CDM:A Quick Overview
Background             2
Increasing climate change have pushed the discussion process about a framework reducinggreenhouse gases                   ...
Global warming                 4
International response to Climate ChangeMilestones  1979: First World Climate Conference  1988: Intergovernmental Panel on...
Kyoto Protocol»   11 December 1997 – Kyoto Protocol adopted in Kyoto, Japan»   The overall emission reduction target for A...
Kyoto ProtocolAustralia               Estonia         Latvia Liechtenstein          Russia Austria                Finland ...
Flexibility Mechanisms»   Joint Implementation (Article 6) - fulfilment of emissions limitation and reduction    commitmen...
Emission trends in Annex 1 countriesDecreased emissions  (1990 baseline)                                          Increase...
What Annex I countries can do                          Limitations of CO2 emissions in                          developed ...
Opportunities for industries                               11
Opportunities for industries»   Technology transfer to improve process and energy efficiency»   Co-finance investments by ...
Clean Development     Mechanism                    13
Clean Development Mechanism                                                         »   The basic principle of the CDM is ...
Types of CDM projects                                                 Carbon project                                      ...
Types of CDM projects                                      Clean energy    »   Use of renewables (e.g. hydro power) to sup...
Types of CDM projects                            Waste management»   Capturing the methane from animal waste, human waste ...
Types of CDM projects                                       Bio-carbon»   Forestry plantations – e.g. restoration of mangr...
How a CDM project generates carbon credits                                                                   NOTE: greenho...
Estimating emission reductions                         What would the level of emissions be in the absence of the project?...
Estimating emission reductions                        =                                     X          Emissions factor   ...
Estimating emission reductions                        =                                     X          Emissions factor   ...
Estimating emission reductions                          =                               X   Emissions factor              ...
CDM Pipeline - Worldwide6000                                                                                              ...
CDM Pipeline - India             Number of Projects in the CDM Pipeline in INDIA,                                         ...
CDM Revenue from some projectsSector                              Wind               Hydro             Biomass           S...
Project Developer                                            The CDM project cycle                                       6...
Project Developer                                            The CDM project cycle                                       6...
Project Developer                                            The CDM project cycle                                       6...
Project Developer                                            The CDM project cycle                                       6...
Project Developer                                            The CDM project cycle                                       6...
Project Developer                                            The CDM project cycle                                       6...
Project Developer                                            The CDM project cycle                                       6...
Project Developer                                            The CDM project cycle                                       6...
Project                PDDProject          Idea Note idea             (PIN)                                               ...
Critical aspects                   36
Baseline study»   Every carbon project requires a baseline study»   The purpose of the baseline study is to determine the ...
AdditionalityHas been defined as:»   Environmental additionality – reductions in GHG emissions»   Financial additionality ...
AdditionalityIdeally, a project should demonstrate a combination of these forms of                             additionali...
Financial additionality – benchmark analysis» Benchmark analysisChoose an appropriate financial indicator and compare it w...
Some examples of additionality☺   Capturing methane from an urban landfill and flaring it      Carbon credits represent th...
Crediting period                               CDM mitigation projectsProject developers have two crediting period options...
Crediting periodA maximum of 10 years   with no option of       renewal                            Greenhouse gas emission...
Why not maximize the crediting period?                           Baseline must be                         The baseline    ...
Why not maximise the crediting period?                           Baseline must be                         The baseline    ...
Transaction ofCERs                 46
Options to sellerSellers can choose from the following options for sale of their issued CERs:1.   Individual Buyer Identif...
Individual Buyer Identification»   Step-1: Seller enters into an exclusive brokerage agreement with the broker for the sal...
Highlights»   Offer prices from individual buyers drive the core of the process. Price negotiation is    important.»   ERP...
Full access market»   A non-exclusive agreement signed by seller with broker.»   The CERs are delivered to broker and is h...
Highlights»   Seller gets an access to open market price on a day to day basis.»   The seller has the benefit of locking a...
Auction»   Electronic process for sale and purchase of CERs arranged and hosted by some brokers    online.»   Seller wishi...
Floor and Reserve PriceEach seller sets a floor price below which they will not sell            Seller A         Floor € 1...
Floor and Reserve Price»   Each seller sets a floor price below which they will not sell              Seller A           F...
