Investing In Clean Energy

UNIVERSITY OF PETROLEUM & ENERGY STUDIES

Investing In Clean Energy Carbon Fund & Trading Strategies

Under Guidance of: Mr. Vikas Kumar Visiting Faculty

Prepared By:

MS Energy Trading

COLLEGE

OF

Ankur Bhatnagar R130107006

MANAGEMENT STUDIES, GURGAON

2009

Investing in clean energy

Investing In Clean Energy SUBMITTED BY: ANKUR BHATNAGAR R130107006

UNDER GUIDANCE OF MR. VIKAS KUMAR FACULTY UNIVERSITY OF PETROLEUM & ENERGY STUDIES

Report of dissertation submitted in partial fulfilment of requirements for MS (Energy Trading) 2|Page

Ankur Bhatnagar

Investing in clean energy

November, 2008 University of Petroleum and Energy Studies, Gurgaon, India

ACKNOWLEDGEMENT

This is to acknowledge with sincere thanks for the assistance, guidance and support that I have received during the dissertation research and analysis. I place on record my deep sense of gratitude to Mr. Vikas Kumar, my mentor and visiting faculty to University of Petroleum and Energy Studies faculty members and management of College of Management Studies, Gurgaon for giving me guidance and opportunity to successfully complete my research work. My very special thanks to Mr. Anmol Singh Jaggi, Director of Gensol Consultants Pvt. Ltd. and other members of Gensol family for their constant advice and support.

Ankur Bhatnagar R130107006 MS (Energy Trading) University of Petroleum & Energy Studies NCR Campus, Gurgaon (HR)

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Ankur Bhatnagar

Investing in clean energy

Table of Contents ACKNOWLEDGEMENT .......................................................................................................................................................... 2 Table of Contents .................................................................................................................................................................... 4 ABSTRACT.................................................................................................................................................................................. 6 1. Introduction.......................................................................................................................................................................... 9 Background ...................................................................................................................................................................... 9 Carbon funds continue grow .................................................................................................................................. 11 Private sector now the dominant source of finance for carbon funds ................................................... 11 2. Purpose of Study .............................................................................................................................................................. 12 3. Scope of Study ................................................................................................................................................................... 12 4. Research Methodology .................................................................................................................................................. 13 5. Literature Review ............................................................................................................................................................ 14 6. Research & Analysis ....................................................................................................................................................... 16 CDM project cycle ............................................................................................................................................................ 16 Legal documents for CDM project development ............................................................................................ 18 Key institutions under the CDM ............................................................................................................................ 20 Eligible CDM project types ...................................................................................................................................... 21 Small-Scale projects ................................................................................................................................................... 21 CDM project development costs ........................................................................................................................... 22 Overview of Certificate Types .................................................................................................................................... 24 Structure of Carbon Market ................................................................................................................................... 26 CDM and JI in EU-ETS .................................................................................................................................................... 27 CDM Financing Schemes ............................................................................................................................................... 31 Country Programmes ..................................................................................................................................................... 34 Private Carbon Funds .................................................................................................................................................... 35 CASE STUDY: ..................................................................................................................................................................... 39 4|Page

Ankur Bhatnagar

Investing in clean energy

Clean Development Mechanism (CDM) in Asia ................................................................................................... 41 Conference of the Parties ............................................................................................................................................. 53 Conference of the Parties 14 .................................................................................................................................. 57 Conference of the Parties 15 .................................................................................................................................. 58 Trading Strategies:.......................................................................................................................................................... 64 Strategies of Trading Carbon Fund: .................................................................................................................... 64 Carbon Market Beyond 2012 ...................................................................................................................................... 70 6. Conclusions ........................................................................................................................................................................ 74 Predictions ......................................................................................................................................................................... 80 7. Bibliography ...................................................................................................................................................................... 86

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Ankur Bhatnagar

Investing in clean energy

ABSTRACT Among the countless environmental buzzwords floating around, Carbon Neutrality is fast gaining appeal and momentum. It refers to the idea of reducing and ultimately neutralizing one's 'carbon footprint' through offsets. Interest in carbon neutrality has grown dramatically over the last few years and is no longer a field confined to the few enlightened companies and individuals looking for an opportunity to 'do the right thing'. Rather, it is becoming an environmental commodity market fast catching up with public interest. If one is looking for interesting (and environmentally friendly!) investing ideas, renewable energy funds may be the way to go. These funds doing fairly well and they could see even more boosts, thanks to the efforts of Congress to put substantially more funding toward renewable energy -- by taking it away from Big Oil. Asia Pacific Carbon Fund is one such fund managed by Asian Development Bank and is scouting for renewable energy and energy efficient projects in India to provide co-financing and technical support. The fund co-finances CDM projects in return for Certified Emission Reductions. The seven European countries, including Belgium, Finland and Switzerland, expect the fund to help them achieve their carbon emission reduction commitments under the Kyoto Protocol. It seeks to be more than just a simple certified emissions reductions (CER) procurement fund and offers several advantages to CDM project developers. The fund will chip in with funding upfront to fill the financing gaps to ensure the financial closure of CDM projects and reduce green house gas (GHG) emissions. ADB also intends to consider broader opportunities in methane utilisation, biomass projects and methane capture and utilisation projects.

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The fund would also offer technical support, on a grant basis, for capacity building and the development of CDM projects, the official said.

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Investing in clean energy

There are no clean energy index mutual funds currently available, but recent years have seen a rapid proliferation of new exchange traded funds. Environmentally friendly mutual funds have been around for a while. They mainly focus on companies that have sound environmental practices. What the market is really heating up on, though, are renewable energy funds, which consist almost entirely of companies that deal in renewable energy. There are two types of renewable energy funds: mutual funds and exchange traded funds. Mutual funds are going to come with the general accoutrements like fees and expense ratios. Exchange traded funds are traded like stocks and will be subject to regular commission/flat fee type costs. Here is what CNN Money points out about gearing toward these renewable energy funds, as well as other environmentally friendly investing practices: “There was a time when investors could count on losing a few percentage points in returns in exchange for making "green" or "socially responsible" investments, but one analyst said that is changing.” "I don't think they exceed expectations, but I don't think they disappoint either," said Jeff Siegel, managing editor of Green Chip Stocks, an investment newsletter focusing on environmentally friendly companies. Investor interest in renewable energy funds is certainly growing. While many alternative energy companies aren't close to being profitable, the future potential for such investments is fairly good. If you have the risk tolerance for it, this might be a good addition to a well-balanced investment portfolio that is looking for a way to increase some of its returns, but can absorb the losses if renewable energy ends up tanking.

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Investing in clean energy

1. Introduction Background For today, energy efficiency makes even more sense in tight financial times. Businesses can't afford to waste energy and drain their bottom lines from high energy bills, while causing more pollution to our environment. Improving energy efficiency is an investment that can achieve a healthy return. Smart businesses view their energy efficiency investments as a profit-centre. Industry accounts for one-third of all energy use in the energy-intensive industrial plants typically have enormous energy bills, sometimes running into the millions of dollars annually. Energy efficiency improvements offer the potential for a significant return on investment for the industrial energy consumer in the form of lower utility bills, as well as for the public in the form of reduced pollution and energy prices. Given all the attention that renewable energy is getting in the news over the last couple years, investing in renewable energy has become a hot topic. People are drawn to renewable energy for one of several reasons: 

To fight Global Warming



To prepare for Peak Oil.



To improve Energy Security and local economies.



To cash in on the above trends.

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Ankur Bhatnagar

Investing in clean energy

The beauty of investing in renewable energy companies is that these goals are not mutually exclusive. With one investment, the investor can feel good about what his money is doing for three reasons, while putting his money in what is proving to be a spectacular growth story. The same is true for improving energy efficiency in our homes. "Investing in a home on your street could be more profitable than investing on Wall Street," says the energy team at Lawrence Berkeley National Laboratory. These days -- no kidding! Energy efficiency lightens the load on household energy bills and bank accounts. It's a safe and sound investment. The India is beginning to invest more heavily in clean renewable energy technologies and cleaner, more fuel efficient cars of the future. Invest in the clean wind power and solar technologies of the future and not cede the next generation's global leadership to other countries that do invest. Produce the innovative clean cars here that can get 50 miles per gallon or better and reduce country's dependence on foreign oil. Gain the green jobs of the future in a carbon-constrained economy, and not cling only to the declining jobs of old-technology cars and trucks with declining sales. One should invest more in upgrading energy efficiency because it saves us money, creates jobs and avoids pollution today and over the next twenty years. India should invest in achieving technological breakthroughs with solar energy, greater utilization of wind energy, and gaining advances in new, more efficient battery technologies. India should invest in getting more domestically manufactured plug-in electric hybrids and other clean cars on the road as soon as possible. In today's challenging economic times, these investments are even smarter, more sensible and more necessary going forward.

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Carbon funds continue grow In spite of the turbulence in the financial sector the carbon market has continued to attract new money. Since the start of the year nine new carbon funds have been created raising a total of $560m. The largest single capital raising was Sindicatum’s Istithmar & Sindicatum Climate Change Partnership which closed $280m during the summer, out of a target of $600m. The three other major closings were the Arcelor Mittal Carbon Fund at $157m, the Nordic Carbon Fund with $62m and the NEFCO Carbon Fund with $58m. Other funds that have been created and who’s funding remains open include: Akeida’s Environmental Master Fund, the Brazil Sustainability Fund, Credit Suisse CER Fund, DWS CO2 Opportunities Fund (closed $4.5m) and Green Ventures India Carbon Fund.

Private sector now the dominant source of finance for carbon funds Total private sector investment in pure play carbon investment vehicles now stands at $9.4bn which sits alongside public / private investment of $3.0bn. Having made the initial front running in carbon fund investment, the public sector investment in dedicated carbon funds substantially lags the private sector at a mere $3.4bn. In total, New Carbon Finance estimates that some $15.8bn has been invested in carbon funds to date.

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2. Purpose of Study

Purpose of study is to analyse carbon market and bring out feasibility and strategies for investment in Clean Development Mechanism in India. EU Emission Trading Scheme will be studied in corelation to CDM. The reason for focusing on EU-ETS with Kyoto Protocol is India’s share in Carbon Emission Reduction (CER) market and EU is main buyer of CERs from India.

Objectives: 

To bring out expected returns on investment in carbon market



To find an optimal strategy for raising and allocation of fund in carbon market



To highlight upcoming concept of clean development: Carbon Neutrality

3. Scope of Study The study will focus on following areas related to nuclear energy in India: 

Voluntary and Compliance market overview



Carbon Fund



Demand – Supply of CERs



Key decisions of COP14 at UNFCCC Conference in Poznań, Poland



Beyond 2012? COP15 at Copenhagen



Carbon Market Beyond 2012

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4. Research Methodology

The research problem is going to be studied by using Descriptive research. Descriptive research is used to obtain information concerning the current status of the phenomena to describe "what exists" with respect to variables or conditions in a situation. The methods involved range from the survey which describes the status, the correlation study which investigates the relationship between variables, to developmental studies which seek to determine changes over time. For research no hypothesis has been created and report will be discussing about the present scenario and the challenges before carbon market, nuclear energy, nuclear power producers, etc. Data Sources Primary Data: Some primary data will collected by way of telephonic interview, personal interview and e-mail conversation with experts and professionals dealing in this field. Secondary Data: The secondary data was collected by visiting various Internet sites such as ministry of petroleum and natural gas, UNFCCC is pool of information on CDM and hence has been used extensively, various global energy exchange websites, national statistical organisations of respective countries, Google search etc. but Wikipedia is not used as source of facts and figures as it is an editable source of information. Data processing The data is collected from various sources as stated above. All the primary data has been processed is using pricing model and Micro Soft Excel. The secondary data collected is analyzed and processed to produce the result for the study. Look a like figure from the companies data are used. The actual company database figures are not used so as to maintain business confidentiality and being abided by code of conduct, but in case of open source of information exact numbers are used.

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Investing in clean energy

5. Literature Review From ocean of knowledge and information a pool of selected sources was created for the purpose of this report. During the research work and compiling data author came across many reports, newsletters, write-ups, blogs, company policies and of course n-number of websites highlighting importance and need of research in the area of clean energy investments. Some important sources are: Newsletters: Investor's Business Daily: Clean-Energy ETF Slips As Bush Speech Fades, BY MURRAY COLEMAN, Posted 3/14/2006. “Bush calls for clean-technology fund”, January 29, 2008 8:27 AM PST, by Martin LaMonica. Posts from Green Tech on: •

Planned Florida City aims for solar self-sufficiency

•

California utilities plug energy-efficient electronics

•

To cool data centres, let the breeze flow in

•

Carbon market is closely watching the U.S.

•

Interior secretary: Wind could replace coal power

•

Companies still keen on green despite economy

•

Green news harvest: Big Oil's lip service on clean energy

•

EU bank grants $1.2 billion in loans for clean cars

Carbon Market Data, a European company providing carbon market research services, issued a data summary on the recent release of the EU Emissions Trading Scheme‘s 2007 verified emissions reports. Speech: By The Rt. Hon Elliot Morley MP, President of GLOBE International, World Bank, 11th October 2008, on “Global slowdown strengthens case for low carbon transition” “Green Speech”, Connecticut Fund for the Environment.

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“Financing Clean Energy: A Framework for Public-Private Partnership to address Climate Change”, Conference held at the EBRD, London, March 13-14 2007, Keynote address Paul Wolfowitz, President, the World Bank Group

Reports: 

ACEEE's Ohio report entitled The Potential for Energy-Efficiency in Ohio.



ACEEE’s State Clean Energy Resource Project (SCERP)



“EU ETS and Kyoto Mechanisms: Twisted Hierarchy”, by Mr. Alexander Vasa, PhD Candidate (EDLE), Maastricht Alma Mater, January 29, 2009



“JI in the EU-ETS: Building blocks for a global carbon market”, Thomas Bernheim, Marketbased instruments + EU ETS Unit, European Commission.



“European Wholesale Carbon Market Development”, researchandmarkets.com.



“Tufton Oceanic”, Oceanic Hedge Fund



“State and Trends of the Carbon Market 2008”, Washington, D.C. �May 2008, Funded by World Bank.

