1 Market View of JI in the National Context Ben Feldman Managing Director Natsource LLC UNFCCC Technical Workshop on Joint Implementation Bonn, Germany October 16, 2007

2 Overview of Presentation 1. Natsource 2. Market View 3. JI Barriers and Risks 4. Overcoming the Barriers 5. Conclusions

1. Natsource Overview  One of the largest private sector greenhouse gas (GHG) asset managers  GG-CAP purchases and manages a large pool of compliance instruments on behalf of 24 participants for use to comply with GHG emissions targets up to 2012  Combined balance sheet of GG-CAP participants of US$300 billion  Managed Accounts and Aeolus Funds take advantage of opportunities that exist in emissions and renewable energy markets to achieve superior returns for their investors  Together GG-CAP, Managed Accounts and Aeolus Funds have combined assets in excess of US$1 billion under management  Natsource utilizes its regulatory, market and trading expertise to:  Assist private firms in the strategic management of environmental risk  Provide superior returns to investors by taking advantage of opportunities in local, regional, and global emissions and renewable energy markets  Natsource’s global business is comprised of three integrated business units:  Asset Management  Transaction Services  Advisory and Research Services  Natsource size and location:  55 employees world-wide  Headquartered in New York, with offices in Calgary, La Paz, London, Ottawa, Panama City, Tokyo and Washington, D.C.

2. Market View--Unrealized Potential Source: UNEP Riso, JI Pipeline Overview (Oct 1, 2007)

Market View: ERU Price driven by Risk and Contract Terms ● Only a PIN available ● Project developing new methodology ● No DFP or Host government approval ● Poor Seller Credit ● Flexible delivery terms ● No punitive damages ● Unilateral ● Upfront payment Price increases Approved methodology Host government approval Strong project partners, technology supplier Good Seller Credit Ability for buyer to become a Project Participant (Multilateral) Project registered Guaranteed delivery schedule with punitive damages for non-delivery Payment on Delivery

6 3. Market Barriers and Risks in National Context Institutional Challenges  Political/Operational constraints—LoAs not being issued  Insufficient capacity within Host Country institutions Financial/commercial  Country risk – countries with greatest JI potential are economies in an intermediate level of transition to market economy with challenging business environment  Proponent/seller risk Ownership issues (state vs. private) Assessment of creditworthiness (lack of ratings from western agencies)  Perceived ERU issuance/delivery risk relative to CDM project cycle

7 4. Host Country Actions to Overcome Barriers  Consolidate institutional arrangements to facilitate the effective functioning of JI at the national level Consistent and Transparent approach to issuance of LoAs  Establish legislative basis for regulating ERU ownership  Foster efficient procedures with consistent, predictable outcomes

8 5. Conclusions  JI process still entails high degree of uncertainty, thus significant perceived risk for buyers  risk (perceived or actual) results in discounted pricing and/or other mitigation  Host Countries can take steps to reduce perceived risk and attract investment  Given short ‘window’ ( ) progress essential  Investment is taking place but greater transparency and certainty required before potential can be realized