1. KarlsruheHannover Washington, DC www.500ppm.com 500 PPM GmbH Marktlösungen für Klimaschutz 500 PPM – Supporting Small Scale CDM Projects in the Offsetting Market DJERBA FORUM September 2004

2. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH Overview Who is 500 PPM GmbH? Introduction to Offsetting Who is active in the offsetting market? Types of Projects 500 PPM Invests in The Advantages and Disadvantages of the Offsetting market for a Project Developer

3. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH Who is 500 PPM GmbH? 1. Our Vision - to motivate cost effective climate change mitigation action today. 2. 500 PPM Locations - Hannover, Karlsruhe, Washington 3. Services – We provide an offsetting platform for the sale of emissions reductions from CDM and micro emission reduction projects. 4. Clients - Multilateral orgs (e.g. PCF, World Bank, UN), the private sector (with compliance targets) & the German government.

4. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH What is Offsetting? (1) Kyoto Protocol Non Annex B Countries Annex B Countries Binding Emission Targets for SELECTED industry sectors Domestic Policy Actions Emissions Trading Joint Implementation CDM Framework Convention on Climate Change No Targets for sectors such as Transport - OFFSETTING

5. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH 500,000 ERCs were traded in offsetting/voluntary projects in 2003. (source World Bank 2004) Who is active in the offsetting market? (20)

6. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH

7. Offsetting - a market differentiating attribute for a Travel Agent. Application Travel agent offers offsetting solution to travellers. The Result Travel agent differentiated in the market. Raised awareness and interest of business clients in new environmental field.

8. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH The business case for Offsetting Private Companies: Social responsibility positioning. Increases emotional and rational reasons for consumers to choose a product/service Improves marketing efficiency. Consumer: Interest in project and feel good factor. Preference for intelligent high quality products. Sustainable Development: Supports community projects with +ve SD impacts. Emission reductions = climate change mitigation.

9. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH Projects Eligible for Offsetting Voluntary or Retail Project Market – Individual concern & Marketing Kyoto Project Market – e.g. CDM, JI, - Compliance tools Certified Emission Reduction Projects Small CDM projects Verified Emission Reduction Projects Demand from Private Sector interested in Offsetting. Demand from Private Sector interested in Offsetting.

10. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH Project Design Document Development Government Approval Project Validation Project registration Implementation & Monitoring Reporting & Verification Certification and Issuance of Emission Reduction Credits 17,000 – 40,000 5,000 – 15,000 7,000 – 30,000 2% of the CERs Adaptation & Admin Fee (US$ 5,000 for projects < 15,000 t CO2 3,000 – 15,000 per year 3,500 – 15,000 approx. 50% of validation costs No costs Illustrating Difference in Transaction Costs (I)– Costs for Small CDM Project Dev. Source: Michaelowa, Discussions with DOEs & Project Developers

11. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH Project Design Document Government Approval Project Validation Project registration Implementation & Monitoring Reporting & Verification Certification and Issuance of Emission Reduction Credits 2,000 – 3,000 Using standardized procedures 0 - 1000 Follow simplified procedures 500 – 3,000 per year Illustrating Difference in Transaction Costs (II)– Costs for Micro CDM Project Dev. Source: Experience from VER projects Verification & certification are not required. Local government and UNFCCC need updated information UNFCCC & Gov. need to be informed about the project. Not with DOE but Independent experts 2-3000.

12. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH 3 Project Examples 3. Hydro Project1. Biofuel2.Energy Efficient Housing Location: India Location: S. Africa Location: Nicaragua Fuel Switch Energy Efficiency (EE) Renewable Energy 7.5 kVa generator Install EE Technology 480 kW Pelton Turbine Approx. 90 t CO 2 /yr. 2.44 tCO 2 /hh/yr 5,371 t CO 2 /yr. Energy for 12 homes For 2,309 homes Energy for off grid area

13. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH 500 PPM Project Select & Implementation Process Transaction of eERs Payments for eERs Monitoring Database (VERs) Transaction of VERs Payments for VERs Project Developer 500 PPM DOE – CDM project Local Consultant (Non CDM) Submit PINInitial Screening Letter of Intent Prepared & Signed PDD DevelopedValidation & PDD QA/QCValidation Emission Reduction Purchase Agreement Prepared and Signed Verification Receive annual payment Quantity sold registered in database. Spot Check Audits of monitoring. Monitoring

14. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH Advantages of Developing Projects for Offsetting Transaction Price can be lower for VER projects. Supports real sustainable development at the grassroots level Can raise finance to support CDM project Development. E.g. VER then CDM Current prices per credit are higher in offsetting market compared to carbon purchasers

15. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH Disadvantages of Offsetting Unsteady income stream. The quantities of emission certificates purchased are small and not always annual. Lack of Standard Regulations for the Projects that are not CDM projects. Preference for CDM projects rather than micro projects. Offsetting tolerated, but not yet connected to existing UNFCCC Framework. NGOs are concerned about quality controls for non CDM projects. Lack of awareness of market in many developing countries. i.e. local communities with small projects could benefit but do not know about offsetting markets.

16. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH For More Information Contact: Felicity Thomas at: fthomas@500ppm.com

17. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH Back up slides

18. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH Registration Costs for CDM Projects Average tCO2 eq. US$ reductions per year over Crediting period <15,000 5,000 > 15,000 and <= 50,000 10,000 > 50,000 and <= 100,000 15,000 > 100,000 and <= 200,000 20,000 > 200,000 30,000

19. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH The 500 PPM Offsetting Platform at www.klimabalance.de www.klimabalance.de

20. © 500 PPM Gesellschaft für Emissionshandel und Beratung mbH Small-Scale CDM Expert panel proposed simplified modalities and procedures What is small-scale? RES less than 15 MW capacity Energy efficiency less than 15 GWh/year Other projects emitting less than 15 kilotonnes CO 2 /year Proposed simplifications Bundle project cycle stages Simplified baseline and monitoring methodologies 14 small-scale project activity categories have been proposed New categories can be proposed Projects developed in consecutive tranches not eligible