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Investing in clean energy

6. Research & Analysis CDM project cycle Carrying out a CDM project and receiving final registration by the CDM Executive Board requires multiple steps. These steps are regarded as the CDM project cycle, and are put in place in order to safeguard the actual climate benefits of CDM project activities. The project cycle can be seen in the figure below:

Figure 1: CDM Project

Source: Adapted from "Using the CDM into energy planning – A case study from South Africa", James-Smith, E

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Project Design This step involves developing a Project Design Document (PDD), which is a standard format describing how the activity intends to fulfil the pre-requisites for registration as a CDM project. The PDD consists of a general description of the project, its proposed baseline methodology, a timeline and crediting period, a monitoring methodology, calculation of GHG emissions by source and stakeholder comments. The host country Designated National Authority (DNA) must issue statements on the PDD indicating that the government of the host country participates voluntarily in the proposed activity and that the project assists the host country in achieving sustainable development. Validation and Registration Validation is a process involving an independent evaluation of the project activity by an external auditor known as a Designated Operational Entity (DOE), which is hired by the project participants (a list of DOEs can be downloaded from the UNFCCC website). The DOE reviews the PDD in order to determine whether the project meets CDM requirements. Once a project activity has been validated by a DOE a validation report is forwarded to the Executive Board (EB) for registration as a CDM project. The registration of a project will be final within eight weeks after the date of receipt by the EB unless at least three members of the EB request a review of the project activity. Monitoring Once the project is operational the emissions that occur from the activity must be monitored. This is done according to the monitoring plan submitted and approved in the PDD, which indicates the method used for measuring emissions from the project and how data relevant for these calculations will be collected and archived. The information on emission reductions must be included in a monitoring report estimating the amount of CERs generated and submitted to a DOE for verification. 17 | P a g e

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Investing in clean energy

Verification and Certification Verification is the independent review of the monitoring report submitted by the project participants. A DOE different to that involved in the validation process carries out verification (a list of DOEs can be downloaded from the UNFCCC website). The DOE must ensure that the CERs have been generated according to the guidelines and conditions agreed upon during the validation of the project. A verification report is then produced. The same DOE that verified the project also certifies the CERs generated by the activity. Certification is the written assurance from the DOE that the project achieved the stated level of emission reductions and that these reductions were real, measurable and additional. The certification report constitutes a request to the EB for issuance of CERs. Unless a project participant or at least three members of the EB request a review within fifteen days the EB will instruct the CDM registry to issue the CERs.

Legal documents for CDM project development In order to comply with the modalities and procedures for CDM project validation and registration by the CDM Executive Board, the project developer must ensure completion of the right documentation. Project Idea Note The first step is to receive national approval by the host country DNA. Some countries might require the elaboration of a Project Idea Note (PIN), which a document is aiming at describing the initial project idea, including anticipated emission reduction measures and investment costs related to the project activity. This document is not a legally required in order for a project activity to be eligible under the UN, thus it is recommended that the project developer study the specific requirements for CDM project development as defined by each host country.

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Investing in clean energy

Project Design Document The Project Design Document (PDD) creates the basis for the validation and registration process under the UN. The PDD contains all relevant information regarding the project activity, including a thorough description of the proposed emission reduction activity, a justification of the additionality requirement. In addition the PDD should contain a monitoring plan to explain how the emission reductions will be monitored. Emission Reduction Purchase Agreement In order for sellers and buyers of carbon credits to enter into a trade agreement the Emission Reduction Purchase Agreement (ERPA) is commonly used. The ERPA sets forth the terms and conditions of credit delivery and payment between the seller and the buyer. This document takes various forms but the main objective of the agreement is to cover the legal aspects of credit ownership, the terms of payment and delivery and the management of risks inherent to the transaction.

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Key institutions under the CDM Conference of the Parties/Meeting of the Parties (COP/MOP) The COP/MOP is the overall authority of the intergovernmental system for dealing with climate change under the UN and thus also the superior body of the handling of the CDM. The COP/MOP decides and provides guidance of relevance to the CDM, which includes taking decisions on basis of recommendations and suggestions provided by the Executive Board as well as provides guidance to further activities under the CDM Executive Board (EB) The EB is the core institution of the CDM responsible for supervising the CDM process under the authority of the COP/MOP. The EB plays a vital role in the CDM and is responsible for maintaining the integrity of the CDM and for exercising regulatory functions by contributing to the development of guidelines and procedures for CDM project development as well as provide guidance on how certain regulations should be interpreted. In addition to this the EB has the responsibility of registering CDM project proposals as well as issuing CERs. Designated National Authority (DNA) All parties wanting to participate in the CDM must establish a Designated National Authority (DNA) in order to approve CDM project activities and assist providing guidelines and procedures for CDM activities in accordance with national regulation and priorities. In non-Annex 1 countries the DNA is the key entity involved with CDM and is the institution responsible for ensuring that the host country maintains control over the CDM project activities undertaken in its country. In this regard the DNA specifically has the responsibility of ensuring that CDM activities meet the sustainable development objectives determined by the host country.

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Designated Operational Entity (DOE) The DOE is independent private companies or consultants accredited by the EB to function as external controllers of the CDM project activities. This involves validating that all procedures and documentation required for CDM project activities comply with the rules and modalities established under the mechanism. The main task of the DOE in this regard is to confirm that a given project activity is additional.

Eligible CDM project types In order to comply with the overall framework for CDM project development the project type applied must be eligible under the framework of the Kyoto Protocol. In general all projects that reduce greenhouse gas emissions, while at the same time complying with the host country sustainable development criteria and the additionality requirements as stated under the Kyoto Protocol, are eligible as CDM. In order to safeguard the actual climate benefits of CDM projects the crucial feature is to prove that CDM projects are additional. This implies that it should be possible to demonstrate that the proposed project activity is not the business as usual scenario and that the emission reductions are additional to any reductions that would have occurred in the absence of the project activity. This can be done by demonstrating that the CDM can help overcome some existing barriers for implementation of a given emission reduction activity.

Small-Scale projects Small scale CDM projects are projects that apply to one of the following three definitions: Type (i) project activities: renewable energy project activities with a maximum output capacity equivalent to up to 15 megawatts.

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Type (ii) project activities: energy efficiency improvement project activities, which reduce energy consumption, on the supply and/or demand side, by up to the equivalent of 15 gigawatt hours per year. Type (iii) project activities: other project activities that both reduce anthropogenic emissions by sources and directly emit less than 15 kilotonnes of carbon dioxide equivalent annually. In order to reduce transaction costs for developing small-scale projects simplified rules and modalities are developed for this purpose.

CDM project development costs Several costs have to be made to register a project as a CDM project and before the tradable CERs can actually be generated. The transaction costs related to the development of CDM projects comprises the costs related to the validation of a CDM project activity, which requires use of external experts (the so called Designated Operational Entities – DOE) as well as payment of registration fees to the Executive Board under the UNFCCC and fees for receiving national approval by the host countries, if this is required. These costs can vary from 40,000 US$ to as high as 150,000 US$ per project. Prices do not reflect the sizes of the project thus large projects are often preferred in order to comparatively reduce transaction costs. In order to ease the transaction costs for smaller projects modalities for a category of small-scale projects are defined under the CDM framework, allowing these projects to utilize simplified rules and procedures for project development.

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Table 1: Fee Charges

Indicative prices related to the registration of CDM projects by the EB Average tonne of carbon dioxide equivalent reductions per year over the

USD

crediting period (estimated/approved) <= 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

Source: compiled data from the UNFCCC website

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Overview of Certificate Types (Source: Future Camp GmbH, July 2007) There are 5 main types of emission reduction certificate: 

Certified Emission Reductions (CERs)



Emission Reduction Units (ERUs)



Voluntary Emission Reductions (VERs)



EU-Allowances (EUAs)



Assigned Amount Units (AAUs)

Certificates generated from emission reduction projects, Clean Development Mechanism (CDM) & Joint Implementation (JI) - which are the mechanisms introduced within the Kyoto Protocol under the supervision of UNFCCC - are called Certified Emission Reductions (CERs) and Emission Reduction Units (ERUs) respectively. The JI projects are implemented in industrialized countries with an emission target, whereas CDM projects are conducted in developing countries, which do not have any emission reduction obligations. Marrakesh Accords, which act as an amendment to the Kyoto Protocol, regulate processes of those project-based mechanisms. For projects, which cannot be implemented as JI or CDM, but still fulfil the required standards, other certificates types can be generated, namely Voluntary Emission Reductions (VERs). As VER is not accredited by UNFCCC, it cannot be used for compliance purposes under the Kyoto Protocol. However VER units can apply for voluntary compensation purposes. Both CERs and VERs can currently be generated, whereas ERUs are available from 2008 onwards. Nevertheless JI projects are already implemented, although without generating any credits.

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EU-Allowances (EUAs) are credits issued within the European Union for the installations underlying the Emission Trading Scheme. By their retirement the emission rights will be withdrawn from the market to avoid emissions in the accordant amount. Apart from EUAs, the installation operators can use CERs and ERUs for compliance with their emission targets. Assigned Amount Units (AAUs) are credits available for the countries, which are the parties of the Kyoto Protocol (Annex B). The credit amount is assigned according to their national emission caps; therefore they are also available for trading. In contrast to EUAs, these certificates are traded only on the national level from 2008 onwards. The following figure shows the most important certificates types on the European and worldwide market:

Figure 2: Main types of emission certificate (source: Future Camp GmbH, 2007)

In order to assure the highest quality certificate quality, various additional standards can be applied. Currently one of the most well-known and strict standards for implementation of JI, CDM and VER projects is the "Gold Standard" (www.cdmgoldstandard.org), which was launched by the World Wide Fund for Nature (WWF) in 2003.

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Structure of Carbon Market Allowance Based Markets

Kyoto Protocol

CERs/ERUs

Objective: 5.2% reduction from1990

Europe: European Union

level of all GHG emission in developed

Emission Trading Scheme

countries that have ratified the Kyoto

(EU-ETS)

protocol

Actors: Countries that have ratified the

Objective: 8% reduction in CO2 emission from 1990 levels in the EU-15 at minimum

Kyoto Protocol

cost, using cap & trade mechanism.

Flexible Mechanism:

Actors: Energy supply & use, Transport, Industrial

• • •

Joint Implementation (JI) Clean Development Mechanism (CDM) International Emission Trading (IET)

processes,

Agriculture,

Waste,

Credits:

European

Union

Other.

Carbon

Allowances (EUA) & CER/ERU from Kyoto Mechanisms.

USA: Regional Greenhouse Gas

Carbon Credits: • • •

Initiative (RGGI)

AAU: Assigned Allowance Units CER: Certified Emission Reduction (From CDM Projects) ERU: Emission Reduction Units (From JI Projects)

Objective: Cap and trade program for greenhouse gas emissions from power plants

Actors: Maine, New Hampshire, Vermont, Connecticut,

New

York,

New

Jersey,

Delaware, Massachusetts, Maryland, Rhode Island.

Carbon Credits: VER form member states

Voluntary Market Objective: Offsets greenhouse gas on a voluntary basis

Actors: Companies, Local Authorities Carbon Credits: VER 26 | P a g e

VERs Ankur Bhatnagar

Investing in clean energy

CDM and JI in EU-ETS Kyoto Protocol enables the companies to participate in climate protection projects within two flexible mechanisms: Clean Development Mechanism (CDM) and Joint Implementation (JI). By means of the Clean Development Mechanism, projects in developing countries that contribute to emission reductions (e.g., replacement of obsolete power plants in Africa) receive financial support. A project developer can be a company or a country and the project can be either placed in industrialized and/or in the developing country. Project developers, by generation of emission reduction credits, can either use the credits for their own emission-reduction obligations or sell such certificates on the market. The first CDM project was acknowledged at the end 2004, and there were over 1379 projects registered by 19th Feb. 2009. Joint Implementation (JI) is a similar mechanism; however it is applied to projects within industrialized countries. The emission reductions generated by JI also can be used to comply with own compliances or can be sold. As mentioned above, JI projects can be already implemented, however the emission credits can only be generated from 2008 onwards. Till 19th Feb 2009 only one project of JI had received issuance of about 331000 ERUs. Other 30 projects are requesting issuance. Its expected that till 2012 about 300 million ERU will be available in international market for trading. The basic principles are determined by the EU Linking Directive, Directive 2004/101/EC (27 October 2004), which serves as an amendment to the Emission Trading Directive with the objective of incorporation of the climate protection projects, JI and CDM, into European Emission Trading.

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Emission Trading & EU-ETS Only countries and not companies are obligated to reduce their emissions under Kyoto Protocol and EU Burden Sharing Agreement. From 2005 on, EU emissions trading determined reduction obligations relevant for installations, which on country level are further passed into various installations. The amount of the allocated emission credits depends on the type of an industrial sector and the size of the installation, respectively the amount of emitted GHG (Greenhouse Gases). The basic idea behind emissions trading is plain and simple: For each installation, a total amount of CO2 allowances is defined for the entire period. The state issues a predefined amount of tradable certificates ("allowances") to the companies, where each certificate authorizes to emit one ton of CO2 during a specified period (e.g. 2005 to 2007 or 2008 to 2012). The state gradually reduces the amount of allocated certificates, therewith reducing the emission of climate relevant gases. Altogether for the first crediting period 2005-2007 in 25 European Union member states there were allocated 2.1 billion tCO2 per year. Additionally installations from Bulgaria and Romania from 2007 on are also covered by the scheme, which may bring further 153.8 million tCO2 per year to the scheme, if the European Commission in the submitted form accepts both plans. Regarding the so far allocated emission rights, almost all member states allocated them 100 % free of cost. Allocation was based on historical emission data as well as on benchmarking. There are relevant country-specific differences particularly regarding the design of new entry reserves and special allocation rules (e.g. early action). Currently the National Allocation Plans for the second crediting period are in the approval process, where so far (25.06.07) 22 NAPs were already adopted. In most cases the assigned amounts needed to be shortened in regard to the amount proposed in notified drafts, as well as the maximum overall amount of the Kyoto project credits (CERs and ERUs) to be used by operators for compliance purposes.

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Topic Conclusion: Emission trading offers the companies with emission obligations a lot of flexibility with regard to CO2 avoidance they can decide how, where, when and whether they wish to implement CO 2 reduction measures. In order not to exceed their own emission budgets (caps), they can reduce the CO2 emissions in their own installations, as well as they can purchase allowances on the market or generate certificates by implementing climate projects. Ultimately, the decision will extensively depend on the cost-effectiveness of the avoidance option, although other factors also have considerable impact, e.g. risk management and marketing aspects. Any company that is able to reduce its emissions so cost effectively that a credit surplus remains can sell the excess certificates. On the other hand, it might make sense for a company to purchase additional credits instead of reducing its own emissions, especially if the additional allowances would cost less than the emission reduction of the same amount within the company. The cost of allowances depends on the ratio of the credits supply and demand on the market. Trading can take place bilaterally or on the market. In all cases each transaction is passed to account in the emissions register of the participating countries and companies.

