment climate for GHG abatement projects for a country –Compile indicators for a broad range of countries –Produce rankings for JI and CDM host countries  Composite indicator consists of: –Institutional environment for JI or CDM activities –Regulatory environment –Economic environment Objectives and Approach 1 Introduction

ECOPLAN 4 Institutional Environment 2 Main Components of the Indicator For JI Host Countries For CDM Host Countries

ECOPLAN 5 Regualtory and Economic Environment 2 Main Components of the Indicator Regulatory Environment Economic Environment

ECOPLAN 6 Steps Taken 3 Methodology

ECOPLAN 7 Main Results: JI Host Countries 4 Results

ECOPLAN 8 Main Results: CDM Host Countries 4 Results

ECOPLAN 9 Main Results: CDM Host Countries 4 Results

ECOPLAN 10 5 Comparison to other Rankings  How does our ranking compare to other rankings in this area? –Approach to include a broad range of countries and to focus solely on risks is new => comparability only limited –We have looked at two Kyoto-related ratings/classifications and at FDI- flows  1. Point Carbon Rating –Focuses on important CDM and JI host countries –Includes GHG mitigation potential –For JI host countries there are considerable differences between the two rankings => Differences occur mainly due mitigation potential –For CDM host countries the Point Carbon rating and our ranking yield similar results Can Rankings be compared?

ECOPLAN 11 5 Comparison to other Rankings Point Carbon JI host country CDM host country 1) Rating as of 27 September 2006

ECOPLAN 12 5 Comparison to other Rankings Host Country Classificatin (Jung, 2006)

ECOPLAN 13 Are CDM/JI Financial Flows Correlated with FDI? 5 Comparison to other Rankings  3. FDI-Flows –There is little correlation between the attractiveness for FDI and for investments in climate change mitigation –Countries which receive the highest amount of FDI mostly do not occupy the top positions in our rating (except for China) –On the other hand there are countries (like India) which attract little FDI but are on the top of our rating –This finding is in line with the literature on this subject. –Arquit, Niederberger and Saner (2005, p. 34), for example, write: “…the simplistic assumption that CDM financial flows will be correlated closely with FDI flows may not hold”.

ECOPLAN 14 5 Comparison to other Rankings FDI Financial Flows and Risk Ratings

ECOPLAN 15 Summary 6 Summary and Conclusions  Composite indicator measures the risk of investing in climate change mitigation projects  Main results –Among the classic JI host countries in EE the Czech Republic and Slovakia appear on the top –Other EE with high GHG potential are comparably risky –CDM: In the top five we find India, China, Mexico, Brazil, and Chile –The first four already host a lot of CDM-projects which gives them additional experience –But there are also many countries (like Morocco, South Africa, Costa Rica, Argentina, Colombia and Bolivia) which have put some effort into building good institutions

ECOPLAN 16 Conclusions 6 Summary and Conclusions  Results for CDM host countries are similar to other ranking  Rankings for JI host countries differ considerably  For what can this indicator be used –Can be used to make models of international emissions trading more realistic by incorporating investment risks –May be helpful for investors in the carbon market in the processes of investment allocation and portfolio diversification –Our indicator is better suited for this purpose since it is not distorted by the mitigation potential of a country

ECOPLAN 17