Floor and Reserve PriceBroker subjectively sets the Reserve Price (same for all seller) taking into account marketconditio...
Floor and Reserve PriceBroker subjectively sets the Reserve Price (same for all seller) taking into account marketconditio...
Floor and Reserve PriceBroker subjectively sets the Reserve Price (same for all seller) taking into account marketconditio...
Floor and Reserve PriceBroker subjectively sets the Reserve Price (same for all seller) taking into account marketconditio...
Floor and Reserve PriceIf seller has his floor price above the reserve price then he will not participate in this auction....
Floor and Reserve PriceIf seller has his floor price above the reserve price then he will not participate in this auction....
Floor and Reserve PriceIf seller has his floor price above the reserve price then he will not participate in this auction....
Highlights»   Secure and transparent electronic based platform»   Access to multiple buyers through one single platform.» ...
Transaction services    »     Spot Sale                             »   CERs are issued                                   ...
Way Forward              64
First commitment period to end in 2012.                What next        ?Copenhagen                           Cancun      ...
Copenhagen»   6-18th December 2009»   COP 15/MOP 5»   Representatives of 192 countries»   No outcome»   Hopes to “seal the...
Cancun»   Not a failure like Copenhagen»   193 nations on track to deal with climate change»   So called “Cancun Agreement...
Highlights»   Creation of "Green Climate Fund" that will transfer money from rich countries to poor ones»   Formation of r...
»   Five pairs of rich and poor nations had tackled questions leading to a positive result at the    Cancun. They are:    ...
What next?»   IETA annual carbon market survey shows traders’ patience wearing thin with market and    regulatory uncertai...
For Further queries contact               Priyanka Abbi             Senior Consultant         Climate Change Division E-ma...
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CDM - A Quick Overview

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A handy document for understanding Clean Development Mechanism under Article 12 of the Kyoto Protocol.

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CDM - A Quick Overview

  1. 1. CDM:A Quick Overview
  2. 2. Background 2
  3. 3. Increasing climate change have pushed the discussion process about a framework reducinggreenhouse gases 3
  4. 4. Global warming 4
  5. 5. International response to Climate ChangeMilestones 1979: First World Climate Conference 1988: Intergovernmental Panel on Climate Change 1990: IPCC and Second WCC call for global treaty for climate change 1992: UN Framework Convention on Climate Change adopted 1994: UNFCCC entered into force 1997: Kyoto Protocol adopted 2001: Marrakesh Accords 2005: Kyoto Protocol entered into force 5
  6. 6. Kyoto Protocol» 11 December 1997 – Kyoto Protocol adopted in Kyoto, Japan» The overall emission reduction target for Annex I Parties as a group is at least 5 percent below 1990 levels, to be achieved by the commitment period 2008 to 2012 (an average over the five years).» 16 February 2005 – Kyoto Protocol enforced» 191 signatories 6
  7. 7. Kyoto ProtocolAustralia Estonia Latvia Liechtenstein Russia Austria Finland Lithuania Slovakia Slovenia Belarus France Luxembourg Spain Belgium Germany Netherlands Sweden Bulgaria Greece New Zealand Switzerland Canada Hungary Norway Turkey Croatia Iceland Poland UkraineCzech Rep Ireland Portugal Romania UKDenmark Italy USA EC Japan * Countries with economies in transition to a market economy. * Countries which did not ratify Kyoto protocol. 7
  8. 8. Flexibility Mechanisms» Joint Implementation (Article 6) - fulfilment of emissions limitation and reduction commitments jointly among Annex I Parties.» Emissions Trading (Article 17) - between Annex I countries to fulfill their reduction commitments. Any such trading shall be supplemental to domestic actions.» Clean Development Mechanism (Article 12) - to assist Parties not included in Annex I in achieving sustainable development and to assist Annex I countries in achieving compliance with their emission reduction commitments. 8
  9. 9. Emission trends in Annex 1 countriesDecreased emissions (1990 baseline) Increased emissions (1990 baseline) 9
  10. 10. What Annex I countries can do Limitations of CO2 emissions in developed countries (Annex I) 4 options for companies1/ Pay expensive 2/ Carry out carbon 3/ Buy emissions 4/ Carry out carbon fines. reduction through credits on the reduction through processes CO2 market (ETS). technology transfers improvement. in CDM or JI project. 10
