Investing in Clean Energy

UNIVERSITY OF PETROLEUM & ENERGY STUDIES
Investing In Clean Energy

Carbon Fund & Trading Strategies
Under Guidance of: Prepared By:
Mr. Vikas Kumar Ankur Bhatnagar

Visiting Faculty
MS Energy Trading
R130107006
2009
COLLEGE OF MANAGEMENT STUDIES, GURGAON

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

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)

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
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

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.

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

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.

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.

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.
10 | P a g e Ankur Bhatnagar
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.
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
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.
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.
“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, Market-
based 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.
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
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.
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.
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.
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.
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.
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.
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
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.
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.
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
Objective: 8% reduction in CO2 emission
Actors: Countries that have ratified the from 1990 levels in the EU-15 at minimum
Kyoto Protocol cost, using cap & trade mechanism.
Flexible Mechanism: Actors: Energy supply & use, Transport,

Industrial processes, Agriculture, Waste,
• Joint Implementation (JI) Other.

• Clean Development Mechanism (CDM) Carbon Credits: European Union
• International Emission Trading (IET) Allowances (EUA) & CER/ERU from Kyoto
Mechanisms.
USA: Regional Greenhouse Gas
Carbon Credits: Initiative (RGGI)
Objective: Cap and trade program for
• AAU: Assigned Allowance Units
greenhouse gas emissions from power plants
• CER: Certified Emission Reduction
(From CDM Projects) Actors: Maine, New Hampshire, Vermont,
• ERU: Emission Reduction Units Connecticut, New York, New Jersey,
(From JI Projects)
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 VERs
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.
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.
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.
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.
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 project-
based 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 small-
scale 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.
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.
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.
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.
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.
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
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 state-
to-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.
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.
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.
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.
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 environmentally-
friendly 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.
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 EU-
15 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.
Emission Target Reduction

