Asia Carbon Market Size Price Trend Carbon Trading

Asia Carbon Market : Size, Price, Trend & Carbon Trading Seminar on Carbon Market and Private Sectors’ Participation, Seoul, Republic of Korea N Y Dinesh Babu Asia Carbon International B. V 23 rd February 2007

Carbon Market : Supply Market Up to 2012 (Million) Beyond 2012 (Million) CDM 1193 502 JI 134 - UNEP Risø Centre 01 -02 -2007

Carbon Trading International Scenario Global carbon market transactions worth € 9. 4 billion in 2005 Year 2004 2005 Market [Mt] [€ million] EU ETS total 17 127 362 7, 218 CDM 60 188 401 2, 035 JI 9 27 28 96 Other 8 34 7. 8 52 94 376 799 9401 Total Source: Carbon 2006, Towards a truly global market, Point carbon

CDM Update : UNFCCC

Few numbers to crunch… UNEP Risø Centre 01 -02 -2007

South Korea and CDM – An Overview UNEP Risø Centre 01 -02 -2007

South Korea and CDM – An Overview UNEP Risø Centre 01 -02 -2007

UL CDM : An analysis Globally : Registered CDM Project UNEP Risø Centre 01 -02 -2007

UL CERs: Transfer Mechanism

Types of CDM CERs Deals Forward Contracts (current practice) n For compliance n For private sector investors n For trading in the secondary market Upfront Payment (a few but rare) n CERs upfront payment on discount basis n Project Equity/Debt in lieu of CERs Spot Trading (yet to take place) Secondary Trading (emerging) Financing and hedging Instruments [Futures/Options, etc. , ] (emerging currently)

CERs Price Trend Source: State and Trends of Carbon Market 2006, WB / IETA Source: CDM Highlights 38, Aug 2006, GTZ

CDM : Financial barriers Structuring becomes the key Alliance : National & International FIs Project Equity based funds crucial Additionality : Not mere a number game Pricing of carbon credits : role of exchanges and financial products

CDM and Technology Transfer CDM TT incubation centres Indigenous TT & South TT : not to be ignored Integrated service : National & Local FIs (due diligence, techno-economic appraisal, tech portfolio etc. , ) FI – Technology Suppliers : join force (e. g. REEEP-X) Outreach pilot & success on a large scale for accelerating replication National / Regional level facility for seed fund / low cost debt / guarantee Need to keep transaction costs low, retarding TT TT for SMEs : Huge investment support needed (e. g ESCOs)

CDM : Sectoral approach LULUCF – slow but steady Transportation – Public and captive fleet SMEs : Industrial and Commercial Urban municipal needs based projects (MSW / EE in water supply / Sewerage / T&D losses) Rural energy applications oriented projects Adaptation projects based credits !

Carbon Trading and ACX Ø Making CERs a fungible commodity Ø Price Discovery Ø Transparency Ø Distribution Network Ø Competitive Transaction Costs Ø Standardized Documentation Ø Vintage based trading Ø Level playing field Ø At low procurement costs Ø Robust platform; Building trustworthy relationships

Independent pricing of CERs ACX recent auction received bids exceeding Dec 06 EUA price CER forward and issued bids at par – market is moving long Projects based credits need to secure separate identity due to its risks / features and hence price !

Current Carbon Market Dynamics I Current carbon market is dominated by the EU-ETS, prices of CERs have largely been linked or pegged to EUA prices and discounted for risk exposure based on the project profiles, Not clear why the benchmark should be the Phase I Dec 2006 EUA price when it can or should be based on the Phase II Dec 2008 Price, if at all. CERs can be banked for use in the EU ETS Phase II and they are already being traded in the secondary market to be either used for the Kyoto Protocol’s emission reduction targets and/or used for arbitrage based on its economic-driven value. Entry of the US and Australia into undertaking emission reduction targets may be pivotal in balancing current market dynamics and economies of scale to create a liquid carbon market that is beneficial for both sustainable development and developed economies.

Current Carbon Market Dynamics II The unique value of the flexible mechanisms, such as CDM and JI- which generate CERs and ERUs respectively are expected to carve their own niche in the carbon market in addition to creating new initiatives to mitigate global warming. Linking the price of CER with that of EUA may soon diminish and may even pave way for its independent positioning. In our opinion, Introducing standard financial instruments to trade project-derived emission reductions in the secondary markets is the way forward

Carbon Trading and Korea : Perspective Asia : Lagging behind trading experience Right time for Korea to venture into trading (keeping post-2012 regime in perspective) Demonstration of Domestic Trading already executed : accelerate forward Korea can position itself as Asia’s Emissions Trading Hub Promotion of development of UL projects for trading including technology cum investments matching schemes

ACG – An Overview Group’s activities conceptualized, researched and developed since 2001 Founded : Feb 4 2003 two years ahead of Kyoto coming into force Presently operating 14 entities in 9 countries Strong presence in The Netherlands (Annex I) : Developing CDM and JI projects where we also aggregate Buyers Strong Asian presence through Singapore (Non Annex I); Develop unilateral CDM projects and also Aggregate Sellers of CERs from Non Annex I countries Strategic Alliance with Kanso Technos in Japan (Annex I) Centres of Excellence in Singapore, Vietnam, India Advance stage of development for a Centre of Excellence in China

ACX Change - Our Mission To operate an electronic global exchange that is robust, liquid, competitive and transparent, allowing members and participants alike, to access and trade emission reductions, allowances and environmental commodities utilizing standardized financial instruments, that contribute to sustainable development, ensuring environmental integrity.

Group’s Unique Business Model Vertically Integrated to provide a one stop solution in carbon advisory, carbon finance and carbon asset management Carbon Asset Management ACXChange™ Carbon Finance & Project Finance AC-ADF™ Carbon Advisory AC CE

AC-a. DF™ Operational since February 2005 1) Identify, fund & develop PDDs for CDM/JI projects 2) Manage Carbon Assets Projects : n Projects identified and under development in Vietnam, India, Indonesia, Sri Lanka, Singapore, Malaysia and Philippines

ACX-Change™ First on line exchange in the world to Provide a common platform for Sellers and Buyers of Carbon Assets Outside of EU Allowances • Web based 24 x 7 • Built in registry and trading facilities • Soft launch – Carbon Expo - May 2005, Cologne, Germany. • Fully operational since November 2005 • Carried out six online auctions to date • Re launch new look and feel platform – May 2006, Cologne, Germany

“The supreme reality of our time is the vulnerability of our planet. ” – John F. Kennedy Thank you N. Yuvaraj Dinesh Babu Head, Climate Change, Director, Carbon Trading Asia Carbon International B. V (Incorporated in The Netherlands) 150, Cecil Street, #10 -03 Singapore-069543 Ph: +65 62251791 Fax: +65 62251562 dinesh@asiacarbon. com www. asiacarbon. com