  11. 11. Opportunities for industries 11
  12. 12. Opportunities for industries» Technology transfer to improve process and energy efficiency» Co-finance investments by selling emission credits» Prepare for future commitments (after 2012)» Achieve sustainable development 12
  13. 13. Clean Development Mechanism 13
  14. 14. Clean Development Mechanism » The basic principle of the CDM is simple - GHG emissions contribute equally to climate change irrespective of where they occur » CDM encourages investment in clean technologies in Developing Countries » Many emissions reduction opportunities are less expensive in developing countries » The CDM ‘rewards’ emissions reduction of the 6 key Green House Gas. The ‘Credits’ are computed in equivalent Metric Tonnes of CO2 (Carbon dioxide), with multiples beingGHG Sources assigned for converting each gas to its CO2CO2 Fossil fuel combustion, deforestation; equivalent eg. 1 MT of Methane = 21 MT of agriculture Carbon dioxide, 1 Mt of SF6 = 23,900 Mt CO2e.CH4 Agriculture, land use change, biomass burning, land fillsN2O Fossil fuel combustion, agriculture; industrialHFCs Industrial / manufacturingPFCs Industrial / manufacturingSF6 Electricity transmission, manufacturing 14
  15. 15. Types of CDM projects Carbon project Atmospheric Emission reduction removal Gas Avoiding new recovery emissions & End-of-pipeutilization Reduce emission Reduce energy losses Land-use Destruction Storage factor Reduce energy mitigation during transmission/ consumption distribution Fuel Substitution Energy efficiency at generation Renewable Fuel Waste energy switch heat/gas GHG efficiency at utilisation 15 production
  16. 16. Types of CDM projects Clean energy » Use of renewables (e.g. hydro power) to supply electricity to the grid, to local communities and to commercial facilities » Use of biomass residues for energy generation / cogeneration – e.g. bagasse from the sugar industry, coffee husks from the coffee industry, etc.Wind power Run-of-river Bagasse Timber hydro residues 16
  17. 17. Types of CDM projects Waste management» Capturing the methane from animal waste, human waste (sewage), agricultural waste (biomass) and urban landfills» Can be combined with electricity generation to produce a second stream of carbon creditsAnimal waste Sewage / wastewater Landfill 17
  18. 18. Types of CDM projects Bio-carbon» Forestry plantations – e.g. restoration of mangrove forests» Agro-forestry – e.g. shade crops, nitrogen capture in soils» Bio-fuels – e.g. bio-ethanol from molasses, bio-diesel from palm oil Forestry Agro-forestry Bio-fuels Transport 18
  19. 19. How a CDM project generates carbon credits NOTE: greenhouse gas emissions must also include project emissions Carbon creditsoccurring – emissions (CERs) represent the difference within the project between the baseline and boundary:Greenhouse gas emissions actual emissions e.g. fossil fuel emissions from construction e.g. soil disturbance from tree-planting AND: leakage – emissions Project start occurring outside the project boundary Historical Trend Time 19
  20. 20. Estimating emission reductions What would the level of emissions be in the absence of the project? = X Emissions factor ‘Guesstimate’ ofBaseline emissions associated with baseline activity activity The baseline scenario: • E.g. the default IPCC Existing or historical emissions factor for emissions kerosene is 71 tCO2/TJ Emissions from economically attractive alternative technologies Average emissions of similar project activities 20
  21. 21. Estimating emission reductions = X Emissions factor ‘Guesstimate’ ofBaseline emissions associated with baseline activity activity What is the level of emissions in the presence of the project? = X Emissions factor Project Project activity associated with emissions activity 21
  22. 22. Estimating emission reductions = X Emissions factor ‘Guesstimate’ ofBaseline emissions associated with baseline activity activity What is the level of emissions in the presence of the project? = X Emissions factor Project Project activity associated with emissions activity e.g. fuel consumed e.g. IPCC default emission factor 22
  23. 23. Estimating emission reductions = X Emissions factor ‘Guesstimate’ ofBaseline emissions associated with baseline activity activity – = X Emissions factor Project Project activity associated with emissions activity =Emissions reductions Denominated in tonnes of CO2- 1 tCO2e = 1 CER equivalent 23
  24. 24. CDM Pipeline - Worldwide6000 5832 5935 Number of Projects in the CDM Pipeline globally, 5583 January 2007 – February 2011 5396 51515000 4904 4682 4502 4319 41304000 3939 3744 3553 3386 31833000 2931 269720001000 0 July 08 Aug 08 Sep 08 Nov 08 Jan 09 Nov 10 Jan 11 Oct 08 Mar 09 Apr 09 May 09 Jun 09 July 09 Aug 09 Sep 09 Nov 09 Jan 10 Feb 11 Dec 08 Oct 09 Feb 10 Mar 10 Apr 10 May 10 Jun 10 July 10 Aug 10 Sep 10 Dec 09 Oct 10 Dec 10 Feb 09 24