Emission Trend Gg CO2equivalent
Party allowed Reduction 1990-2006
(%) (%) (%) 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012
Australia 108 8 28.8 4,16,155 4,42,326 4,95,171 5,29,524 5,36,066 5,44,705 5,52,507 5,60,309 5,68,111 5,75,914 5,83,716
Austria 92 -8 15.10 79,172 80,624 81,136 93,260 91,090 91,808 92,673 93,539 94,405 95,270 96,136
Belarus* 95 -5 -36.40 1,27,361 72,941 69,798 75,594 80,996 66,861 64,493 62,124 59,755 57,386 55,017
Belgium 92 -8 -5.20 1,44,530 1,50,199 1,45,511 1,42,346 1,36,970 1,40,195 1,39,718 1,39,242 1,38,765 1,38,289 1,37,812
Bulgaria 92 -8 -46.20 1,32,614 88,009 68,695 70,497 71,343 58,893 55,388 51,883 48,378 44,872 41,367
Canada 94 -6 21.7 5,92,281 6,41,675 7,17,703 7,34,491 7,20,632 7,49,222 7,57,923 7,66,623 7,75,324 7,84,025 7,92,725
Croatia* 95 -5 -5.20 32,527 22,930 26,228 30,561 30,834 29,143 29,211 29,278 29,346 29,413 29,481
Czech R* 92 -8 -23.70 1,94,244 1,52,914 1,46,957 1,45,749 1,48,204 1,38,046 1,35,537 1,33,029 1,30,520 1,28,011 1,25,503
Denmark* 92 -8 2.2 70,342 77,332 69,338 64,989 71,914 68,627 68,351 68,075 67,798 67,522 67,246
Estonia* 92 -8 -54.60 41,593 20,803 18,246 19,313 18,876 14,590 13,413 12,237 11,060 9,884 8,707
Finland* 92 -8 13.2 70,946 71,330 69,776 69,027 80,291 74,402 74,675 74,947 75,220 75,493 75,766
France* 92 -8 -3.50 5,66,411 5,59,081 5,59,880 5,60,363 5,46,527 5,52,277 5,51,485 5,50,693 5,49,902 5,49,110 5,48,318
Germany* 92 -8 -18.20 12,27,688 10,95,011 10,19,494 10,05,000 10,04,794 9,67,283 9,54,063 9,40,843 9,27,623 9,14,404 9,01,184
Greece* 92 -8 27.3 1,04,603 1,10,492 1,28,231 1,33,831 1,33,112 1,37,310 1,39,266 1,41,222 1,43,178 1,45,134 1,47,090
Hungary* 94 -6 -32.10 1,15,849 79,327 77,588 80,198 78,625 71,933 70,089 68,244 66,400 64,556 62,712
Iceland 110 10 24.2 3,409 3,199 3,733 3,709 4,234 4,019 4,066 4,112 4,158 4,205 4,251
Ireland 92 -8 25.6 55,526 59,368 69,028 70,345 69,762 72,376 73,347 74,317 75,288 76,259 77,229
Italy* 92 -8 9.9 5,16,898 5,30,457 5,52,274 5,77,945 5,67,922 5,77,790 5,81,468 5,85,146 5,88,825 5,92,503 5,96,181
Japan 94 -6 5.3 12,72,056 13,43,902 13,48,322 13,58,065 13,40,081 13,63,236 13,67,179 13,71,121 13,75,064 13,79,006 13,82,949
Latvia* 92 -8 -56.10 26,456 12,493 10,021 11,130 11,621 8,188 7,399 6,610 5,820 5,031 4,242
Liechtenstein 92 -8 19 230 236 255 271 273 275 278 281 284 287 290
Lithuania* 92 -8 -53.00 49,370 21,980 19,370 22,681 23,222 17,017 15,696 14,374 13,053 11,731 10,410
Luxembourg 92 -8 1 13,187 10,335 10,185 13,291 13,322 12,538 12,598 12,659 12,720 12,780 12,841
Monaco* 92 -8 -13.10 108 115 120 104 94 102 102 101 100 99 99
Netherlands 92 -8 -2.00 2,11,651 2,23,980 2,13,630 2,11,754 2,07,477 2,10,371 2,09,944 2,09,518 2,09,091 2,08,664 2,08,238
Norway* 101 1 7.7 49,698 49,765 53,493 53,800 53,512 54,293 54,580 54,867 55,154 55,441 55,728
NZ 100 0 25.7 61,948 64,461 70,712 77,354 77,868 78,749 79,811 80,873 81,934 82,996 84,058
Poland* 94 -6 -28.90 5,63,443 4,40,608 3,89,490 3,86,357 4,00,459 3,61,031 3,51,410 3,41,790 3,32,169 3,22,548 3,12,928
Portugal 92 -8 40 59,109 70,255 81,518 87,217 82,739 88,748 90,360 91,973 93,586 95,199 96,812
Romania* 92 -8 -44.40 2,81,895 1,84,097 1,38,719 1,51,981 1,56,680 1,26,830 1,19,671 1,12,512 1,05,352 98,193 91,033
Russia 100 0 -34.20 33,26,404 21,87,120 20,38,247 21,23,359 21,90,239 19,05,880 18,45,983 17,86,086 17,26,189 16,66,293 16,06,396
Slovakia* 92 -8 -33.60 73,679 52,791 48,500 49,333 48,902 44,311 42,986 41,662 40,337 39,013 37,688
Slovenia* 92 -8 1.2 20,340 18,687 18,923 20,468 20,591 20,154 20,199 20,245 20,290 20,335 20,380
Spain* 92 -8 50.6 2,87,687 3,18,778 3,84,981 4,40,887 4,33,339 4,51,060 4,61,050 4,71,040 4,81,031 4,91,021 5,01,012
Sweden* 92 -8 -8.70 72,043 73,700 68,284 66,900 65,749 65,811 65,359 64,907 64,455 64,004 63,552
Switzerland* 92 -8 0.8 52,800 51,098 51,759 53,790 53,209 53,164 53,246 53,327 53,408 53,489 53,570
Turkey** 92 -8 95.1 1,70,059 2,20,719 2,79,956 3,12,420 3,31,763 3,39,807 3,49,656 3,59,505 3,69,354 3,79,203 3,89,053
UK 92 -8 -15.10 7,71,979 7,10,395 6,73,774 6,58,733 6,55,787 6,40,078 6,33,148 6,26,217 6,19,287 6,12,357 6,05,427
Ukraine* 100 0 -51.90 9,22,013 5,21,733 3,95,002 4,25,666 4,43,183 3,33,493 3,06,823 2,80,153 2,53,483 2,26,813 2,00,142
Total Emission 1,27,78,304 1,08,35,266 1,06,14,048 1,09,32,303 1,10,02,302 1,05,34,615 1,04,45,150 1,03,55,684 1,02,66,219 1,01,76,754 1,00,87,288
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