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Procedural inefficiencies and regulatory bottlenecks have strained the capacity of the CDM infrastructure to deliver CERs on schedule, as too many projects await registration and issuance: 

Out of 3,188 projects in the currently pipeline, 2,022 are at validation stage.



Market participants report that it is currently taking them up to six months to engage a Designated Operational Entity (DOE), causing large backlogs of projects even before they reach the CDM pipeline.



Projects face an average wait of 80 days to go from registration request to actual registration. The Executive Board has requested a review of several projects received or registration, has rejected some of them, and has asked project developers to re-submit their projects using newly revised methodologies. There is a very short grace period allowed to grandfather the older methodology, and the additional work adds to delays and backlogs.



Projects are currently taking an average of 1-2 years to be issued from the time they enter the pipeline. Over 70% of issued CERs come from industrial gas projects, with the vast majority of energy efficiency and renewable energy projects remaining stuck somewhere in the Pipeline.’

Topic Conclusion: These delays are affecting expected CER delivery schedule, payments as well as dampen enthusiasm for further innovation, which is urgently needed to mitigate climate change. Delays in payments favour self-financed projects by large and wealthy project developers. Projects that really need the carbon payments to overcome barriers are more likely to fail as a result of these delays. Clearly, the delays are untenable and are a major risk to CDM momentum and market sentiment.

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Investing in clean energy

CDM Financing Schemes This CDM Financing Schemes provides an overview of possible investment schemes that support CDM climate activities, both with regard to direct project finance as well as trading schemes that aims at purchasing CERs generated from CDM projects. Multilateral Carbon Funds under the World Bank Prototype Carbon Fund Objective: The mission of the Prototype Carbon Fund (PCF) is to pioneer the market for projectbased greenhouse gas emission reductions within the framework of the Kyoto Protocol and to contribute to sustainable development. Coverage: Six governments and 17 companies, all from industrialized countries, have contributed $180 million in funds to the PCF, which currently have approximately 30 projects under preparation. The project portfolio covers a variety of technologies including renewable energy, energy efficiency, solid waste management and industrial gas emissions abatement. Community Development Carbon Fund Objective: The Community Development Carbon Fund (CDCF) provides carbon finance to smallscale projects in the poorer areas of the developing world. The CDCF will purchase greenhouse gas emission reductions from projects that contribute to poverty reduction and help improve the quality of life of local communities in the least developed countries as well as poor areas of developing countries. With the capacity of $128.6 million, the CDCF was closed to further subscription in January 2005. Coverage: Contributors to the CDCF support projects that measurably benefit poor communities and their local environment. In return these will receive verified emission reductions from the projects developed under the fund. Resources from donors are mobilized to support technical assistance and CDCF project preparation.

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Ankur Bhatnagar

Investing in clean energy

Danish Carbon Fund (DCF) Objective: The Danish Carbon Fund (DCF) was established in January 2005, and involves the participation of Danish public and private sector entities. The fund is created to purchase greenhouse gas emission reductions derived from the use of the project based flexible mechanisms. The DCF will purchase emission reductions from renewable energy projects, combined heat and power projects and landfill projects, among others, that are implemented in developing countries and in countries with economies in transition. Coverage: The DCF is open to consider CDM projects throughout the developing world and as such treats all regions equally. The DCF has also adopted a pragmatic and flexible approach with respect to the technologies that is considered as part of the project portfolio. However, a preference for projects in the area of wind power, combined heat and power, hydropower, biomass and landfills. Italian Carbon Fund Objective: The Italian Carbon Fund (ICF) was established in 2004. The aim of the fund is to support and purchase carbon credits from the use of the project based flexible mechanisms. The Fund is open to the participation of Italian private and public sector entities. Coverage: The ICF supports a wide range of technologies and activities in China, India, Central and South America, the Balkans, East Asia, the Mediterranean and the Middle East. The Netherlands CDM and JI Facilities Objective: The Dutch Government supports projects in developing countries and in countries with economies in transition that generate greenhouse gas emission reductions through the Netherlands Clean Development Mechanism Facility (NCDMF) and the Netherlands European Carbon Facility (NECF). Coverage: The fund purchases emission reductions from projects in the following categories: Renewable energy technology, such as geothermal, wind, solar, and small-scale hydro-power; Clean, sustainable grown biomass (no waste); Energy efficiency improvement; Fossil fuel switch and methane recovery; Sequestration.

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Ankur Bhatnagar

Investing in clean energy

Spanish Carbon Fund Objective: The Spanish Carbon Fund (SCF) was established in 2004 to purchase greenhouse gas emission reductions from projects developed under the Kyoto Protocol to mitigate climate change. Coverage: The SCF aims at promoting the use of cleaner technologies and sustainable development in developing countries and countries with economies in transition. The SCF is also looking for technological diversity in its portfolio including projects with a strong sustainable development component. Asian Development Bank Objective: The CDM Facility at the Asian Development Bank (ADB) provides opportunities to developing member countries (DMCs) to access additional financial resources through efficient emissions reduction to promote sustainable development. Established in August 2003, the CDM Facility at ADB had a pilot phase of 3 years. The CDM Facility assists DMCs in addressing global climate change issues and sustainable development goals by sourcing funds for emissions reductions and for processing the CDM requirements for identified projects. Coverage: The main objectives of ADB’s CDM Facility are to: Promote projects that contribute to poverty reduction, sustainable development, and greenhouse gas (GHG) mitigation Lower CDM transaction costs by supporting CDM project identification, development, registration, and implementation; Help find competitive prices for emission reductions, or carbon credits, arising from projects; facilitate access to underlying-finance by improving project viability.

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Country Programmes Austrian JI/CDM Programme Objective: The Austrian JI/CDM Programme aims at buying emission reductions for the Austrian government to achieve its commitment under the Kyoto Protocol. The programme focuses on project-related Flexible mechanisms. The programme involves activities including: The purchase of emission reduction credits from JI or CDM projects and investment in funds and facilities. The financing of particular immaterial services, such as Baseline Studies etc., which are necessary in respect to JI or CDM projects EcoSecurities Stand Bank Carbon Facility Objective: The EcoSecurities & Standard Bank Carbon Facility is an initiative created to assist governments and industry to source JI and CDM emission reductions for compliance with the Kyoto Protocol and other emission reduction programs - such as the EU Emissions Trading System. Managed by EcoSecurities and Standard Bank, the Facility seeks to buy high quality emission reduction credits from Joint Implementation projects in Central and Eastern Europe and from Clean Development Mechanism projects in Central Asia. Coverage: The Facility is most interested in projects that already have clear implementation plans that already have secured financing (or will shortly), and that have a defined operational start date. It will consider all types of emission reduction projects. Anyone can submit projects to the Facility, as long as projects are credible and financially sound. Projects should be able to offer a minimum annual volume of 50,000 tCO2e.

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Ankur Bhatnagar

Investing in clean energy

Private Carbon Funds European Carbon Fund Objective: The purpose of the ECF is to finance the carbon component of environmentally friendly projects and provide liquidity to the new European carbon market. The ECF purchases, mainly project-based, carbon assets on a forward basis from developing or transition countries, and therefore contributes to the successful financing of such projects. Coverage: The ECF management team identifies potential carbon credits in developing or transition countries - Latin America, Asia, Eastern Europe, Middle East and Africa. Various technologies can be applied, e.g. renewable energy, energy efficiency, waste management, and sustainable industrial process. ICECAP Objective: ICECAP welcomes enquiries from sellers who hold actual or potential carbon assets. Information should be presented in the form of a Project Initiation Note or Project Design Document using any of the standard templates available. Japan Carbon Finance Ltd Objective: The objective of the Japan Carbon Finance (JCF) is t o purchase carbon credits from CDM and JI projects, issued for the crediting period until 2012. Coverage: In order to construct a well-balanced portfolio, JCF will purchase credits from a various sectors, such as renewable energy, energy savings, fuel switching, waste management, chemical industries, fugitives, etc. and various countries/regions. JCF will advise on how to develop and implement CDM/JI projects and offer financial support for the developing stages, such as to bear the cost for PDD preparation, validation, etc.

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Ankur Bhatnagar

Investing in clean energy

Asia Carbon Fund Objective: Its primary objective is to mitigate global climate change and initiate sustainable development through the application of the Kyoto Protocol financial mechanisms in particular the Clean Development Mechanism CDM as well as Joint Implementation (JI) and finally, emissions trading. Coverage: The geographical coverage of the Asia Carbon Fund is: 

Primary focus on India and China – 50% allocation.



Other countries to be covered include Malaysia, Thailand, Vietnam, Indonesia, Bangladesh, Bhutan, Sri Lanka & Mauritius.

Eligible project types to be supported under the fund: Renewable Energy: Biomass fuel projects, Hydro project that qualify to generate Carbon Credits, Waste water treatment projects that result in the capture of Methane for the generation of power, micro-turbines, wave & tidal power systems, off-shore wind, co-generation, biomass conversion, CHP systems, small hydro schemes & technologies, CNG & LPG systems and platforms, momentum devices, reciprocating engines, coal bed & coal mine methane, geo-thermal systems etc. There is a special thrust on investing in projects that benefit from the Methane kick namely wastewater treatment cum power projects. Energy and Power Conservation: Monitoring equipment, combustion improvement equipment and systems (to include particularly NOx / SOx reduction), electrical current & distribution management systems, heat storage systems; improved gear, power train systems & products; insulation products and services. Chemical industry: HFC 23 + PFC incineration projects

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Ankur Bhatnagar

Investing in clean energy

Climate Cent Foundation Objective: The Climate Cent Foundation is a voluntary initiative of four major Swiss business associations. Until 2012 the foundation will significantly contribute to Switzerland's fulfilment of its climate policy target as part of the Kyoto Protocol. Coverage: All project types complying with CDM and JI rules except afforestation/reforestation, nuclear, HFC-23 and large-scale hydropower projects. European Investment Bank (EIB) The European Bank for Reconstruction and Development (EBRD) and the EIB have established a joint Multilateral Carbon Credit Fund (MCCF). The MCCF is designed to develop the carbon market in countries in transition and to help EBRD and EIB shareholders and other parties to meet their mandatory or voluntary greenhouse gas emission reduction targets. The Fund will source and purchase carbon credits from projects financed by the EBRD and/or the EIB in countries eligible for EBRD operations. It will also facilitate "Green Investment Schemes" in which the proceeds of stateto-state trading of carbon credits are used to finance climate friendly projects in the selling country. The MCCF aims to stimulate and complement the participation of the private sector in the carbon market. The size of the MCCF has aggregate commitments of EUR 165 for project-based carbon credits. The Carbon Fund for Europe (CFE) will be co-managed by the World Bank and EIB. The Fund initially disposes of EUR 50m but may rise to a total of EUR 100m. The CFE is designed to facilitate the transition of market activities from the public to the private sector, catalysing the development of projects and helping EIB shareholders and clients meet their carbon emission reduction obligations. The Fund places an emphasis on CDM projects. A key aspect of the Fund is that it would primarily purchase verified emission rights (VERs), prior to CDM Board approval. The CFE can also buy VERs for delivery post-2012, i.e. after the first Kyoto commitment period. The EIB is already actively working on proposals for carbon funds for this period.

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Targets for 2007-2009 The EIB has significantly increased targets for Renewable Energy (RE) lending since its introduction in 2002. In 2007 the Bank decided to integrate energy as a specific objective in its Corporate Operational Plan 2007-2009, with reviewed RE financing targets for 2007-2009. The five target areas for EIB energy lending are: 

Renewable energy



Energy efficiency



Security and diversification of internal supply (including TENs)



Research, development and innovation (RDI)



External energy security and economic development with the Neighbouring and Partner countries

These targets are in line with the EU targets of: 

Doubling RE contribution to total energy consumption from 6 to 12% by 2010



22% share of electricity generation being met from RE



20% for the share of total energy supply to come from renewable sources.

These new targets will further diversify the Bank's RE projects portfolio by developing less mature markets in and outside the EU and by favouring the deployment of less-developed RE sources (such as solar power, biomass or bio-fuels). EIB will also put emphasis on the development of new technologies. The Bank does not only support EU climate change policy via its lending in favour of projects fostering RE sources, but also by promoting a rational use of energy. Energy efficiency considerations are mainstreamed into all EIB operations, working with promoters to extend the EE potential of projects. A key aspect of the Fund is that it would primarily purchase verified emission rights (VERs), prior to CDM Board approval.

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Investing in clean energy

CASE STUDY: European Investment Bank - An actor in financing climate projects By Valérie Thill, SCC/COM/CSO, EIB - March 2007 The European Investment Bank (EIB) is the European Union's (EU) long-term financing institution. Its activities under the heading of environmental sustainability cover the full range of environmental concerns, including climate change, protecting nature and wildlife, health, natural resources and waste management, and also include improving the quality of life in the urban environment. In 2006, the EIB signed individual loan agreements for 96 major environmental projects, amounting to EUR 10.9bn, i.e. 23.7% of its total lending (EUR 45.8bn of which 39.8bn in the EU and 5.9bn in the Partners countries). Small investment schemes dedicated to environmental objectives or containing environmental components may also be financed via EIB credit lines to local, regional or national financial intermediaries. Guided by the Kyoto Protocol, which aims to cut greenhouse gas emissions by 8% over 1990 levels by 2008-2012, EIB made a particular effort by lending EUR 2.3 billion for investment in the reduction of GHG emissions from transport (EUR 1,499 million), renewable energy (EUR 506 million) and energy efficiency (EUR 317 million). EIB Climate Change Facilities The EUR 1 billion Climate Change Financing Facility (CCFF) (2005-2008), provides long-term loan finance to companies participating in the EU Emissions Trading Scheme (ETS). It includes a EUR 200 m allocation for companies operating outside the EU and developing Joint Implementation (JI) and Clean Development Mechanism (CDM) projects. The Facility was renewed in May 2006 – CCFF II - and enlarged to include financing for any project that significantly reduces or mitigates greenhouse gas emissions, regardless of region, sector or type of greenhouse gas, or makes a significant contribution to climate change adaptation outside the EU.