  25. 25. CDM Pipeline - India Number of Projects in the CDM Pipeline in INDIA, 442450 January 2007 – February 2011 433 436 440 428 419 398 405400 390 352 360350 347 331 337 320 302300 28725020015010050 0 July Sep Nov Jan Mar May July Sep Nov Jan Mar May July Sep Nov Jan 08 08 08 09 09 09 09 09 09 10 10 10 10 10 10 11 25
  26. 26. CDM Revenue from some projectsSector Wind Hydro Biomass SolarPLF 23% 65% 80% 15%CERs/MW 1800 5100 5800 1200CER Revenue in INR 12 Lacs 32 Lacs 34 Lacs 8 Lacs(@65/Euro ,10 Euro/CER)Per Unit Revenue (Paise / kwh) 55 48 48 55 900 CERs for a million units saved or generated through Thumb Rule for calculations renewable sources 26
  27. 27. Project Developer The CDM project cycle 6 to 12 months 1.5 months Crediting period of the project Project CDM project feasibility development assessment / PDD / PIN DNA Host country approval Project Project DOE validation verificationExecutive Board CDM Project CER issuance registration 27
  28. 28. Project Developer The CDM project cycle 6 to 12 months 1.5 months Crediting period of the project Project CDM project feasibility development assessment / PDD / PIN DNA Host country approval Project Project DOE validation verificationExecutive Board CDM Project CER issuance registration 28
  29. 29. Project Developer The CDM project cycle 6 to 12 months 1.5 months Crediting period of the project Project CDM project feasibility development assessment / PDD / PIN DNA Host country approval Project Project DOE validation verificationExecutive Board CDM Project CER issuance registration 29
  30. 30. Project Developer The CDM project cycle 6 to 12 months 1.5 months Crediting period of the project Project CDM project feasibility development assessment / PDD / PIN DNA Host country approval Project Project DOE validation verificationExecutive Board CDM Project CER issuance registration 30
  31. 31. Project Developer The CDM project cycle 6 to 12 months 1.5 months Crediting period of the project Project CDM project feasibility development assessment / PDD / PIN DNA Host country approval Project Project DOE validation verificationExecutive Board CDM Project CER issuance registration 31
  32. 32. Project Developer The CDM project cycle 6 to 12 months 1.5 months Crediting period of the project Project CDM project feasibility development assessment / PDD / PIN DNA Host country approval Project Project DOE validation verificationExecutive Board CDM Project CER issuance registration 32
  33. 33. Project Developer The CDM project cycle 6 to 12 months 1.5 months Crediting period of the project Project CDM project feasibility development assessment / PDD / PIN DNA Host country approval Project Project DOE validation verificationExecutive Board CDM Project CER issuance registration 33
  34. 34. Project Developer The CDM project cycle 6 to 12 months 1.5 months Crediting period of the project Project CDM project feasibility development assessment / PDD / PIN DNA Host country approval Project Project DOE validation verificationExecutive Board CDM Project CER issuance registration 34
  35. 35. Project PDDProject Idea Note idea (PIN) Designated Host Country Approval National Authority Validation Operational Entity Registration Financing and implementation Project Monitoring owner Verification and certification Executive Issuance of CERs Board 35
  36. 36. Critical aspects 36
  37. 37. Baseline study» Every carbon project requires a baseline study» The purpose of the baseline study is to determine the baseline scenario for each GHG component of the project» The baseline must be explicitly defined» Selection of the baseline must be justified in a transparent manner» In order not to exaggerate the emission reductions achieved by the project, the baseline study must adopt a conservative approach whenever assumptions about future developments need to be made» The principle of conservativeness 37
  38. 38. AdditionalityHas been defined as:» Environmental additionality – reductions in GHG emissions» Financial additionality – the project only happens because of the financial incentive offered by carbon credits» Legal additionality – the project does more than what is required by local law» The Kyoto Protocol is somewhat vague, stating simply:“Reductions in emissions must be additional to any that would occur in the absence of theproject activity” 38
  39. 39. AdditionalityIdeally, a project should demonstrate a combination of these forms of additionality It is essential that the project achieve environmental additionality – otherwise, it will not generate any carbon credits! Typically, a project developer also demonstrates that, without carbonrevenues, the project would not be viable and/or commercially attractive The CDM Executive Board has developed an ‘additionality tool’ for CDM projects 39