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.
Emission Reduction Reduction Emission Trend Gg CO2equivalent

Party allowed Needed till 2006
(%) (%) (%) 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012
EU 92 -8 -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 41,22,515 41,16,826
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 41,22,515 41,16,826
8% of baseline 3,39,506
Allowed Emission 39,04,315 39,04,315 39,04,315 39,04,315 39,04,315 39,04,315
Extra Emission 2,35,314 2,29,602 2,23,897 2,18,200 2,12,510
Total Gg 11,19,522
tCO2eq. CERs 1,11,95,22,382
http://unfccc.int/resource/docs/2008/sbi/eng/12.pdf 1Gg=1000tCO2eq
Avg. World GDP Growth Rate 1978 to 2007 3.20%

Projected Avg. World GDP Growth Rate 2008 to 2012 2.81%
Slowdown Rate 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.
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.
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.
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.
Emission Reduction Reduction till Emission Trend Gg CO2equivalent

Party allowed Needed 2006
(%) (%) (%) 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012
Australia 108 8 28.8 4,16,155 4,42,326 4,95,171 5,29,524 5,36,066 5,44,617 5,53,304 5,62,129 5,71,096 5,80,205 5,89,460
Canada 94 -6 21.7 5,92,281 6,41,675 7,17,703 7,34,491 7,20,632 7,29,521 7,38,519 7,47,629 7,56,850 7,66,186 7,75,636
Iceland 110 10 24.2 3,409 3,199 3,733 3,709 4,234 4,292 4,350 4,410 4,470 4,531 4,592
EU 92 -8 -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 41,22,515 41,16,826
Japan 94 -6 5.3 12,72,056 13,43,902 13,48,322 13,58,065 13,40,081 13,44,451 13,48,836 13,53,235 13,57,648 13,62,076 13,66,518
Liechtenstein 92 -8 19 230 236 255 271 273 276 279 282 285 288 291
Norway 101 1 7.7 49,698 49,765 53,493 53,800 53,512 53,760 54,009 54,259 54,510 54,763 55,017
NZ 100 0 25.7 61,948 64,461 70,712 77,354 77,868 78,989 80,126 81,280 82,450 83,637 84,842
Slovenia 92 -8 1.2 20,340 18,687 18,923 20,468 20,591 20,607 20,623 20,638 20,654 20,670 20,686
Switzerland 92 -8 0.8 52,800 51,098 51,759 53,790 53,209 53,235 53,260 53,286 53,312 53,337 53,363
Turkey 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 3,76,050 3,92,089 4,08,813 4,26,249
Total Emission 68,82,797 69,68,727 71,57,650 73,29,895 72,89,308 73,21,011 73,53,603 73,87,115 74,21,577 74,57,021 74,93,480
65,24,892
5.2% of baseline 3,57,905
Allowed Emission 65,24,892 65,24,892 65,24,892 65,24,892 65,24,892 65,24,892
Extra Emission 8,28,712 8,62,223 8,96,685 9,32,129 9,68,589
Total Gg 44,88,338
tCO2eq. CERs 4,48,83,38,440
Avg. World GDP Growth Rate 1978 to 2007 3.20%

Note: Countries that have already well below their commitments Projected Avg. World GDP Growth Rate 2008 to 2012 2.81%
are not considered as they will not contribute to demand of CERs.
Rather they will either supply ERU or AAU. Slowdown Rate 12.19 CERs 3,94,13,22,192
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 world-
wide 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.
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.
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

of which:
--- 1382 are registered 257,869,814 > 1,440,000,000
--- 93 are requesting registration 8,264,843 > 30,000,000