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Ankur Bhatnagar

Investing in clean energy

The EUR 5 million Climate Change Technical Assistance Facility (CCTAF) provides advance funding for activities associated with the development of project-based carbon credits under the JI and CDM mechanisms of the Kyoto Protocol on a conditional loan basis. The CCTAF involves three stages of support: Phase I (carbon feasibility study); Phase II (preparation project documentation for submission to the CDM Executive Board (or JI equivalent) ; Phase III (JI/CDM project validation and registration). Climate change considerations are systematically included in the Bank’s internal appraisal procedure, so that all projects are now routinely screened for their potential to mitigate climate change and generate carbon credits. Topic Conclusion: Almost all the funds are focused on development of CDM/JI projects. These funds provide finance for development of projects and claim CER/ERU in return. Now the issuance norms are very strict and return on such investments are not certain, therefore as a result voluntary markets are gaining more significance and momentum. Many new funds are coming up which are hedge funds, that provide investment opportunities to global investors. These funds provide better returns to investors. In compliance based market such funding is proving to be great help. In present credit crisis such funds are real life lines of renewable energy projects.

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Ankur Bhatnagar

Investing in clean energy

Clean Development Mechanism (CDM) in Asia In order to prevent climate change, the emissions of greenhouse gases must be reduced significantly. The Kyoto Protocol, signed in 1997 under the United Nations Framework Convention on Climate Change, is the first joint action between the industrialized and developing countries, to reduce emissions of greenhouse gases. The Protocol sets out emission reduction targets for emissions of greenhouse gases from industrialized countries and countries in transition (Annex 1 countries); whilst at the same time allowing developing countries (non-Annex 1 countries) to take part in emission reduction initiatives on a voluntary basis. The Clean Development Mechanism (CDM) as one of the flexible mechanisms under the Kyoto Protocol provides Annex 1 countries with the opportunity of reducing the overall costs of complying with its Kyoto obligations whilst providing a portal for the developing countries to participate in the international climate change activities on a voluntary basis. This is done by allowing credits generated from greenhouse gas emission reduction activities in developing countries to be purchased by Annex 1 countries, to comply with their emission reduction target. At the same time CDM projects must deliver sustainable development, impacts in the host country that go beyond pure emission reductions to support the countries improve their current development patterns. The link between this dual objective of the CDM is the generation of carbon credits (Certified Emission Reductions – CER) as a tradable commodity that is provided by the project activity in return for new revenue streams and support in kind of transfer and diffusion of environmentallyfriendly technologies. Provided that projects fulfil the eligibility requirements, as set out in the Kyoto Protocol, and subsequently refined in later negotiations, there exist good opportunities for establishing new business cooperation and trading of carbon credits under the CDM.

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Ankur Bhatnagar

Investing in clean energy

Table 2: Allowed Emission

Annex I Party

Tonnes of CO2e

Annex I Party

Tonnes of CO2e

Australia

2,22,22,35,000

Lithuania

22,73,06,177

Austria

34,38,66,009

Luxembourg

4,74,02,996

Belarus

60,49,64,750

Monaco

4,95,221

Belgium

67,39,95,528

Netherlands

1,00,12,62,141

Bulgaria

61,00,45,827

New Zealand

30,95,64,733

Canada

2,79,17,92,771

Norway

25,05,76,797

Croatia

17,10,00,000

Poland

2,64,81,81,038

Czech Republic

89,35,41,801

Portugal

38,19,37,527

Denmark

27,68,38,955

Romania

1,27,98,35,099

Estonia

19,60,62,637

Russian Federation

16,61,70,95,319

Finland

35,50,17,545

Slovakia

33,14,33,516

France

2,81,96,26,640

Slovenia

9,36,28,593

Germany

4,86,80,96,694

Spain

1,66,61,95,929

Greece

66,86,69,806

Sweden

37,51,88,561

Hungary

54,23,66,600

Switzerland

24,28,38,402

Iceland

1,85,23,847

Turkey

78,27,14,000

Ireland

31,41,84,272

Ukraine

4,60,41,84,663

Italy

2,41,62,77,898

U. K. & Northern Ireland

3,41,20,80,630

Japan

5,92,82,57,666

European Community(EU-15)

19,62,13,81,509

Latvia

11,91,82,130

Liechtenstein

10,55,623

Source: 1. Kyoto Protocol Reference Manual by UNFCCC; 2. Fact sheet: The Kyoto Protocol_27.11.2008

The above targets are total emission allowed by UNFCCC in Annex I countries. In the above table EU15 value is sum total of all EU 15 members. These member countries are: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and United Kingdom. Targets for Australia and Croatia are recently allocated. 42 | P a g e Ankur Bhatnagar

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Party Australia Austria Belarus* Belgium Bulgaria Canada Croatia* Czech R* Denmark* Estonia* Finland* France* Germany* Greece* Hungary* Iceland Ireland Italy* Japan Latvia* Liechtenstein Lithuania* Luxembourg Monaco* Netherlands Norway* NZ Poland* Portugal Romania* Russia Slovakia* Slovenia* Spain* Sweden* Switzerland* Turkey** UK Ukraine* Total Emission

Emission Target Reduction allowed Reduction 1990-2006 (%) (%) (%) 8 108 28.8 -8 92 15.10 95 -5 -36.40 -8 92 -5.20 -8 92 -46.20 -6 94 21.7 -5 95 -5.20 -8 92 -23.70 -8 92 2.2 -8 92 -54.60 -8 92 13.2 -8 92 -3.50 -8 92 -18.20 -8 92 27.3 -6 94 -32.10 10 110 24.2 -8 92 25.6 -8 92 9.9 -6 94 5.3 -8 92 -56.10 -8 92 19 -8 92 -53.00 -8 92 1 -8 92 -13.10 -8 92 -2.00 1 101 7.7 0 100 25.7 -6 94 -28.90 -8 92 40 -8 92 -44.40 0 100 -34.20 -8 92 -33.60 -8 92 1.2 -8 92 50.6 -8 92 -8.70 -8 92 0.8 92 -8 95.1 -8 92 -15.10 0 100 -51.90

Emission Trend Gg CO2equivalent 1990 4,16,155 79,172 1,27,361 1,44,530 1,32,614 5,92,281 32,527 1,94,244 70,342 41,593 70,946 5,66,411 12,27,688 1,04,603 1,15,849 3,409 55,526 5,16,898 12,72,056 26,456 230 49,370 13,187 108 2,11,651 49,698 61,948 5,63,443 59,109 2,81,895 33,26,404 73,679 20,340 2,87,687 72,043 52,800 1,70,059 7,71,979 9,22,013 1,27,78,304

1995 4,42,326 80,624 72,941 1,50,199 88,009 6,41,675 22,930 1,52,914 77,332 20,803 71,330 5,59,081 10,95,011 1,10,492 79,327 3,199 59,368 5,30,457 13,43,902 12,493 236 21,980 10,335 115 2,23,980 49,765 64,461 4,40,608 70,255 1,84,097 21,87,120 52,791 18,687 3,18,778 73,700 51,098 2,20,719 7,10,395 5,21,733 1,08,35,266

2000 4,95,171 81,136 69,798 1,45,511 68,695 7,17,703 26,228 1,46,957 69,338 18,246 69,776 5,59,880 10,19,494 1,28,231 77,588 3,733 69,028 5,52,274 13,48,322 10,021 255 19,370 10,185 120 2,13,630 53,493 70,712 3,89,490 81,518 1,38,719 20,38,247 48,500 18,923 3,84,981 68,284 51,759 2,79,956 6,73,774 3,95,002 1,06,14,048

2005 5,29,524 93,260 75,594 1,42,346 70,497 7,34,491 30,561 1,45,749 64,989 19,313 69,027 5,60,363 10,05,000 1,33,831 80,198 3,709 70,345 5,77,945 13,58,065 11,130 271 22,681 13,291 104 2,11,754 53,800 77,354 3,86,357 87,217 1,51,981 21,23,359 49,333 20,468 4,40,887 66,900 53,790 3,12,420 6,58,733 4,25,666 1,09,32,303

2006 5,36,066 91,090 80,996 1,36,970 71,343 7,20,632 30,834 1,48,204 71,914 18,876 80,291 5,46,527 10,04,794 1,33,112 78,625 4,234 69,762 5,67,922 13,40,081 11,621 273 23,222 13,322 94 2,07,477 53,512 77,868 4,00,459 82,739 1,56,680 21,90,239 48,902 20,591 4,33,339 65,749 53,209 3,31,763 6,55,787 4,43,183 1,10,02,302

2007 5,44,705 91,808 66,861 1,40,195 58,893 7,49,222 29,143 1,38,046 68,627 14,590 74,402 5,52,277 9,67,283 1,37,310 71,933 4,019 72,376 5,77,790 13,63,236 8,188 275 17,017 12,538 102 2,10,371 54,293 78,749 3,61,031 88,748 1,26,830 19,05,880 44,311 20,154 4,51,060 65,811 53,164 3,39,807 6,40,078 3,33,493 1,05,34,615

2008 5,52,507 92,673 64,493 1,39,718 55,388 7,57,923 29,211 1,35,537 68,351 13,413 74,675 5,51,485 9,54,063 1,39,266 70,089 4,066 73,347 5,81,468 13,67,179 7,399 278 15,696 12,598 102 2,09,944 54,580 79,811 3,51,410 90,360 1,19,671 18,45,983 42,986 20,199 4,61,050 65,359 53,246 3,49,656 6,33,148 3,06,823 1,04,45,150

Table 4 http://unfccc.int/resource/docs/2008/sbi/eng/12.pdf and Compiled data of country profiles available on EU website.

Table 3: Projected Data

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Ankur Bhatnagar

2009 5,60,309 93,539 62,124 1,39,242 51,883 7,66,623 29,278 1,33,029 68,075 12,237 74,947 5,50,693 9,40,843 1,41,222 68,244 4,112 74,317 5,85,146 13,71,121 6,610 281 14,374 12,659 101 2,09,518 54,867 80,873 3,41,790 91,973 1,12,512 17,86,086 41,662 20,245 4,71,040 64,907 53,327 3,59,505 6,26,217 2,80,153 1,03,55,684

2010 5,68,111 94,405 59,755 1,38,765 48,378 7,75,324 29,346 1,30,520 67,798 11,060 75,220 5,49,902 9,27,623 1,43,178 66,400 4,158 75,288 5,88,825 13,75,064 5,820 284 13,053 12,720 100 2,09,091 55,154 81,934 3,32,169 93,586 1,05,352 17,26,189 40,337 20,290 4,81,031 64,455 53,408 3,69,354 6,19,287 2,53,483 1,02,66,219

2011 5,75,914 95,270 57,386 1,38,289 44,872 7,84,025 29,413 1,28,011 67,522 9,884 75,493 5,49,110 9,14,404 1,45,134 64,556 4,205 76,259 5,92,503 13,79,006 5,031 287 11,731 12,780 99 2,08,664 55,441 82,996 3,22,548 95,199 98,193 16,66,293 39,013 20,335 4,91,021 64,004 53,489 3,79,203 6,12,357 2,26,813 1,01,76,754

2012 5,83,716 96,136 55,017 1,37,812 41,367 7,92,725 29,481 1,25,503 67,246 8,707 75,766 5,48,318 9,01,184 1,47,090 62,712 4,251 77,229 5,96,181 13,82,949 4,242 290 10,410 12,841 99 2,08,238 55,728 84,058 3,12,928 96,812 91,033 16,06,396 37,688 20,380 5,01,012 63,552 53,570 3,89,053 6,05,427 2,00,142 1,00,87,288

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Interpretation: In all the above data national inventory report is submitted till 2006 only. Rest of all annual reports are under processing. For calculation of other values (i.e. form 2007-2012) simple trend analysis is being used on MS Excel. Simple Linear trend analysis uses least square method to project data of future years. Methodology of calculating is quit simple: The Syntax is: =Trend (known y’s, known x’s, new x, constant value) Constant value on logic test so returns value as true or false. Known y’s are emission data form 1990 to 2006 Known x’s are number of years from 1990 to 2006 New x is 2007, 2008, 2009, 2010, 2011 and 2012 respectively As it is quite clear from values in last row that emission in Gega Grams are reducing. It shows a negative trend. As a result reduction is approximately 21%. Now the question arises is: Will there be more of CERs then actually required? Answer is of course not. There are many countries that are not able to meet their individual targets and others many are engaged in AAU saving for trading in 2008-2012. Many of them are investing in ERU. But till date AAU are traded on any exchange. As such allowances are allowed to be traded in any other GHG mitigation schemes where as CER/ERUs are allowed. This limits the trade of AAU to OTC market by way of bilateral contract like that proposed between Japan and Russia.

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Investing in clean energy

Emission Trend Gg CO2equivalent Emission Reduction Reduction allowed Needed till 2006 (%) (%) (%) 1990 1995 2000 2005 2006 2007 2008 2009 2010 -8 EU 92 -2.20 42,43,821 41,32,659 41,17,623 41,86,003 41,51,079 41,45,350 41,39,630 41,33,917 41,28,212 Total Emission 42,43,821 41,32,659 41,17,623 41,86,003 41,51,079 41,45,350 41,39,630 41,33,917 41,28,212 8% of baseline 3,39,506 Allowed Emission 39,04,315 39,04,315 39,04,315 39,04,315 Extra Emission 2,35,314 2,29,602 2,23,897 Party

Total tCO2eq. http://unfccc.int/resource/docs/2008/sbi/eng/12.pdf

2011 41,22,515 41,22,515

2012 41,16,826 41,16,826

39,04,315 2,18,200

39,04,315 2,12,510

Gg 11,19,522 CERs 1,11,95,22,382 1Gg=1000tCO2eq Avg. World GDP Growth Rate Projected Avg. World GDP Growth Rate

1978 to 2007 2008 to 2012

Slowdown Rate

3.20% 2.81% 12.19 Adj for GDP slowdown

98,30,80,592

Table 4: Projected Data (EU-15)

Interpretation: In above table GHG emission trends of EU-15 has been forecasted ont the basis of data availability from national GHG inventory submitted by all EU-15 members to UNFCCC. The above calculated data is adjusted for GDP growth rate slow down by about 12.19% on world-wide scale. Focusing on EU only, the growth rate of GDP has declined by about 3% only in few areas. Being conservative global discount rate of GDP growth rate has been taken for estimations. Approximately 983 million CERs are expected to be demanded by EU-15 members. 45 | P a g e

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Investing in clean energy

Figure 3: Projected Data

Interpretation: As per Kyoto Protocol Reference manual, EU 15 memners are allowed to emmit about 37,00,000 Gg CO2eq every year or about 19 billion tonnes of CO2eq during 2008-12. As per trend in figure3 emission has declined but still its way above its committed levels. From EU-ETS prospective: After looking at the full-year fuel mix in the power sector in certain key countries, it is now expected a year-on-year (YoY) decline of 5.2% in 2008 ETS emissions to 2,120Mt (previously 2,148Mt) from pro-forma 2007 emissions of 2,237Mt. Although forecast implies a deficit of 42Mt against the average total Phase-2 cap of 2,078Mt, the very weak outlook for EU output in 2009 and the ripple effect of this on our 2010-12 forecasts means that we continue to expect a slight surplus of EUAs over Phase 2 as a whole.

