Alexandre Kossoy Philippe Ambrosi

2010: Overall market stalls (in billion US$)

A global market driven by the EU ETS

CDM market value halved again CDM activity declined markedly –reduced compliance needs due to slow economic recovery –uncertainty re: post-2012 rules –less origination activity as buyers seek predictable credits and less projects –competition with AAUs and secondary CERs Following lower demand by EU ETS –Segmentation due to qualitative restrictions (ban of CERs from industrial gases) –Risk allocation reflects buyers market Catalytic role of CDM & JI disappears without post-2012 clarity CDM value (US$ billion -12% -59% -46%

Contracted (nominal) Contracted (risk-adjusted) KM Demand AAU CDM & JI CDM & JI AAU 2,525 MtCO 2 e 1,330 MtCO 2 e 1,392 MtCO 2 e Demand: 1.39 billion tCO 2 e until 2012 Supply: 1.33 billion tCO 2 e contracted –1.09 billion CERs & ERUs contracted (risk-adjusted) –245 million AAUs contracted Residual demand of only136 MtCO 2 e Aggregate picture; not all buyers contracted the volume they need Residual demand of 136 MtCO 2 e, mostly from EU governments Balanced market:

Supply Demand until 2012 (data in the S&T report) Most offsets w/ priv. sec.

*Including Iceland, Liechtenstein, Norway, and Switzerland ** Australia, New Zealand and United States MtCO 2 e Market projections indicate constrained demand over Maximum demand (conservative scenarios) Low High

Potential supply (data in the S&T report)

Potential demand (data in the S&T report) ( ) ( )

A complex regulatory and policy scenario is affecting the market 2010 saw regulatory ups: Progresses in Cancun & EU commitments until 2050 And downs… EU ETS loopholes & oversight, security issues Politically, a number of opportunities were missed: U.S., Japan, Australia, Republic of Korea While others gained traction: California, developing countries such as Brazil, Chile, China, India and Mexico. New initiatives signal that solutions to the climate challenge will emerge.

Still, lets step back and look outside the box Cumulative CDM credits transacted of 2.3 bln tons CERs in … … which is the annual size of the EU ETS (40% of EU emissions) today … and 75% of Kyotos total ER targets (~3 bln tCO2e over ) … resulting in US$27 bln (and benefiting to more than US$100 bln in low-carbon investments - mostly private sector) … … which is in the same level of magnitude of the Green Climate Fund pledged by Parties in Cancun … at long-term average price of $10-$15 per ton … … which is much lower than the marginal abatement cost for developed countries to reduce emissions through domestic measures only Depending on ambition of collective action, carbon flow to developing countries by 2020 could, at prices of US$20-30, can reach US$30-50 bln … … vs. all RE investments to developing countries of US$77 bln in 2010 (US$143 bln in total and up 12-fold since 2004)

Full report available at Thank you

2011: Recent developments in the C-mkt 2011 is turning out to be a very noisy year for commodity markets: –Political turmoil in the Middle East, –Japanese earthquake and nuclear crisis at Fukushima, –Phase-out of the German nuclear capacity (closure of 8.4 Gw), –European Union (EU) sovereign debt crisis (double-dip recession?), –The US credit downgrade. Translating into a very nervous carbon markets: –Secondary market: July: record options contracted (i.e., high volatility), August volumes at second highest monthly levels ever ~800MtCO2e (180Mt CERs), August prices close to historic all-time low of February –Primary market (post-2012): Development of deals previously originated; few new origination, Strong conditionality clauses (right of first refusal ?), Preference for floating prices (at 70-95% sCER at delivery); Fewer fixed-price deals in the 5-8 Euro range (most below 7.5 Euros), Illiquid market leads to lack of transparency and wider range of prices.