1. 1 CDM market overview Jorund Buen, Partner, Point Carbon SE Asia Forum on GHG Mitigation, Market Mechanisms and Sustainable Development, Manila 11 September 2003

2. 2 Outline of presentation o Brief overview of Point Carbon o CDM demand analysis o CDM supply analysis o Summary: Why is the price low? Which factors may influence this?

3. 3 Products and tools Product Portfolio Analytical tools o News and market information: CDM Monitor, Carbon Market News, Carbon Market Europe o Research and analysis: Carbon Market Analyst, Carbon Market Quarterly, Carbon Market Projects, JI Country Profiles o Transaction database o Structural models o Empirical models o Trading systems database o CER forecaster o Country ranking (JI/CDM) o Expert polls

4. 4 Demand

5. 5 CERs: Funder’s keepers? o Annex I governments dominate CDM buyer side at present o Might keep for compliance rather than trade o However: New public- private partnerships emerge CERs issued 2005 (produced -2004) Other CERUPT NCDF PCF

6. 6 ADB/IETA study: Key insights o Planned CER procurement -2012  100 MtCO 2 e ; will likely increase (JPN, IT, SP distance to target) o Dutch dominance (MoUs; market experience; breadth of initiatives; volumes) o Preferred project type: Renewables o MoUs centred in Latin America; SE Asia gains popularity o Price preference: indicatively 3-6.5 USD/tCO 2 e (limited data); some willing to pay more for “quality CERs” o Investment preference: neighbouring countries; Latin America; large, well-known countries o Internal Annex I resource competition CDM vs JI?

7. 7 CDM’s part of the cake CountryTotal planned CER purchase, 1st Kyoto commitment period (2008-12) Austria20-30 MtCO 2 e (JI&CDM) Canada50 MtCO 2 e (CDM, JI and ET) Denmark 6,25MtCO 2 e, but  € 120 million to be invested in JI/CDM -2007 EUUnclear (depends on linking proposal and possible procurement initiative) ItalyAt least 60MtCO 2 e (JI&CDM) JapanAt least 95MtCO 2 e (JI&CDM) Netherlands67MtCO 2 e

8. 8 Kyoto gaps

9. 9 EU Gaps

10. 10 Payment and price preferences CountryPreferred price range and payment terms AustriaMarket price. Upfront payment possible. DenmarkPrice preferences not decided. Max price for domestic reductions: 18USD. Payment on delivery. Tender information not yet made public. FinlandAbout €3 (for the CDM projects in its portfolio). Upfront payment possible GermanyAbout €5. Payment terms currently discussed. JapanNone, but detailed examination of project agreements Netherlands6.7 USD is max price. May pay more for renewable energy projects. Payment on CER issuance. Sweden5 USD. May pay more for sustainable projects. Upfront payment possible.

11. 11 MoUs CountryMoUs – countries (MtCO 2 e) AustriaDiscussions with Bosnia & Herzegovina CanadaCosta Rica, Colombia, Chile, Nicaragua, Tunisia, South Korea DenmarkMalaysia; discussions with China, South Africa FinlandChina (general agreement), Costa Rica, El Salvador, Nicaragua, India FranceColombia and Morocco GermanyNone (capacity building initiatives: East Asia incl. India, Indonesia, China; Chile; Peru; Colombia) ItalyAlgeria, China, Cuba, Cyprus, Egypt, El Salvador, Israel, Moldavia, Morocco, Serbia JapanNone (close co-operation with ASEAN, China) NetherlandsColombia (25 MtCO 2 e), Costa Rica (30 MtCO 2 e), El Salvador (5 MtCO 2 e), Panama (20 MtCO 2 e), Uruguay (5 MtCO 2 e), Bolivia (10 MtCO 2 e), Nicaragua (5 MtCO 2 e), Guatemala, Honduras. SE Asia (Indonesia, Philippines)?

12. 12 Project types CountryPreferred project types AustriaEnergy efficiency, renewable energy. Not sinks. CanadaNo preferences so far. Companies decide. DenmarkRenewable energy, fuel switch, cogeneration. EUCurrent status of ”linking proposal”: sinks and large hydro in danger. ItalyRenewables (biomass), energy efficiency, landfill gas for power. JapanNo official policy but emphasis on Japanese new renewables/energy efficiency technology. NetherlandsRenewable energy, biomass, landfill gas; no sinks in CERUPT tender.

13. 13 Supply

14. 14 The CDM Pipeline Project Market PDD Approval, Executive Board Implementation Certification, CER Kyoto Market CER R NA R F R D R U R M Non-approval Risk: Failure Delay Uncertified Noncommercial PDD DB Baseline CER estimate Host approval R DA Delay R V Not validated Project Market PDD Approval, Executive Board Implementation Certification, CER Kyoto Market CER R NA R F R D R U R M Non-approval Risk: Failure Delay Uncertified Noncommercial PDD DB Baseline CER estimate Host approval R DA Delay R V Not validated Project Market PDD Approval, Executive Board Implementation Certification, CER Kyoto Market CER R NA R F R D R U R M Non-approval Risk: Failure Delay Uncertified Noncommercial PDD DB Baseline CER estimate Host approval R DA Project Market PDD Approval, Executive Board Implementation Certification, CER Kyoto Market CER R NA R F R D R U R M Non-approval Risk: Failure Delay Uncertified Noncommercial PDD DB Baseline CER estimate Host approval Project Market PDD Approval, Executive Board Implementation Certification, CER Kyoto Market CER R NA R F R D R U R M Non-approval Risk: Failure Delay Uncertified Noncommercial PDD DB Baseline CER estimate Host approval PDD DB Baseline CER estimate Host approval R DA Delay R V Not validated

15. 15 o About 2 MtCO 2 e to market in 2005 o About 0,1 % of total emissions o Dwarfed by annual variations CERs to market

16. 16 CDM host countries

17. 17 Why are prices low? o Considerable supply of PINs to few, dominant buyers that may co-ordinate actions o Demand for potential CERs limited due to uncertainty and risk – Will Kyoto enter into force? – Will CDM host country approve? – Will host country impose restrictions making project economically unviable? – Will CDM EB approve methodology & project? – Will we fail to implement the project? o Dominant CDM buyers have probably had important influence on carbon prices so far

18. 18 Future price drivers: Scenarios o Upward: o First CERs issued (only Kyoto risk left for most buyers) o Host country and CDM EB approval standardised o CER price stratification o Early CER supply limited due to barriers – Accumulated 3-3.5 MtCO 2 e to enter the market within 2005 o Linking Directive approved – Possible to convert CERs and ERUs to EU allowance units – No significant barriers to CER supply o EU ETS Allocation Plans concluded; many actors short o Russian ratification, Kyoto entry into force o Downward: o CDM awareness  no. of low-cost projects  o Sinks modalities and guidelines clarified o Host country skepticism towards pure mitigation projects  complicated approval processes o Price competition AAUs v CERs

19. 19 Prepare yourself! Selected clients: BP, Deutsche Bank, DuPont, Electrabel, ENEL, ENI, GdF, Holcim, J-Power, Norsk Hydro, Nuon, PCF, RWE, Shell, Statoil To access our analyses, order at: www.pointcarbon.com