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Investing in clean energy

A report from Deutsche Bank expect a deficit of EUAs in 2008: The scope of the ETS was broadened slightly from 1 January 2008 to include installations with emissions of 75Mt, and following an updated analysis of the finalized Phase-2 NAPs, Deutsche Bank now see the average total cap over 2008-12 at 2,078Mt (2,083Mt previously) compared with pro-forma 2007 emissions of 2,237Mt. However, to arrive at the allocation to existing installations for 2008, Deutsche Bank need to adjust the Phase-2 cap for the new-entrant reserve (NER), which Deutsche Bank estimate at 100Mt per year, and for the fact that the annual allocation varies slightly in some countries over 2008-12. On this basis, Deutsche Bank estimate the total cap (i.e. including the NER) for 2008 at 2,095Mt, and an EUA allocation to existing installations (i.e. excluding the NER) of 1,995Mt. With our estimate for 2008 ETS emissions of 2,120Mt including 30Mt from new entrants, Deutsche Bank projecting an EUA deficit of 25Mt against the total 2008 cap of 2,095Mt, and of 95Mt against the 2008 cap adjusted for new entrants. This means Deutsche Bank is estimating that 70Mt of EUAs from the 2008 NER will be carried forward by Member States for use in future years either for allocation to new entrants or, in the event that the NER is not fully used up, for auctioning to incumbents. … but a small surplus over Phase 2 as a whole The EU economy has been deteriorating very rapidly since the late summer of 2008, and this has again been underlined by the latest macro-economic data published last week. Industrial output for the Eurozone in January showed a YoY contraction of 17.3%, while EU steel output in February was down 42% against February 2008, and for January and February combined is 43% lower than a year ago. At 2,020Mt the unchanged estimate for 2009 ETS emissions is 5% lower than the revised 2008 estimate of 2,120Mt, and Deutsche Bank think this is consistent with a 3% contraction in the GDP of the EU’s largest economies in 2009. For Phase 2 as a whole, Deutsche Bank continue to see a small EUA surplus averaging 7Mt per year, assuming (i) that any EUAs recouped by Member States from plant closures will go to their respective NERs, and (ii) that any residual EUAs in Member States’ NERs will be auctioned back to incumbents. 47 | P a g e

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Investing in clean energy

Phase 3 still looks tight but seems a long way off at the moment In an efficient market and with unlimited banking between Phases 2 and 3 of the ETS, today’s EUA price should reflect the supply-and-demand dynamics all the way out to 2020. In line with “Contango” methodology, Deutsche Bank think this implies a fundamental value for 2009 EUAs of €25-€30/t as these numbers indicate the ETS will be 80Mt per year short over 2013-20 even after allowing for the full use of CDM/JI credits. However, Deutsche Bank think that market inefficiencies and negative sentiment will continue to weigh on prices over the next 12 months, and in the short term prices could come under pressure from the fact that the market will also have to absorb the allocation of EUAs from a number of Member States that have not yet issued to their installations. In total, one can estimate the outstanding EUA allocation at over 800Mt, more than half of which is accounted for by Poland, which has not yet allocated for either 2008 or 2009.

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Investing in clean energy

Party Australia Canada Iceland EU Japan Liechtenstein Norway NZ Slovenia Switzerland Turkey Total Emission

Emission Trend Gg CO2equivalent Emission Reduction Reduction till allowed Needed 2006 (%) (%) (%) 1990 1995 2000 2005 2006 2007 2008 8 108 28.8 4,16,155 4,42,326 4,95,171 5,29,524 5,36,066 5,44,617 5,53,304 -6 94 21.7 5,92,281 6,41,675 7,17,703 7,34,491 7,20,632 7,29,521 7,38,519 10 110 24.2 3,409 3,199 3,733 3,709 4,234 4,292 4,350 -8 92 -2.20 42,43,821 41,32,659 41,17,623 41,86,003 41,51,079 41,45,350 41,39,630 -6 94 5.3 12,72,056 13,43,902 13,48,322 13,58,065 13,40,081 13,44,451 13,48,836 -8 92 19 230 236 255 271 273 276 279 1 101 7.7 49,698 49,765 53,493 53,800 53,512 53,760 54,009 0 100 25.7 61,948 64,461 70,712 77,354 77,868 78,989 80,126 -8 92 1.2 20,340 18,687 18,923 20,468 20,591 20,607 20,623 -8 92 0.8 52,800 51,098 51,759 53,790 53,209 53,235 53,260 92 -8 95.1 1,70,059 2,20,719 2,79,956 3,12,420 3,31,763 3,45,913 3,60,667 68,82,797 69,68,727 71,57,650 73,29,895 72,89,308 73,21,011 73,53,603

5.2% of baseline Allowed Emission Extra Emission

3,57,905 65,24,892

65,24,892 8,28,712

2009 5,62,129 7,47,629 4,410 41,33,917 13,53,235 282 54,259 81,280 20,638 53,286 3,76,050 73,87,115

2010 2011 5,71,096 5,80,205 7,56,850 7,66,186 4,470 4,531 41,28,212 41,22,515 13,57,648 13,62,076 285 288 54,510 54,763 82,450 83,637 20,654 20,670 53,312 53,337 3,92,089 4,08,813 74,21,577 74,57,021

2012 5,89,460 7,75,636 4,592 41,16,826 13,66,518 291 55,017 84,842 20,686 53,363 4,26,249 74,93,480 65,24,892

65,24,892 8,62,223

65,24,892 65,24,892 8,96,685 9,32,129

65,24,892 9,68,589

Total tCO2eq.

Note: Countries that have already well below their commitments are not considered as they will not contribute to demand of CERs. Rather they will either supply ERU or AAU.

Avg. World GDP Growth Rate Projected Avg. World GDP Growth Rate

1978 to 2007 2008 to 2012

Slowdown Rate

Gg CERs

44,88,338 4,48,83,38,440

12.19 CERs

3,94,13,22,192

3.20% 2.81%

Table 5: Demand of CERs Projected Data

Interpretation: In above table emission is taken from those countries that are not able to meet their targets as per predictions made using simple trend forecasting. The above calculated data is adjusted for GDP growth rate slow down by about 12.19% on worldwide scale. The expected demand from such economies is about 3.94 billion tonnes of CO2eq. The supply side is discussed further below in the report. 49 | P a g e

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Investing in clean energy

Figure 4: Projected Data

Interpretation: The Above chat depicts the emission in those economies that are not able to meet its emission targets. The target level of emission every year till 2012 approximately 6.5million tonnes of CO2eq. But emission is about 7.5 million tonnes of CO2eq and its on a rising trend. Present global may slow down this rate of increase but it is not possible to come down to meet allowed emission targets until some legislation is enacted in these countries.

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Investing in clean energy

CDM Statistics

Annual Average Expected CERs until

Table 6: Supply As per UNFCCC Data

CERs*

end of 2012**

CDM project pipeline: > 4200

N/A

> 2,900,000,000

--- 1382 are registered

257,869,814

> 1,440,000,000

--- 93 are requesting registration

8,264,843

> 30,000,000

of which:

*

Assumption:

All

activities

deliver

simultaneously their expected annual average emission reductions ** Assumption: No renewal of crediting periods

Actual Supply Base CERs issued till 06th Feb. 2009

:

252,039,060

Total CERs Requested

:

262,291,062

Shortfall in issuance (%)

:

3.91

Average no. of projects registered per month in last 41 months :

34

Expected number of projects to be registered till 2012

:

1598

Average No. of CERs per project till 06th Feb. 2009

:

182,373

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Investing in clean energy

Figure 5: Projected Data

Interpretation: The total adjusted 2008-2012 demand from developed countries under the Kyoto Protocol is predicted to be from Government and private buyers (excluding EU15), intending to cover their nation’s Kyoto target shortfall, of around 3.94 billion tCO2e. EU-15 members are expected to emit 983.1 million tCO2e above allotted cumulative limit of -8% for all 15 member states. EU ETS mechanism allows to cap emission using EUAs and CER/ERUs but ERUs are not yet available in tradable volumes hence EU members will either pay penalty or buy more CERs. This demand is calculated on the basis of data collected form various sources like UNFCCC, EU, etc. Using simple linear trend, the figures are projected till 2012 as National Inventory Report is submitted till 2006 only. Supply of CER units from Kyoto Mechanisms is estimated to be around 2.92 billion tCO 2e, it is expected that about 322 million ERUs will be available till end of first commitment period, leaving a net shortfall of around 700 million CER/ERUs till 2012.

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Investing in clean energy

Conference of the Parties

The United Nations Framework Convention on Climate Change (UNFCCC) is one of the most important environmental agreements to lay down a framework for international actions to address global climate warming. On the basis of the agreement adopted in the course of the Earth Summit in Rio de Janeiro (1992), the objectives and principles were set for the cooperation among the States to prevent climate change and to mitigate its adverse effects, e.g. by reducing greenhouse gas emissions. As a result of negotiations, political decisions and legal instruments emerge to ensure the implementation of the provisions of the Convention, such as e.g. the Kyoto Protocol, which set out the States’ commitments to reduce greenhouse gas emissions. The debates under the Convention have also covered such important issues as the mechanisms to provide financial support for developing countries, technology transfer and international carbon dioxide emissions trading. The supreme authority of the Convention is the Conference of the Parties to the Convention (COP), the sessions of which are held regularly (once a year) and aim at establishing the rules of implementation of UNFCCC. The subsidiary bodies (SBs), the Bureau, the Secretariat and the authorities established by the COP: working groups, export bodies and committees also operate in its scope. The government delegations of the countries which have ratified the Convention (the Parties to the Convention) and observers take part in the negotiations and sessions of the Conference. In addition to the plenary sessions and the meetings of working groups, the agenda of the Conference includes a number of side events (presentations, seminars, happenings and exhibitions) as well as those preceding the COP (events, debates etc..), with the main purpose of drawing attention to the problems related to global climate change. Large activity in this scope is demonstrated by non-governmental organisations which are numerously represented at the Conference and the host.

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Investing in clean energy

The COP conferences have been held in all parts of the world. The first conference was held in Berlin in 1995. COP1 Berlin 1995 The first Conference of the Parties was marked by uncertainty as to which means the individual countries possessed to combat greenhouse gas emissions. This resulted in “The Berlin Mandate”, which set a two-year analysis and evaluation phase. This phase was to result in a catalogue of instruments from which the member countries could choose and thereby compose a set of initiatives that matched their needs. COP2 Geneva 1996 The second Conference of the Parties endorsed the results of the IPCC’s second assessment report, which came out in 1995. At this conference it was established that member countries would not pursue uniform solutions. Each country should have the freedom to find the solutions that were most relevant to its own situation. At the Geneva conference the parties also expressed a wish for binding targets to be defined in the medium-term future. COP3 Kyoto 1997 At this conference the Kyoto Protocol was adopted after intense negotiations. For the first time the protocol introduced binding targets for greenhouse gas emissions in 37 industrialised countries from 2008 to 2012. Subsequently there were several years of uncertainty as to whether a sufficient number of countries would ratify the treaty, but on 16 February 2005 it came into force. Several of the member countries of the UNFCCC have not ratified the Kyoto Protocol and do not acknowledge its requirements regarding emissions.

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Investing in clean energy

COP4 Buenos Aires 1998 At this conference it became clear that there were several outstanding questions regarding the Kyoto Protocol. A two-year period was therefore scheduled to clarify and develop tools for implementing the Kyoto Protocol. COP5 Bonn 1999 This conference was dominated by technical discussions concerning mechanisms under the Kyoto Protocol. COP6 The Hague 2000 This conference was quickly marked by vehement political discussions concerning a proposal from the USA to let agricultural and forest areas be included as carbon sinks. If the proposal had been passed, it would at the same time have largely fulfilled the USA’s obligation to reduce its emissions of greenhouse gases. It also became clear that there was uncertainty as to which opportunities for sanctions should be adopted for the countries that did not live up to their obligations to reduce emissions. The meeting ended when the EU countries refused a compromise proposal, and the negotiations in reality broke down. It was agreed that negotiations would be resumed at an extraordinary conference in July 2001. COP6 Bonn 2001 When the parties met again about six months after the breakdown in negotiations in The Hague, expectations of a result were not high. In the meantime the USA – under its new President Bush – had definitively rejected the Kyoto Protocol and accordingly only took part in negotiations about the protocol as an observer. Despite the low level of expectations, agreement was reached on several significant questions. These included the extent to which forests and other carbon sinks could be included in countries’ budgets for greenhouse gas emissions; the principles for sanctions relating to countries that did not meet their targets, and the flexible mechanisms that in different ways enabled reduction obligations to be moved between countries in return for financial compensation. 55 | P a g e

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COP7 Marrakesh 2001 Later in 2001 the parties met again for the regular annual conference. Here negotiations concerning the Kyoto Protocol were (almost) completed. The results were gathered in the documents called the Marrakesh Accords. COP8 Delhi 2002 At this conference the EU countries (under Danish chairmanship) tried unsuccessfully to get a declaration passed which called for more action from the parties under the UNFCCC. COP9 Milan 2003 The focus of this conference was to clear up some of the last technical details concerning the Kyoto Protocol. COP10 Buenos Aires 2004 At this meeting the countries gradually began to open discussions as to what would happen when the Kyoto Protocol expired in 2012. The technical discussions still took up a lot of time. COP11/CMP1 Montreal 2005 This conference was the first one to take place after the Kyoto Protocol had come into force. Accordingly the annual meeting between the parties to the UNFCCC (COP) was supplemented by the annual conference between the parties to the Kyoto Protocol (CMP or COP/MOP). The countries that had ratified the UNFCCC but not accepted the Kyoto Protocol had observer status at the latter conference. The focus of both conferences was what should happen after the expiry of the Kyoto Protocol in 2012. COP12/CMP2 Nairobi 2006 Here the last remaining technical questions regarding the Kyoto Protocol were finally answered. The work involved in reaching a new agreement for the period after Kyoto continued, and a series of milestones were established in the process towards a new agreement. 56 | P a g e

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COP13/CMP3 Bali 2007 At this meeting the work involved in reaching a new agreement to replace the Kyoto Protocol took a decisive step forward. First with the acknowledgement of the most recent report from the IPCC and its conclusions that the signs of global warming were unambiguous; second by formulating a common text calling for quicker action in this area, and finally with the adoption of the Bali Action Plan. This plan sets the scene for the negotiations leading to COP15 in Copenhagen, where a new agreement can hopefully be negotiated. COP14/CMP4 Poznan 2008 At this conference the work towards a new global climate agreement in Copenhagen continued. The upcoming change of power in Washington set its mark on the conference that was characterised by anticipation for the stance to be adopted by new American government. Still the parties reached an agreement on the work programme and meeting plan towards the Copenhagen conference and on the final operationalisation of the Adaptation Fund that will support concrete adaptation measures in the least developed countries

Conference of the Parties 14 The issues of climate change are some of the most important subjects of international discussion in the world. Not only environmental non-governmental organisations, but primarily politicians and the representatives of governments, the representatives of international institutions, business, researchers and media took part in this debate. COP 14 (The 14th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC), along with the 4th Session of the Meeting of the Parties to the Kyoto Protocol), which will took place on 1 – 12 December 2008 in Poznań, was the most prestigious forum of political discussion in the scope of climate protection, attracting the attention of the entire world. 57 | P a g e

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The Conference was organised by the Secretariat of the United Nations Framework Convention on Climate Change and hosted by the Government of the Republic of Poland, while the preparations were coordinated by the Ministry of the Environment of the Republic of Poland. It is envisaged that the two-week sessions were attended by 8,000 participants: more than 190 government delegations headed by the Ministers for the Environment or Climate Change, international institutions, environmental, business and research non-governmental organisations and media.

