1 Distribution of world climate risks Low-income countries are the most vulnerable

2 Industrialized country with an emissions cap Baseline emissions Baseline Scenario Developing country with no emissions cap Project emissions Project Scenario Project-based carbon credits Emissions target Purchase of allowances Developing country benefits from technology and financial flows $ $ ER Purchase of ERs Domestic action Emission Reductions (ERs)

Mauritius, Bagasse Cogen Africa Region Carbon Finance Project Status – November 2007 South Africa, Tshwane LFG Nigeria, SF6 red /T&D loss red Uganda, 2 LFG / Compost projects Kenya, Greenbelt Kenya, 3 Hydro Ethiopia, Humbo Assisted regeneration Rwanda, Lake Kivu + DSM Mozambique, Distrib system extension Nigeria, Cogen Ghana, Energy Efficiency Ethiopia, Elec Interconnect+Meth capt Kenya, 2 geotherm/1 Comb Cycle Uganda, 1 Cogen project 15 ERPAs+ 30 proj in pipeline South Africa, Durban LFG Swaziland, Bagasse Cogen 1 Uganda, Nile Basin Reforestation Nigeria Lagos LFG Madagascar Biodiversity Corridor Mali Acacia Plantations Niger Acacia Plantations Nigeria, Transmission loss

4 Debt Equity Cash out Cash in Yrs …………………………………… Carbon finance: payments for a stream of emission reductions Emission reductions are created only after the project is implemented, operational and registered by the UN regulator. Carbon revenues Operating revenues = annual carbon payments = other sources of revenue from service or production = debt servicing Construction Payments are made through an Emissions Reduction Purchase Agreement (ERPA) – a forward contract for the purchase and sale of carbon credits.

5 Carbon Asset as Security Can leverage commercial debt ER payments are used to amortize commercial loan.

6 Market balance demand for Kyoto mechanisms (Analysts’ expectations) Demand from EU ETS = 1,140 MtCO 2 e (900 -1,400 MtCO 2 e) Based on varying assumptions of growth adjusted for improvement in carbon intensity Expected demand from EU Governments: 450 MtCO 2 e Expected demand from Japan: MtCO 2 e (avg: 350MtCO 2 e) Expected demand from Ro Europe and NZ: 200 MtCO 2 e Based on varying assumptions of Parties about performance of additional (and existing) policies and measures Will sufficient supply be stimulated, contracted and delivered? –CDM/JI: How many reductions will they deliver on time? At what price? –AAU/GIS: How many, when and at what price? Some host countries have expressed their interest in setting GIS (Ukraine, Latvia)

7 Expected Kyoto Balance Already contracted 917 MtCO 2 e Residual demand 1,083 MtCO2e Already contracted 930 MtCO 2 e Not yet contracted > 975 MtCO 2 e Potential supply ,100 MtCO2e Demand for KMsCDM/JI supplyAAU/GIS ? : amount not yet contracted EU ETS EU-15 govts Japan RoEurope + NZ Canada ?? CDM JI

8 Choice of Buyer Price & Terms (Compare Apples to Apples) Allocation of Regulatory Risk (CER, VER) Payment upon Delivery/Advance Payment Credit Rating of Buyer (“Buy and Goodbye”) Project & Operational Experience Remedies/Penalties/Termination