  40. 40. Financial additionality – benchmark analysis» Benchmark analysisChoose an appropriate financial indicator and compare it with a relevant benchmarkvalue: e.g. PLR Carbon revenue makes the project Revenue / NPV / IRR attractive relative to investment Investment alternatives threshold A project can be money-making Project without carbon revenueas and qualify is profitable – but not ‘additional’! sufficiently profitable compared with alternatives Project without Project with carbon element carbon element 40
  41. 41. Some examples of additionality☺ Capturing methane from an urban landfill and flaring it Carbon credits represent the only source of income for undertaking this activity Capturing methane from an urban landfill and utilising it to generate electricity? Project developer would have to demonstrate that the electricity revenue alone would not make this project attractive Building a large hydro project for the grid in Ethiopia Questionable additionality: there is already plenty of hydro activity in Ethiopia 41
  42. 42. Crediting period CDM mitigation projectsProject developers have two crediting period options» A maximum of 7 years, which can be renewed up to 2 times (i.e. a potential total crediting period of 21 years)» A maximum of 10 years, with no option for renewal CDM sequestration projects (forestry)Project developers have two crediting period options» A maximum of 20 years, which can be renewed up to 2 times (i.e. a potential total crediting period of 60 years)» A maximum of 30 years, with no option for renewal 42
  43. 43. Crediting periodA maximum of 10 years with no option of renewal Greenhouse gas emissions Emissions under the project scenario Starting date of the crediting 10 years No renewal period 43
  44. 44. Why not maximize the crediting period? Baseline must be The baseline reassessed by scenario may DOE at each become less Emissions under the renewal favourable baseline scenarioGreenhouse gas emissions Emissions under the project scenario 7 years 44
  45. 45. Why not maximise the crediting period? Baseline must be The baseline reassessed by scenario may DOE at each become less Emissions under the renewal favourable baseline scenarioGreenhouse gas emissions Emissions under the project scenario 7 years 7 years 7 years 45
  46. 46. Transaction ofCERs 46
  47. 47. Options to sellerSellers can choose from the following options for sale of their issued CERs:1. Individual Buyer Identification2. Full Market Access3. Auction 47
  48. 48. Individual Buyer Identification» Step-1: Seller enters into an exclusive brokerage agreement with the broker for the sale of CERs.» Step-2: Broker, goes to the market and brings in buyer offers» Step-3: The offers are discussed with the seller and buyer and an appropriate offer chosen.» Step-4: Broker helps the seller negotiate an acceptable emission reduction purchase agreement (ERPA) between the seller and buyer.» Step-5: Delivery of the CERs comprises the seller inviting the escrow agent (broker) to become a project participant. Henceforth, the CERs are transferred to the escrow account to be transferred to the buyer on the receipt of payment from their buyer. 48
  49. 49. Highlights» Offer prices from individual buyers drive the core of the process. Price negotiation is important.» ERPA negotiation is a time consuming process. Technically price is firmed up and becomes a binding commitment only after ERPA is executed. Until then price and quantity agreed are selling/buying intentions.» There is a possible long time gap between when the sale is in principle agreed to when it is executed.» The buyer offers a discounted price for the CERs to account for the perceived delivery risk associated with the CERs.» The mechanism is not suited for a seller to take advantage of the favourable changes in a dynamic market.» Seller can exercise very limited control once the process is set in motion. 49
  50. 50. Full access market» A non-exclusive agreement signed by seller with broker.» The CERs are delivered to broker and is held by it until the transaction is completed or until the seller instructs it to transfer the CERs.» Broker uses its open market access and reports to the seller the open market price on a day- to-day basis.» Seller instructs the broker to sell at a price point with which it is happy.» Execution of sales initiated after written instruction from seller.» Broker gives the requisite delivery assurances to the buyers on the seller’s behalf.» Transaction is executed only on the sellers instruction and at its comfort.» Once the transaction is successfully executed, the transfer of the sale proceeds is made within days of the transaction 50