The Conference Agenda Within the framework of the “United Nations Conference on Climate Change Poznań 2008”, the following took place at the Congress Centre of the International Poznań Fair: 

The 14th Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change;



The 4th Session of the Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol;



The 29th Sessions of the Subsidiary Bodies;



The 4th Session of the Ad Hoc Working Group on Long-term Cooperative Action (AWG-LCA) of the United Nations Framework Convention on Climate Change;



The Second Part of the 6th Session of the Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol (AWG-KP)

Conference of the Parties 15 The ambition of the Danish government is that the COP15 conference in Copenhagen will result in an ambitious global agreement incorporating all the countries of the world. At the time of the adoption of the Bali Action Plan, the Danish, Polish and Indonesian governments agreed to strive to ensure that the COP15 conference in Copenhagen in 2009 would be absolutely crucial for the work of the next many years towards a better climate. The background to this decision was partly the increased focus on quick action in the latest report from the IPCC. It was also partly an acknowledgement of the fact that 2009 58 | P a g e

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represents more or less the last chance to achieve an agreement, if this agreement is to be approved and ratified in time for it to come into force after the Kyoto Protocol expires in 2012. The UNFCCC’s history shows that countries can quickly move forward together, but also that they risk coming to a standstill because of internal disagreement. The ambition of the Danish government is that the COP15 conference in Copenhagen will result in an ambitious global agreement incorporating all the countries of the world. Developments in the world since the Kyoto Protocol was negotiated in 1997 show that a new agreement is needed. China has replaced the USA as the largest emitter of greenhouse gases, and the price of oil has soared. This is a reminder of the fact that fossil fuels do not merely pollute; they are also a source of energy whose reserves are constantly being reduced. The aim of the Danish government is to achieve an agreement that both reduces the total quantity of anthropogenic greenhouse gas emissions and is supported by as many countries as possible. The meetings in the AWG-LCA (Ad Hoc Working Group on Long-term Cooperative Action) working group show that even though there is agreement among the parties behind the UNFCCC that a “shared vision” should be drawn up for how climate change is to be tackled under the UNFCCC in the future, there is still disagreement as to what this vision is to contain. For example there is discussion about the extent to which one should supplement longterm targets for reductions with short and medium-term targets. Ambitious long-term targets, which for example extend several decades into the future, risk becoming a pretext for inaction in the intervening years, and this will be contrary to the ambitions of the Bali Action Plan, which are to speed up the conversion process towards a more sustainable future.

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Investing in clean energy

The question of technology transfer and financial help for developing countries also take up a significant part of the discussions. A more concrete question that is expected to be of significance in the process up to COP15 and at the conference itself is how one is to approach forests. The felling of forests strengthens the greenhouse effect, so in principle an initiative either against felling or in support of the planting of more forests should have a positive effect on the quantity of greenhouse gases in the atmosphere. The conservation of forests is not at present one of the possible projects for a Clean Development Mechanism, but with pressure increasing on the world’s remaining forests, there are groups that argue that it should be included. Another concrete discussion item is how one should deal with the relocation of companies with high levels of energy consumption to developing countries, which are not subject to requirements concerning reductions in greenhouse gas emissions. The cement industry is the most pressing example, as it uses very large quantities of energy.

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Investing in clean energy

Provisional agenda of the Subsidiary Body for Scientific and Technological Advice at its thirtieth session: Bonn, 1.10 June 2009, as at 26 January 2009 

Organizational matters: o Adoption of the agenda; o Organization of the work of the session.



Development and transfer of technologies.



Reducing emissions from deforestation in developing countries: approaches to stimulate action.



Methodological issues under the Convention: o Review of information on greenhouse gas inventories reported by Parties included in Annex I to the Convention and related training needs; o Greenhouse gas data interface; o Emissions from fuel used for international aviation and maritime transport; o Intergovernmental Panel on Climate Change guidelines for national greenhouse gas inventories.



Methodological issues under the Kyoto Protocol: o Implications of the establishment of new hydrochlorofluorocarbon-22 (HCFC-22) facilities seeking to obtain certified emission reductions for the destruction of hydrofluorocarbon-23 (HFC-23); o Carbon dioxide capture and storage in geological formations as clean development mechanism project activities; o Common metrics to calculate the CO2 equivalence of greenhouse gases.



Matters relating to Article 2, paragraph 3, of the Kyoto Protocol.



Cooperation with relevant international organizations.



National communications from Parties included in Annex I to the Convention: status report on the review of fourth national communications.



National communications from Parties not included in Annex I to the Convention: o Work of the Consultative Group of Experts on National Communications from Parties not included in Annex I to the Convention;

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o Information contained in national communications from Parties not included in Annex 1 to the Convention, at the twenty-ninth session of the Subsidiary Body for Implementation (SBI), there was no consensus to include this item on the agenda. It was therefore held in abeyance. On a proposal by the Chair, the SBI decided to include this item on the provisional agenda of its thirtieth session. o Provision of financial and technical support. 

Financial mechanism of the Convention: fourth review of the financial mechanism.



Matters relating to Article 4, paragraphs 8 and 9, of the Convention: o Progress on the implementation of decision 1/CP.10; o Matters relating to the least developed countries.



Reporting and review of information submitted by Parties included in Annex I to the Convention that are also Parties to the Kyoto Protocol.



Matters relating to Article 3, paragraph 14, of the Kyoto Protocol.



Amendment of the Kyoto Protocol in respect of procedures and mechanisms relating to compliance.

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Investing in clean energy

Figure 6: Projected Data

Interpretation: Economic has been slowed down globally. An average decline of about 12% is calculated on the basis of available data of GDP growth rate. The curve has been smoothen by using a 5 yearly moving average, which show a much optimistic view of GDP growth. According to 5 period moving average the present decline is an out-lire and over all economy is more or less stable. In Europe the GDP slow down is estimated at about just 3% in comparison to 12% of global GDP growth rate. It is an optimistic picture that shows that demand of CERs from EU members is more or less certain. Now the question is how much demand is expected form EU members? The answer is about 10% of EU emission targets can be met by Kyoto Protocol Mechanism off set instruments viz. CER and ERU. However conversion of EUA into CER/ERU has been restricted by EU Commission. But due to this global melt down investment in clean energy has been substantially reduced as market is not volatile to provide adequate returns. However, Hedge Fund managers are the only once who have made money in this credit crisis. 63 | P a g e

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Investing in clean energy

Trading Strategies: Strategies of Trading Carbon Fund: Hedging Strategies A wide range of hedging strategies is available to hedge funds. For example:



Short Selling - Selling units without owning them and hoping to buy them back at a future date at a lower price in anticipation that the price will go down.



Arbitrage - Seeking to exploit pricing inefficiencies between related commodities.



Trading of derivatives - contracts whose values are based on the performance of any underlying financial asset, index or other investment can be used to hedge risk.



Investing in expectation of a specific event - merger transaction, antagonistic takeover, spin-off, exiting of liquidation proceedings, etc.



Investing in deeply discounted securities - of companies about to enter or exit financial distress or bankruptcy, often below liquidation value.

Many of the strategies used by hedge funds benefit from being non-correlated to the direction of equity markets Popular Misconception The popular misconception is that all hedge funds are volatile -- that they all use global macro strategies and place large directional bets on stocks, currencies, bonds, commodities, and gold, while using lots of leverage. In reality, less than 5% of hedge funds are global macro funds. Most hedge funds use derivatives only for hedging or don't use derivatives at all, and many use no leverage.

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Investing in clean energy

Benefits of Hedge Funds 

Many hedge fund strategies have the ability to generate positive returns in both rising and falling markets.



Inclusion of hedge funds in a balanced portfolio reduces overall portfolio risk and volatility and increases returns.



Huge variety of hedge fund investment styles – many uncorrelated with each other – provides investors with a wide choice of hedge fund strategies to meet their investment objectives.



Academic research proves hedge funds have higher returns and lower overall risk than traditional investment funds.



Hedge funds provide an ideal long-term investment solution, eliminating the need to correctly time entry and exit from markets.



Adding hedge funds to an investment portfolio provides diversification not otherwise available in traditional investing.

Hedge Fund Styles The predictability of future results shows a strong correlation with the volatility of each strategy. Future performance of strategies with high volatility is far less predictable than future performance from strategies experiencing low or moderate volatility. Aggressive Growth: Invests in equities expected to experience acceleration in growth of earnings per share. Generally high P/E ratios, low or no dividends; often smaller and micro cap stocks which are expected to experience rapid growth. Includes sector specialist funds such as technology, banking, or biotechnology. Hedges by shorting equities where earnings disappointment is expected or by shorting stock indexes. Tends to be "long-biased." Expected Volatility: High

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Investing in clean energy

Distressed Securities: Buys equity, debt, or trade claims at deep discounts of companies in or facing bankruptcy or reorganization. Profits from the market's lack of understanding of the true value of the deeply discounted securities and because the majority of institutional investors cannot own below investment grade securities. (This selling pressure creates the deep discount.) Results generally not dependent on the direction of the markets. Expected Volatility: Low - Moderate Emerging Markets: Invests in equity or debt of emerging (less mature) markets that tend to have higher inflation and volatile growth. Short selling is not permitted in many emerging markets, and, therefore, effective hedging is often not available, although Brady debt can be partially hedged via U.S. Treasury futures and currency markets. Expected Volatility: Very High Funds of Hedge Funds: Mix and match hedge funds and other pooled investment vehicles. This blending of different strategies and asset classes aims to provide a more stable longterm investment return than any of the individual funds. Returns, risk, and volatility can be controlled by the mix of underlying strategies and funds. Capital preservation is generally an important consideration. Volatility depends on the mix and ratio of strategies employed. Expected Volatility: Low - Moderate - High Income: Invests with primary focus on yield or current income rather than solely on capital gains. May utilize leverage to buy bonds and sometimes fixed income derivatives in order to profit from principal appreciation and interest income. Expected Volatility: Low Macro: Aims to profit from changes in global economies, typically brought about by shifts in government policy that impact interest rates, in turn affecting currency, stock, and bond markets. Participates in all major markets -- equities, bonds, currencies and commodities -though not always at the same time. Uses leverage and derivatives to accentuate the impact of market moves. Utilizes hedging, but the leveraged directional investments tend to make the largest impact on performance. Expected Volatility: Very High

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Ankur Bhatnagar

Investing in clean energy

Market Neutral - Arbitrage: Attempts to hedge out most market risk by taking offsetting positions, often in different securities of the same issuer. For example, can be long convertible bonds and short the underlying issuers equity. May also use futures to hedge out interest rate risk. Focuses on obtaining returns with low or no correlation to both the equity and bond markets. These relative value strategies include fixed income arbitrage, mortgage backed securities, capital structure arbitrage, and closed-end fund arbitrage. Expected Volatility: Low Market Neutral - Securities Hedging: Invests equally in long and short equity portfolios generally in the same sectors of the market. Market risk is greatly reduced, but effective stock analysis and stock picking is essential to obtaining meaningful results. Leverage may be used to enhance returns. Usually low or no correlation to the market. Sometimes uses market index futures to hedge out systematic (market) risk. Relative benchmark index usually T-bills. Expected Volatility: Low Market Timing: Allocates assets among different asset classes depending on the manager's view of the economic or market outlook. Portfolio emphasis may swing widely between asset classes. Unpredictability of market movements and the difficulty of timing entry and exit from markets add to the volatility of this strategy. Expected Volatility: High Opportunistic: Investment theme changes from strategy to strategy as opportunities arise to profit from events such as IPOs, sudden price changes often caused by an interim earnings disappointment, hostile bids, and other event-driven opportunities. May utilize several of these investing styles at a given time and is not restricted to any particular investment approach or asset class. Expected Volatility: Variable Multi Strategy: Investment approach is diversified by employing various strategies simultaneously to realize short- and long-term gains. Other strategies may include systems trading such as trend following and various diversified technical strategies. This style of investing allows the manager to overweight or underweight different strategies to best capitalize on current investment opportunities. Expected Volatility: Variable 67 | P a g e

Ankur Bhatnagar

Investing in clean energy

Short Selling: Sells securities short in anticipation of being able to re-buy them at a future date at a lower price due to the manager's assessment of the overvaluation of the securities, or the market, or in anticipation of earnings disappointments often due to accounting irregularities, new competition, change of management, etc. Often used as a hedge to offset long-only portfolios and by those who feel the market is approaching a bearish cycle. High risk. Expected Volatility: Very High Special Situations: Invests in event-driven situations such as mergers, hostile takeovers, reorganizations, or leveraged buyouts. May involve simultaneous purchase of stock in companies being acquired, and the sale of stock in its acquirer, hoping to profit from the spread between the current market price and the ultimate purchase price of the company. May also utilize derivatives to leverage returns and to hedge out interest rate and/or market risk. Results generally not dependent on direction of market. Expected Volatility: Moderate Value: Invests in securities perceived to be selling at deep discounts to their intrinsic or potential worth. Such securities may be out of favour or underfollowed by analysts. Longterm holding, patience, and strong discipline are often required until the ultimate value is recognized by the market. Expected Volatility: Low - Moderate Hedge Fund's Carbon Play: "Private equity and hedge funds have found a new plaything – trade in carbon credits and the targeting of companies that could generate them in large quantities. In the past few years, private equity and hedge funds have been the early movers into the carbon credit market established under the auspices of the United Nations-sponsored CDM (clean development mechanism) scheme, particularly in China and India. Here, the funds agree to invest in a project – such as energy efficiency or burning of methane – that allows an asset such as a power generator or coal mine to reduce its carbon 68 | P a g e

Ankur Bhatnagar

Investing in clean energy

emissions. The fund takes the carbon credits and sells them into a recognized carbon market. This market will expand quickly. And soon those funds will be moving beyond India and China to assets in developed countries such as Australia that offer a similar leverage when Australia's own emissions trading scheme comes in effect. Targeted companies might be those with technology or services that can help an industry reduce emissions, or highly inefficient emitters that offer huge potential for abatements and the generation of carbon credits. Buyout funds might be tempted to package these assets together and sell them at a later date. The sale of the NSW electricity assets, which will only be finalized months before the introduction of a national emissions trading scheme, will also have to take into account the projected carbon price and the ability of the various assets to reduce their emissions. Analysts are already talking about a new financial metric – carbon adjusted asset value, or CAAV, for short. And look to the emergence of a generation of carbon aggregators – companies that offer to make a business more efficient in its energy use. The aggregator will bear the cost of the abatement. The customer reduces its energy expense, and the aggregator makes off with the carbon credits as payment. It’s a model that is based on recent developments in Europe, where some utilities are no longer simply trying to sell as much energy as they can – they are offering services such as heating solutions. The utilities bear the cost of insulation and other efficiency measures and charge for a heating service. The utilities are finding they can generate bigger margins from the energy efficiency and the accumulation of carbon credits."

