What drives this demand for emissions reductions?. The Kyoto Protocol. 2. Developed country regulations. 3. Corporate social responsibility / branding. The Kyoto Protocol. The developed countries have set an average target of 5% below their ghg emission levels in 1990.
- Emissions Trading,
- Clean Development Mechanism (CDM)
- Joint Implementation (JI)
Supply of carbon credits
Demand for carbon credits
10 million credits over ten years
600 000 credits over ten years
5 million over ten years
First Kyoto Commitment Period
First Phase EU ETS
Second Commitment Period?
Steps to reduce Project Participant risk during the transaction process
Construction & operation risk assessment:; written contracts
Conservative CER contracts; insurance
Audited financial and technical feasibility assessments
Transfer risk to buyer through contract; sell into VER market
Prepare country risk report, follow unilateral model
Identify the effects of an appreciation/depreciation; est. financing strategy
Get letter confirming legislative/policy consistency if no DNA/rules
Clearly establish and document ownership
Use accredited DOE; get pre-validation assessment; use approved methodology
Undertake market appraisal; monitor the market; est. a forward price curve
Throughout process… identify and take steps to mitigate risks!
At this stage of market development, It’s likely that carbon purchasers will purchase forward in some way:
Purchase contracts could therefore span over 10 years.
These are governed by ERPAs
Who is buying and brokering CERs?
forward price curve
At this stage of market development, It’s likely that CER purchasers will in most cases purchase forward in some way…
The risks to CDM projects can be classified into two types:
1) General Project Risks
2) CDM Specific Risks
As a general rule, the more advanced
the project, the lower the risks
Again, two types: those that are internal and those that are external to the project
- Kyoto Ratification