  51. 51. Highlights» Seller gets an access to open market price on a day to day basis.» The seller has the benefit of locking a price which he is comfortable with, thus protecting himself from the downside risk in the volatile market.» Delivery risk associated with issued CERs significantly mitigated through pre-delivery.» Buyers are ready to pay the open market price (which is generally higher than the individually negotiated price).» Seller exercises control and is able to drive the process.» Faster settlement. 51
  52. 52. Auction» Electronic process for sale and purchase of CERs arranged and hosted by some brokers online.» Seller wishing to participate has to complete the registration process and commit at least 10 business days prior to the auction date and pre-deliver to the escrow agent, the units to be sold at the auction.» Subsequently, seller also sets the floor price which is his discretion of the price below which he would not wish to sell.» Immediately before the auction the broker sets the reserve price which is a reasonable price threshold decided taking into account various factors as recent price trends, market sentiments.» Sellers with floor price lower than or equal to reserve price can participate.» Once the auction is successfully completed, the purchase prices is paid to the seller by the escrow agent within 10 business days of the process. 52
  53. 53. Floor and Reserve PriceEach seller sets a floor price below which they will not sell Seller A Floor € 17.00 Seller B Floor € 16.00 Seller C Floor € 15.00 Seller D Floor € 14.00 53
  54. 54. Floor and Reserve Price» Each seller sets a floor price below which they will not sell Seller A Floor € 17.00 Seller B Floor € 16.00 Seller C Floor € 15.00 Seller D Floor € 14.00» The floor price is set not less than 2 weeks prior to each auction. 54
  55. 55. Floor and Reserve PriceBroker subjectively sets the Reserve Price (same for all seller) taking into account marketconditions on the day of the auction Seller A Floor € 17.00 Seller B Floor € 16.00 Reserve price set at €15.55 ……………………………………………… Seller C Floor € 15.00 Seller D Floor € 14.00 55
  56. 56. Floor and Reserve PriceBroker subjectively sets the Reserve Price (same for all seller) taking into account marketconditions on the day of the auction Seller A Floor € 17.00 Seller B Floor € 16.00 Reserve price set at €15.55 ……………………………………………… Seller C Floor € 15.00 Seller D Floor € 14.00Reserve Price must be set at reasonable level to uphold the integrity of the market 56
  57. 57. Floor and Reserve PriceBroker subjectively sets the Reserve Price (same for all seller) taking into account marketconditions on the day of the auction Seller A Floor € 17.00 Seller B Floor € 16.00 Reserve price set at €15.55 ……………………………………………… Seller C Floor € 15.00 Seller D Floor € 14.00Reserve Price must be set at reasonable level to uphold the integrity of the marketIf too high nothing will sell despite fair market bids being placed and buyers will never useauction again 57
  58. 58. Floor and Reserve PriceBroker subjectively sets the Reserve Price (same for all seller) taking into account marketconditions on the day of the auction Seller A Floor € 17.00 Seller B Floor € 16.00 Reserve price set at €15.55 ……………………………………………… Seller C Floor € 15.00 Seller D Floor € 14.00Reserve Price must be set at reasonable level to uphold the integrity of the marketIf too high nothing will sell despite fair market bids being placed and buyers will never useauction againIf too low then no seller will participate 58
  59. 59. Floor and Reserve PriceIf seller has his floor price above the reserve price then he will not participate in this auction. Inthis way he is assured that he does not sell below his floor. Seller A Floor € 17.00 Seller B Floor € 16.00 Reserve price set at €15.55 ……………………………………………… Seller C Floor € 15.00 Seller D Floor € 14.00 59
  60. 60. Floor and Reserve PriceIf seller has his floor price above the reserve price then he will not participate in this auction. Inthis way he is assured that he does not sell below his floor. Seller A Floor € 17.00 Seller B Floor € 16.00 Reserve price set at €15.55 ……………………………………………… Seller C Floor € 15.00 Seller D Floor € 14.00 60
  61. 61. Floor and Reserve PriceIf seller has his floor price above the reserve price then he will not participate in this auction.In this way he is assured that he does not sell below his floor. Reserve price set at €15.55 ……………………………………………… Seller C Floor € 15.00 Seller D Floor € 14.00 Only sellers with floor price equal to or lower than the reserve price shall participate in the auction. These sellers will sell to the best buyers bidding above the reserve price. 61