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Ankur Bhatnagar

Investing in clean energy

Carbon Market Beyond 2012

Map under Kyoto Regime

Kyoto credit Investment

Canada

Linkage

- Dropped from Kyoto

United States

Russia -

EU -

Kyoto Ratified Selling AAU

Kyoto Ratified Cap & Trade + Kyoto

Selling CER

-

Kyoto Ratified Reduction effort + Kyoto

Australia -

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Not ratified Kyoto RGGI Cap & Trade

JAPAN

CDM Host Countries -

-

Kyoto Ratified Cap & Trade + Kyoto

Ankur Bhatnagar

Investing in clean energy

Interpretation: Under Kyoto Protocol Regime CDM/JI is directly linked to EU, Japan, Australia and Russia. USA has not yet ratified Kyoto Protocol. Apart from Kyoto Protocol there are many other schemes that are mainly cap & trade mechanism. RGGI is Regional Greenhouse Gas Initiative and its objective is cap and trade program for greenhouse gas emissions from power plants. Its main participants are: Maine, New Hampshire, Vermont, Connecticut, New York, New Jersey, Delaware, Massachusetts, Maryland, and Rhode Island. European Union Emission Trading Scheme (EU-ETS) is other such scheme. Its objective is 8% reduction in CO2 emission from 1990 levels in the EU-15 at minimum cost, using cap & trade mechanism. Energy supply & use, Transport, Industrial processes, Agriculture and Waste are main sectors involved in EU-ETS. EU-ETS allow use of carbon credits CER & ERU from Kyoto Mechanisms.

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Ankur Bhatnagar

Investing in clean energy

Map beyond Kyoto Affected Linkage

Canada - Dropped from Kyoto

Russia -

EU -

-

Not ratified Kyoto Some states plan Cap & Trade

JAPAN Kyoto Ratified Cap & Trade + Kyoto

CDM Host Countries -

United States

Kyoto Ratified Selling AAU

Selling CER

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-

Kyoto Ratified Reduction effort + Kyoto

Australia -

Kyoto Ratified Cap & Trade + Kyoto

Ankur Bhatnagar

Investing in clean energy

Interpretation: Depending on news and notifications by various government and private bodies in carbon market a hypothetical structure is proposed that is likely to prevail in post Kyoto Protocol market. It is expected that CDM host countries, Australia, USA, and European Union will be directly linked to each other. Russia, Japan and Canada are expected to either join other members, atleast they will be affected by this linkage. In short cap and trade mechanism is going to continue in one form or the other. European Union has already laid roads till 2020 and 2030 for members of EU-ETS. Present CDM host countries or developing nation are also coming up with various plans of Cap and Trade in domestic markets. Like India is planning for a program called PAT, i.e. Perform Achieve and Trade of energy efficiency certificates or emission reduction certifications.

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Ankur Bhatnagar

Investing in clean energy

6. Conclusions The financial crisis has put the world’s economy on a roller-coaster ride. While 2008 saw the value of the global carbon market surge 84 percent to some $118 billion, New Carbon Finance projections for 2009 point to lower carbon prices and a slower growth rate of the market compared to 2007 and 2008. The global economic down-turn certainly plays a role in that. But unlike other markets, the carbon market hasn’t collapsed despite the fact that carbon as an asset is still somewhere between infancy and childhood. At the same time, the future of the carbon market is directly linked to the level of ambition of industrialised countries. Copenhagen 2009 is the event at which it is expected to get the long-term policy clarity on emission reductions that all parties have been calling for. The Poznan Climate Change Conference last December was an important milestone. Although the conference wasn’t marked by any major political outcomes, it made progress in a number of specific areas of work and fully endorsed an intensified negotiating schedule for 2009. The major success of the conference was making the Adaptation Fund operational, with direct access for eligible developing country Parties. But no agreement was reached on extending the share of proceeds to Joint Implementation and Emissions Trading.

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Ankur Bhatnagar

Investing in clean energy

A number of improvements to the CDM were decided in Poznan, which include streamlining and speeding up the CDM. The CDM Executive Board was requested to explore how to enhance the regional and sub-regional distribution of projects. Parties also asked the Board to assess the implications of including carbon capture and storage projects and extending the eligibility criteria for afforestation and reforestation projects. Since Poznan, the Executive Board has decided to take a number of improvements forward. These improvements will boost the CDM’s functioning in its current form up to 2012. The Poznan conference was also important in that it revealed clear areas of convergence that are emerging in the negotiations towards Copenhagen. These need to be built on. This is especially encouraging because these areas of convergence are emerging within the political prerequisites for success in Copenhagen. There are four inter-related political prerequisites that have to be resolved this year to get to an ambitious agreed outcome. The first prerequisite relates to clarity on ambitious targets for developed countries. There is strong convergence amongst Parties that developed countries must agree on an ambitious mid-term target, with all developed countries sharing a comparable effort. The new Obama Administration has committed to vigorously reengage in the climate change process. President Obama’s intention to return the US emissions to 1990 levels by 2020, and by 80% by 2050 is a good first offer. The European Union has firmly committed to -20% over 1990 levels by 2020 and is putting in place policies to achieve that goal. Its intention of committing to -30% if others follow suit, remains on the table. Additionally, a number of other industrialised countries including Australia and Norway have already announced their level of ambition, or, like Japan, are in the process of defining theirs. 75 | P a g e

Ankur Bhatnagar

Investing in clean energy

It is too early to predict that by how much carbon will be constrained by developed countries as a group; but I can tell you that carbon will be constrained with clear reduction goals up to 2020. There is also convergence that a long-term goal is needed and that 2050 is an appropriate time-frame for this; and that we need to reduce global emissions by at least 50%. This will lead to an increased use of market mechanisms beyond 2012. The structures of the carbon market may need to be adjusted towards this, and your input is required on how best to do that. Other important infrastructure for the increased use of mechanisms is already in place: Parties want mechanisms like the CDM and Joint implementation to continue beyond 2012 and the European Union Emissions Trading scheme is open-ended. In the US, 2009 marks the first year of compliance targets under the Regional Greenhouse Gas Initiative. RGGI could account for up to 5.8% of global carbon market volumes. The new administration also intends to enact national cap-and-trade legislation. This would significantly boost the global carbon market. The second political prerequisite relates to clarity on nationally appropriate mitigation actions of developing countries. Many developing countries have climate change policies, strategies or programmes in place and have begun implementing them. In Bali, developing countries clearly indicated that they are willing to undertake additional nationally appropriate mitigation actions - or NAMAs, but that their overriding concerns of poverty reduction and economic growth remain.

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Ankur Bhatnagar

Investing in clean energy

Having said this, a host of developing countries have indicated their willingness to move beyond current efforts to limit emissions. The question is: could investing in NAMAs of developing countries count towards meeting targets in industrialized countries, and could this somehow be linked to the carbon market? The extent and magnitude of NAMAs will depend to a significant extent on the effective delivery of finance and technology through international cooperative action. This leads to the third political prerequisite, which relates to clarity on how financial and technological support both for mitigation and, crucially, for adaptation will be generated. Predictable and sustainable funding is essential to unleash developing country action for both mitigation and adaptation. Here it is crucial to look beyond funding based on voluntary contributions and towards more sustainable sources of funding. As said, ambitious mitigation commitments by developed countries hold the key to the mobilization of financial flows through market-based mechanisms. There are several proposals on the table on how to improve and upscale market-based mechanisms beyond 2012. Furthermore, a CDM methodology was approved in 2008 that incorporates benchmarking and points the way for a scaled up CDM. The CDM experienced rapid growth beyond all expectations when the prompt start of the mechanism was agreed years ago. The CDM currently has over 1400 registered projects in 53 countries. An estimated 33% of all projects transfer both technology and knowledge to developing countries. There have been improvements to the assessment of additionality, as well as to validation and verification. The way has also been cleared for a wide array of new projects in energy efficiency and renewable energy.

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Ankur Bhatnagar

Investing in clean energy

Yet the success of the CDM has also led to challenges and criticism, some constructive, some less so. But the CDM is what we have and, for all the criticism, it has demonstrated that it works - and that it can be scaled up. Copenhagen needs to build on the successes and further improve the CDM. The negotiations on developed country targets and improvements to the market-based mechanisms need to be closely linked. And your input is needed on how to upscale the mechanisms in a way that works for business. The carbon market needs to secure a significant amount of predictable financial flows to developing countries. In times of economic uncertainty, the world needs to seize the opportunity of generating a large amount of the required finances from within the climate change regime. At the same time, the carbon market is unlikely to cover all financing needs. It will be important to create a mix of financial instruments with effective disbursement. In the context of providing financial support for mitigation, the recent conclusions of EU Finance Ministers deviate from what was concluded in Bali. This is not helpful for moving the world towards a successful Copenhagen. The world is looking to the EU Summit to decisively move forward on financing, without questioning what has already been agreed.

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Ankur Bhatnagar

Investing in clean energy

This leads to the fourth political prerequisite: clarity on the institutional framework to deliver support for mitigation and adaptation It is critical that the funds that are agreed as part of the Copenhagen outcome have governance structures that are founded on equality, giving developing countries a major say in what is ultimately intended to achieve their development goals. Resolving these four political prerequisites will lay a solid foundation for a successful outcome at Copenhagen. If these essentials are not resolved, the world does not have the beginning of a Copenhagen outcome. On the road to Copenhagen, the clock is certainly ticking: as of today, there are only 265 days to the beginning of the UN Climate Change Conference that is set to make history. Much work remains to be covered before then. Four negotiating sessions have been dotted throughout the year, with the possibility of a fifth, if needed. The first negotiating session will begin in 12 days and will include talks on further commitments for industrialised countries, as well as in-depth consultations on the project-based mechanisms and emissions trading. Parties will also consider a focus document based on submitted ideas and proposals, in view of a negotiating text for the session in June. For a host of reasons, it is believed that Copenhagen represents a tiny window of opportunity. But this cannot, it must not, be a “Charge of the Light Brigade”. This foray must be cheered on and universally applauded as one of the key moments in history when humankind fundamentally changed the nature of its development.

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Ankur Bhatnagar

Investing in clean energy

Predictions The global energy consumption is predicted to increase by 60% in the next 25 years. The growth like that will surely require finding a solution of using clean energy sources. The need for changing the energy source has become really urgent after realizing the fact the only real alternative to the usual energy, nuclear energy, proved to be unprofitable. All in all the statistics shows by the year 2012 the world would need USD 450 billion of clean energy investing to be saved. The trend of the clean energy market grows rapidly. As of 2007 it reached nearly USD 150 billion which is 60 per cent more than in 2006. Among the most serious sources of clean energy investing 3 major ones can be distinguished. These are the venture businesses, enterprises and capitalists. The US market has USD 3 billion which is only 3 times less than the worldwide amount. As the result it gives private investors, businessmen as well as other institutions a good source of liquidity and investment outlook for the future. The great part of the US market also gives large companies involved into investment business a good channel for their activity. Among others there are: Merrill Lynch, Barclays, Triodos, Sarasin, Winslow, Sustainable Asset Management, ABN Amro, Deutsche Bank, HSBC & Invesco. As for the project StableInterest.com, the main feature and investment direction still remains energy investing. At the same time, with the clean energy market development and growing, being involved into clean energy investing becomes the priority for the entire investment activity not solely of the project; clean technology investment has also attracted the highest investment levels such as government incentives and tech maturity. Just a couple of figures as an example of market liquidity as an explanation of being involved and benefit on this arena. - Over the last 4 years, the total growth in the sphere of solar investing has been 254%. - The bio-fuels sector has shown the 169% growth over the last 4 years - The wind sector has shown the 73% growth over the same period

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Ankur Bhatnagar

Investing in clean energy

It can be seen that solar energy is the most rapidly growing industry; meanwhile, the clean energy sector itself shows the evident grows in every sphere. In terms of coming technological revolution, which is inevitable, investing to clean energy sector is a wise decision as a long-term profitable investment trend and will sooner or later bring excellent returns. Solar energy investing in its turn happens to become the headliner of the sector, with a high profit rate and low government pressure upon it. As the final outlook, Stable Interest is getting involved into clean energy investing with 45 per cent of the total assets volume. New techniques are being applied with a view to update the trading and investment portfolio as done by other major investment institutions. The monetary value of the global carbon market is set to shrink by a third this year, according to estimates from analysis. Volumes are set to rise 20% against 2008 levels, but this marks a slow-down from previous growth rates. In a report, the Norwegian company forecasts that allowances and credits equivalent to 5.9 billion tonnes (Gt) of carbon dioxide (CO2e) will be traded in 2009, up from 4.9 Gt in 2008. However, falling prices for carbon credits in key markets mean that the market's overall value will drop to €62.6 billion ($80.3 billion), compared with €92 billion in 2008. While volumes in the EU Emissions Trading Scheme are set to grow a healthy 24% in volume terms (to 3.8 billion tonnes) the Kyoto Protocol's project-based mechanisms – the Clean Development Mechanism (CDM) and Joint Implementation (JI) – will see swingeing cuts in activity. In terms of purchases directly from projects themselves – ‘primary’ transactions – both mechanisms will be down around 45%, the company forecasts. Primary CDM volumes are set to fall to 300 million tonnes (Mt), with a market value of €2.7 billion. Secondary trading of certified emission reduction (CER) credits, however, is forecast to rise to 1.4 Gt, up 12% on 2008.