* 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
Interpretation:
The total adjusted 2008-2012 demand from developed countries under the Kyoto
Protocol is predicted to be from Government and private buyers (excluding EU-
15), 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.
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.
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.
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.
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.
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.
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
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 long-
term 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.
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.
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;
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.
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.
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.
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
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 long-
term 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
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
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. Long-
term 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
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."
Carbon Market Beyond 2012
Map under Kyoto Regime
Kyoto credit
Investment
Canada
Linkage - Dropped from Kyoto
United States
Russia -
-
Not ratified Kyoto
RGGI
- Kyoto Ratified - Cap & Trade
- Selling AAU
EU JAPAN
- Kyoto Ratified
- Kyoto Ratified
- Reduction effort + Kyoto
- Cap & Trade + Kyoto
CDM Host Countries Australia

- Selling CER - Kyoto Ratified
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.
Map beyond Kyoto
Affected
Linkage
Canada
- Dropped from Kyoto
Russia
- Kyoto Ratified United States
- Selling AAU - Not ratified Kyoto
- Some states plan
- Cap & Trade
JAPAN
EU - Kyoto Ratified
- Kyoto Ratified - Reduction effort + Kyoto
Australia
CDM Host Countries - Kyoto Ratified
- Selling CER - Cap & Trade + Kyoto
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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
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.
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
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
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
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/TueDecember2008-16-9-53-
Conference%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-play-
A3QD3?OpenDocument
http://www.guyermanagement.com/press/Columns/Hedge_fund_managers_emplo
y_numerous_strategies.htm
http://www.huffingtonpost.com/howard-learner/investing-in-clean-
energy_b_130716.html
http://elpc.org/2008/10/13/investing-in-clean-energy-is-a-smart-strategy-in-the-
troubled-economy
http://www.websitetoolbox.com/tool/post/richardwilson/show_single_post?pid=2
2798060&postcount=1
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.carbon-
financeonline.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
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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.
i 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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UNIVERSITY OF PETROLEUM & ENERGY STUDIES

Investing In Clean Energy

Under Guidance of: Prepared By:

Mr. Vikas Kumar Ankur Bhatnagar

COLLEGE OF MANAGEMENT STUDIES, GURGAON

Investing In Clean Energy

Report of dissertation submitted in partial fulfilment of requirements for

2|Page Ankur Bhatnagar

3|Page Ankur Bhatnagar

2. Purpose of Study .............................................................................................................................................................. 12

CDM project cycle ............................................................................................................................................................ 16

Legal documents for CDM project development ............................................................................................ 18

Overview of Certificate Types .................................................................................................................................... 24

Clean Development Mechanism (CDM) in Asia ................................................................................................... 41

Conference of the Parties 14 .................................................................................................................................. 57

Strategies of Trading Carbon Fund: .................................................................................................................... 64

Carbon Market Beyond 2012 ...................................................................................................................................... 70

5|Page Ankur Bhatnagar

6|Page Ankur Bhatnagar

7|Page Ankur Bhatnagar

8|Page Ankur Bhatnagar

People are drawn to renewable energy for one of several reasons:

9|Page Ankur Bhatnagar

Carbon funds continue grow

“Financing Clean Energy: A Framework for Public-Private Partnership to address Climate

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

6. Research & Analysis

CDM project cycle

Figure 1: CDM Project

Validation and Registration

Validation is a process involving an independent evaluation of the project activity by an external

Verification and Certification

Legal documents for CDM project development

Project Idea Note

Project Design Document

Emission Reduction Purchase Agreement

Key institutions under the CDM

Conference of the Parties/Meeting of the Parties (COP/MOP)

Executive Board (EB)

Designated National Authority (DNA)

Designated Operational Entity (DOE)

Eligible CDM project types

CDM project development costs

Table 1: Fee Charges

Indicative prices related to the registration of CDM projects by the EB

<= 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

Source: compiled data from the UNFCCC website

Overview of Certificate Types

Structure of Carbon Market

Allowance Based Markets

Flexible Mechanism: Actors: Energy supply & use, Transport,

• Joint Implementation (JI) Other.

Carbon Credits: VER form member states

CDM and JI in EU-ETS

Joint Implementation (JI) is a similar mechanism; however it is applied to projects within