  62. 62. Highlights» Secure and transparent electronic based platform» Access to multiple buyers through one single platform.» The auction event runs for a couple of hours only so that the parties are the least affected by the volatility of the CER market.» Low-Risk CERs: issued and pre-delivered will command the best price» Fast payment and delivery cycle: 10 day settlement» Smaller volumes can be aggregated to present a more attractive volume to the market. Likewise, Larger volumes can be sold by signing a single contract even when there are multiple buyers» Lower transaction costs as one agreement is needed for multiple sales.» Seller has the option of choosing his floor price, which will protect him from the adverse movements in the price in the time between making the trade undertaking and setting the reserve price.» Seller can elect to be paid in the currency of his choice. 62
  63. 63. Transaction services » Spot Sale » CERs are issued » Delivered into CDM account of seller » Forward Sale » Ready to be sold» The CERs can be sold even before they are issued to you.» Allows the seller to lock in a price for CERs thus protecting him from the downside risk associated with the volatile market.» Ensures a guaranteed and a steady cash flow for your CERs transacted. 63
  64. 64. Way Forward 64
  65. 65. First commitment period to end in 2012. What next ?Copenhagen Cancun 65
  66. 66. Copenhagen» 6-18th December 2009» COP 15/MOP 5» Representatives of 192 countries» No outcome» Hopes to “seal the deal”» But was a “weak agreement”» Sticking points » The main issue is that of "burden-sharing". » But which countries must make the cuts and by how large should they be? 66
  67. 67. Cancun» Not a failure like Copenhagen» 193 nations on track to deal with climate change» So called “Cancun Agreements”» Highlighted the obstacles that await» Both industrialized and developing nations have to cut their carbon emissions over the next decade 67
  68. 68. Highlights» Creation of "Green Climate Fund" that will transfer money from rich countries to poor ones» Formation of research centres that will ease the transfer of clean-energy technology between nations» A system in which developing nations can be compensated for keeping rain forests intact» In addition, India, the United States and China worked on the plan for international monitoring of emissions pledges from developing nations — the International Consultation and Analysis (ICA) approach to Monitoring Reporting and Verification (MRV)» Although Cancun conference was more about rescuing the complex international climate negotiation framework from irrelevancy or even collapsing» The future of the “Kyoto Protocol” deferred to CoP 17 at Durban, South Africa.» At the last moment India stated that it is willing to accept legally binding commitments in place of its oft-repeated policy of only voluntary action to cut greenhouse-gas emissions.» Environment minister Jairam Ramesh generalized the idea saying that all countries must accept binding commitments under an appropriate legal form» Countries in Indias vicinity - Bangladesh, Maldives, Bhutan and Nepal - also supported legally binding agreement» Brazil and South Africa - are also in favor of a legally binding agreement 68
  69. 69. » Five pairs of rich and poor nations had tackled questions leading to a positive result at the Cancun. They are: Britzil: Britain and Brazil; greatest responsibility, assigned to break the deadlock over the future of the Kyoto Protocol. Bangralia: Australia and Bangladesh developing draft text for international financing and technology transfer. Spalgeria: Spain and Algeria working together on adaptation assistance for developing countries. Grenaden: Sweden and Grenada; work on long-term global goals for slowing climate change,” the “shared vision” text for the long-term cooperative action track (the non-Kyoto-based agreement). New Zindonesia: New Zealand and Indonesia; working on “other issues about curbing greenhouse gases,” most likely the flexible mechanisms like the REDD+ deforestation plan and land use, land-use change and forestry (LULUCF) language 69
  70. 70. What next?» IETA annual carbon market survey shows traders’ patience wearing thin with market and regulatory uncertainty» Confidence in future market price has fallen, undermining low-carbon investment» No major agreement» Efforts at country level PAT REC JNSSM 70
  71. 71. For Further queries contact Priyanka Abbi Senior Consultant Climate Change Division E-mail: priyanka.abbi@itpsenergy.com/ priyankaabbi09@gmail.com Contact: 0124 430 5541 71

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