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Ankur Bhatnagar

Investing in clean energy

The point carbon says low prices for CERs have reduced the incentive to invest, as has uncertainty over the international climate regime after 2012. The reduced availability of debt finance is also weighing on supply. Considerable uncertainty surrounds the prospects for JI, given high levels of regulatory risk in its key markets of Russia and Ukraine. Point Carbon gives a range of 15-70 Mt of volume, with a middle estimate of 40 Mt, compared with 72 Mt in 2008. The firm does expect to see growth – albeit from a low base – in trades of Assigned Amount Units, the Kyoto units allocated directly to governments. It forecasts 95 Mt of trades, worth €942 million, up from 18 Mt in 2008. The US provides another relative bright spot, with 2009 marking the first year of compliance targets under the Regional Greenhouse Gas Initiative. Analysis reports projects 339 Mt traded in 2009, compared with 71 Mt of pre-compliance trading last year. This would mean RGGI would account for 5.8% of global carbon market volumes. Volume growth between 2008 and 2009 is considerably down on recent years. Between 2006 and 2007, according to World Bank figures, the global carbon market doubled in value to $64 billion. Between 2007 and 2008, the market grew around 80% in value terms.

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Ankur Bhatnagar

Investing in clean energy

There are a number of critical drivers behind the shift away from carbon-intensive energy sources and systems and towards the zero- or low-carbon options outlined in the region. These include: Emerging carbon and climate policies and regulations, including regional efforts such as the Western Climate Initiative Federal, state, and regional clean-energy funds, standards, tax incentives and other economic development initiatives n Increasing cost volatility of fossil-based energy sources n Advances in a range of clean-energy technologies, from solar, wind, and geothermal to energy efficiency, smart grid, and green buildings, that are making them increasingly cost-competitive n Social forces that are demanding a shift from polluting, carbon-intensive, fossil fuel based economy to a sustainable and efficient clean-energy economy n Rising investments in clean energy by public and private markets, illustrated by venture investments in clean energy that have risen from one percent of total venture investments in 1999 to more than nine percent of total U.S. venture activity 83 | P a g e

Ankur Bhatnagar

Investing in clean energy

in 2007—$2.7 billion invested in clean energy, according to New Energy Finance, Clean Edge, and Nth Power research. But for all the powerful forces aligning behind clean energy and energy efficiency, a host of obstacles remain. These include uncertainty around the long-term extension of the federal investment tax credit and production tax credit for renewable (at the time this report went to press the federal extension of the ITC and PTC had failed under at least eight separate votes by Congress); state coffers that at times will see contraction, instead of increases; and growing competition from regions within the U.S. and abroad.

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Ankur Bhatnagar

Investing in clean energy

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Ankur Bhatnagar

Investing in clean energy

7. Bibliography Newsletters: Investor's Business Daily: Clean-Energy ETF Slips As Bush Speech Fades, BY MURRAY COLEMAN, Posted 3/14/2006. “Bush calls for clean-technology fund”, January 29, 2008 8:27 AM PST, by Martin LaMonica. Posts from Green Tech on: •

Planned Florida City aims for solar self-sufficiency

•

California utilities plug energy-efficient electronics

•

To cool data centres, let the breeze flow in

•

Carbon market is closely watching the U.S.

•

Interior secretary: Wind could replace coal power

•

Companies still keen on green despite economy

•

Green news harvest: Big Oil's lip service on clean energy

•

EU bank grants $1.2 billion in loans for clean cars

Carbon Market Data, a European company providing carbon market research services, issued a data summary on the recent release of the EU Emissions Trading Scheme‘s 2007 verified emissions reports. “IDBI - Carbon Developments”, December 2008 Issue - SSAD 025 Speech: By The Rt. Hon Elliot Morley MP, President of GLOBE International, World Bank, 11th October 2008, on “Global slowdown strengthens case for low carbon transition” “Green Speech”, Connecticut Fund for the Environment. “Financing Clean Energy: A Framework for Public-Private Partnership to address Climate Change”, Conference held at the EBRD, London, March 13-14 2007, Keynote address Paul Wolfowitz, President, the World Bank Group 86 | P a g e

Ankur Bhatnagar

Investing in clean energy

Reports: ACEEE's Ohio report entitled The Potential for Energy-Efficiency in Ohio. ACEEE’s State Clean Energy Resource Project (SCERP) “EU ETS and Kyoto Mechanisms: Twisted Hierarchy”, by Mr. Alexander Vasa, PhD Candidate (EDLE), Maastricht Alma Mater, January 29, 2009 “JI in the EU-ETS: Building blocks for a global carbon market”, Thomas Bernheim, Market-based instruments + EU ETS Unit, European Commission. “European Wholesale Carbon Market Development”, researchandmarkets.com. “State and Trends of the Carbon Market 2008”, Washington, D.C. � May 2008, Funded by World Bank. “J . P . Morgan Environmental Markets”, October, 2008. “Demand for CERs in 2008 – 2012”, Ingunn Storro, Point Carbon. “Assessment of the International Carbon Market”, Department of Climate Change, October 2008. “Increasing access to the carbon market”, United Nations Environment Programme (UNEP), 2008. New Carbon Finance, Global Kyoto Analysis – August 2008, New Carbon Finance / New Energy, Finance Ltd., London, 2008 Deutsche Bank, Carbon Emissions – It takes CO2 to Contango, 30 May 2008 Carbon Market Solutions, Sourcing Carbon – A Brokers View, Presentation to 4th Australian and New Zealand Climate & Business Conference, Auckland, N.Z., August 2008 Carbon Expo Special Report, Global Carbon 2008, London Yasue, M.; Ebeling, J., Generating carbon finance through avoided deforestation and its potential to create climatic, conservation and human development benefits

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Ankur Bhatnagar

Investing in clean energy

Prospectus of Hedge Funds: Carbon Market Initiative: The Asia Pacific Carbon Fund “Tufton Oceanic”, Oceanic Hedge Fund “SD- Funds”, Multi-Asset Derivatives Pricing & Risk Management System for Hedge Funds and Asset Managers Websites: All the reports have been downloaded from respective websites. However some websites have been used extensively and thus need special mention: http://www.setatwork.eu/cdm_projects.htm http://www.offshore-library.com/kb/articles/what_is_a_hedge_fund/ http://www.setatwork.eu/cdm_financing.htm http://www.asiahedgefund.com/FAQs.html http://www.magnum.com/hedgefunds/abouthedgefunds.asp http://th.answers.yahoo.com/question/index?qid=20060920081925AAVutTt http://www.centaur.com.cy/?cat=4&id=140 http://kookyplan.pbwiki.com/Hedge-Fund http://www.magnum.com/About.aspx?RowID=15&GroupName=AHF http://www.thehfa.org/Aboutus.cfm http://www.magnum.com/hedgefunds/strategies.asp http://en.cop15.dk/climate+facts/process/cop1+%e2%80%93+cop14 http://www.hedgeco.net/hedgeducation/hedge-fund-articles/hedge-fund-styles/ http://en.cop15.dk/about+cop15/information+for/ngos/show+article?articleid=26 4 http://www.setatwork.eu/news/n007.htm http://www.cop14.gov.pl/index.php?mode=artykuly&action=main&id=1&menu=3 &lang=EN http://www.setatwork.eu/trading.htm http://www.measwatch.org/autopage/show_page.php?t=2&s_id=132&d_id=104

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Investing in clean energy

http://www.cop14.gov.pl/index.php?mode=artykuly&action=main&id=5&menu=2 &lang=EN http://www.videoku.tv/action/viewvideo/5951/Polandia/?vpkey= http://www.co2-handel.de/article58_11255.html http://www.dhcinvestmentmoney.com/buffett-pick.html http://www.climate-balance.com/article58_11255.html http://www.carbonyatra.com/news_detail.php?id=2696 http://www.reeep.org/index.php?id=31&special=showHotTopic&iHotId=114&sQui teName=event&iQuiteId=79 http://www.reeep.org/43.10416/united-nations-climate-change-conference.htm http://dhcinvestmentmoney.com http://emissionsportal.de/article58_11255.html http://www.measwatch.org/autopage/file/TueDecember2008-16-9-53Conference%20COP14.mht http://www.uiowa.edu/ifdebook/faq/Hedge.shtml http://en.cop15.dk/climate+facts/process/cop15+%e2%80%93+the+crucial+conf erence http://en.cop15.dk/climate+facts/process/the+negotiations+in+2009 http://www.allbusiness.com/personal-finance/4315710-1.html http://www.bsjp.pl/index.php?navi=007,006&id=1580 http://www.setatwork.eu/certificates.htm http://www.businessspectator.com.au/bs.nsf/Article/Private-equitys-carbon-playA3QD3?OpenDocument http://www.guyermanagement.com/press/Columns/Hedge_fund_managers_emplo y_numerous_strategies.htm http://www.huffingtonpost.com/howard-learner/investing-in-cleanenergy_b_130716.html http://elpc.org/2008/10/13/investing-in-clean-energy-is-a-smart-strategy-in-thetroubled-economy http://www.websitetoolbox.com/tool/post/richardwilson/show_single_post?pid=2 2798060&postcount=1 89 | P a g e

Ankur Bhatnagar

Investing in clean energy

http://www.websitetoolbox.com/tool/post/richardwilson/vpost?id=2387676 http://www.youarein.poznan.pl/index.php?option=com_content&task=view&id=11 38&Itemid=1 http://www.heatison.org/index.php/content/news_item/investing_in_clean_energy _is_a_smart_strategy_in_these_troubled_economic_ti/ http://elpc.org/category/president-notes http://en.cop15.dk/about+cop15/information+for/ngos/show+article?articleid=26 7&tip=1 http://www.setatwork.eu/cdm.htm http://www.websitetoolbox.com/tool/post/richardwilson/printadd?id=2387676& pid=22798060 http://www.websitetoolbox.com/tool/post/richardwilson/vpost?id=2387676&trai l= http://denver.bizjournals.com/denver/stories/2006/09/04/smallb4.html http://en.cop15.dk/climate+facts/process/the+negotiations+in+2009?year=2009& month=3 http://www.carbonfinanceonline.com/index.cfm?section=lead&id=11870&action=view&return=home http://www.setatwork.eu/toolv3/cdm.html http://www.setatwork.eu/glossary.htm http://www.folklor.pl/index.php?mode=aktualnosci_extended&action=main&menu =163&id=41&k=41&lang=EN http://www.setatwork.eu/toolv3/buyer.html http://www.commodities-now.com/content/market-news/archive-2008/marketnews-2008101305819.php http://unfccc.metafusion.com/kongresse/SB28/templ/ply_page.php?id_kongresssession=1195&playe r_mode=isdn_real http://www.sourcewatch.org/index.php?title=COP14 http://www.euwfd.com/html/conferences_and_events_.html http://biodzl.com/carbon_funds 90 | P a g e

Ankur Bhatnagar

Investing in clean energy

http://www.setatwork.eu/news/news030704.htm http://www.iamgroup.ca/glossary/s.html http://www.environ.ie/en/Environment/Atmosphere/News/MainBody,15274,en.h tm http://www.fride.org/archive/international-agenda/2009 http://www.europeanbusinessreview.com/?p=173 http://www.sourcewatch.org/index.php?title=Clean_Development_Mechanism http://www.iamgroup.ca/glossary/m.html http://www.slideshare.net/tbliconference/challenges-in-creating-liquidity-in-thecarbon-market-cdm-projects/ http://vlex.com/vid/42479028 http://verbraucher-initiative.klima-aktiv.de/article58_11343.html http://www.bei.org/projects/topics/environment/climate-change http://www.carbonyatra.com/news_detail.php?id=2733 http://www.global-perspectives.info/news/news.php?key1=2009-0201%2007:10:01&key2=1 http://www.co2-handel.de/archive_58.html http://www.sourcewatch.org/index.php?title=Yvo_de_Boer http://news.xinhuanet.com/english/2008-11/30/content_10433322.htm http://www.asria.org/portal/climate_change/emission http://lightbulbs.org/renewable-energy-mutual-funds http://www.unitedgain.com/UG_Services.htm http://www.brewerfx.com/Forex%20Education/GlossaryKO.htm http://www.brewerfx.com/Forex%20Education/GlossaryPT.htm http://www.gbltrends.com/doc/CDM%20strategy2%20The%20Netherlands.doc http://202.83.164.26/wps/portal/Moe/!ut/p/c0/04_SB8K8xLLM9MSSzPy8xBz9CP 0os_hQN68AZ3dnIwML82BTAyNXTz9jE0NfQwNfA_2CbEdFAA2MC_Y!/?WCM_GLOB AL_CONTEXT=/wps/wcm/connect/MoeCL/ministry/highlights/cop+14 http://coastalfunds.com/cf/docs/hedgefunds_fundtypes.htm http://202.83.164.26/wps/portal/Moe/!ut/p/c0/04_SB8K8xLLM9MSSzPy8xBz9CP 0os_hQN68AZ3dnIwML82BTAyNXTz9jE0NfQwNfA_2CbEdFAA2MC_Y!/?ts=11fb1e5 91 | P a g e

Ankur Bhatnagar

Investing in clean energy

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Ankur Bhatnagar

Investing in clean energy

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Ankur Bhatnagar

Investing in clean energy

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Ankur Bhatnagar

Investing in clean energy

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Ankur Bhatnagar

Investing in clean energy

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And above all Google Search Engine for providing a vast pool over 500 documents and WebPages that provided valuable knowledge and precious input to the report.

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Disclaimer: Author of report is not an investment professional, merely an interested amateur. Any investment carries the risk of loss.

Consult with an investment professional and/or do your own research before making any investment decision.

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Ankur Bhatnagar