Providing critical insights into energy and environmental markets Overview of the Carbon Market Olga Gassan-zade Director, Point Carbon UNFCCC Technical Workshop on JI 16 October 2007

Providing critical insights into energy and environmental markets About Point Carbon Kiev Founded in April 2004 Focus: JI, AAU markets and CDM Central Europe, Russia, Ukraine, Belarus, Kazakhstan, other FSU republics Analysis, news, conferences In house production of Carbon Project Manager 20 employees: 10 analysts, 1 PhD

Providing critical insights into energy and environmental markets Physical volume (2,397 Mt CO 2 e) CDM 23% EU ETS 73% JI 2% Other 2% Financial value (€23.6 billion) CDM 18% JI 1% EU ETS 79% Other 2% Source: Point Carbon

Providing critical insights into energy and environmental markets Market Activity (Forecast)

Providing critical insights into energy and environmental markets Kyoto Gaps ( ) 05001,0001,5002,0002,5003,000 EU 15 Japan Canada Others [Mt CO 2 e] Net Kyoto Gap NTP GPP ETS Source: Point Carbon, June 06

Providing critical insights into energy and environmental markets Supply: Majority already in pipeline Total CDM JI Mt Existing projects - not risk-adjusted Upcoming projects - not risk-adjusted 19 % 81 % 94% 70%30% 57%43% Source: Point Carbon

Providing critical insights into energy and environmental markets Overview of JI Activities (as of Sept. 2007) CDMJI # Projects/ transaction s Total volume (MtCO2e) # Projects/ transactions Total volume (MtCO2e) Projects (total) 5,1333, Projects (PDD) 2,7402, Registered and above 7981,08513 Transactions5861,

Providing critical insights into energy and environmental markets Up-coming CDM projects Industrial processes Renewable Energy efficiency Waste Fugitive emissions Gas flaring Fuel switching LULUCF Geosequestration Other Mt Existing projects - not risk-adjusted Upcoming projects - not risk-adjusted Source: Point Carbon

Providing critical insights into energy and environmental markets Up-coming JI projects Fugitive emissions Industrial processes Renewable energy Energy efficiency Fuel switching Waste LULUCF Mt Existing project - not risk-adjusted Upcoming projects - not risk-adjusted Source: Point Carbon

Providing critical insights into energy and environmental markets Issuance 0% 20% 40% 60% 80% 100% Industrial processes Fuel switching RenewableEnergy efficiency WasteTotal Issuance rate Source: Point Carbon

Providing critical insights into energy and environmental markets Adjusting JI deliveries Fugitive emissions Renewable energy Industrial processes Energy efficiency WasteFuel switching LULUCF Mt Not risk-adjusted Risk-adjusted - 56% - 36% - 60% - 35% - 39%- 38% Source: Point Carbon

Providing critical insights into energy and environmental markets RussiaUkrainePolandRomaniaBulgariaOthers Mt High estimate Best estimate Low estimate Source: Point Carbon Dominated by Russia?

Providing critical insights into energy and environmental markets 4,066 2, ,000 2,000 3,000 4,000 5,000 CDM face value CDM PCA estJI face valueJI PCA estTotal face value Total PCA est Mt -35 % - 52 % - 38 % Source: Point Carbon What we say they will deliver

Providing critical insights into energy and environmental markets Demand in EU ETS Phase II ( ) Will NAPs ensure scarcity? –Emissions 2270 Mt/year –Cap + reserves÷ 2050 Mt/year –EU ETS demand 220 Mt/year Will CERs/ERUs cover the shortage? –Total supply 390 Mt/year –Government purchase ÷ 140 Mt/year –Non-EU demand ÷ 40 Mt/year –CERs/ERUs available for EU ETS 210 Mt/year  CER/ERU supply will be a key price driver in the EU ETS

Providing critical insights into energy and environmental markets Supply and demand - reference scenario Phase II supply and demand balance But, annual shortage until 2011 Companies will have to borrow for compliance

Providing critical insights into energy and environmental markets Outlook Watch for the final battle –Post-2012 puzzle –Japan to open demand 2010 –Will Russia ever issue ERUs? –Green Investment Schemes Supply/Demand –Will the be post-2012 demand? –Non-Kyoto markets? –How will supply markets react?

Providing critical insights into energy and environmental markets Thank you for your attention! Olga Gassan-zade