1

Distribution of world climate risks Low-income countries are the most vulnerable

2

Industrialized country with an emissions cap

Baselin

e em

issions

Baseline Scenario

Developing country with no emissions cap

Project em

issions

Project Scenario

Project-based carbon credits

Emissions target

Purchase of allowances

Developing country benefits

from technology and financial flows

$$

ER

Purchase of ERs

Domestic action

Emission Reductions (ERs)

3

1

2

4 6

4

Mauritius, Bagasse Cogen

Africa Region Carbon Finance Project Status – November 2007

South Africa, Tshwane LFG

Nigeria, SF6 red /T&D loss red

Uganda,2 LFG / Compost projects

Kenya, Greenbelt

Kenya, 3 Hydro

Ethiopia, Humbo Assisted regeneration

Rwanda, Lake Kivu + DSM

Mozambique, Distrib system extension

Nigeria, Cogen

Ghana, Energy Efficiency

Ethiopia, Elec Interconnect+Meth capt

Kenya, 2 geotherm/1 Comb Cycle

Uganda,1 Cogen project

15 ERPAs+ 30 proj in pipeline

1 3

1

2

South Africa, Durban LFG

Swaziland, Bagasse Cogen

1

Uganda,Nile Basin Reforestation

Nigeria Lagos LFG

MadagascarBiodiversity Corridor

MaliAcacia Plantations

NigerAcacia Plantations

Nigeria, Transmission loss

4

Debt

Equity

Cash out

Cash in

Yrs 0 1 2 3 4 5 6 7 8 …………………………………….15-20

Carbon finance: payments for a stream of emission reductions

Emission reductions are created only after the project is implemented, operational and registered by the UN regulator.

Carbon revenuesOperating revenues

= annual carbon payments

= other sources of revenue from service or production

= debt servicing

Construction

Payments are made through an Emissions Reduction Purchase Agreement (ERPA) – a forward contract for the purchase and sale of carbon credits.

5

Carbon Asset as Security

Can leverage commercial debt

-4000

-2000

0

2000

4000

6000

1 2 3 4 5 6 7

Year

Cash

Flo

ws (

$000)

LoanDisbursementPCF Payments

LoanAmortization

ER payments are used to amortize commercial loan.

6

Market balance 2008-2012 2008-12 demand for Kyoto mechanisms (Analysts’ expectations)

Demand from EU ETS = 1,140 MtCO2e (900 -1,400 MtCO2e) Based on varying assumptions of growth adjustedfor improvement in carbon intensity

Expected demand from EU Governments: 450 MtCO2eExpected demand from Japan: 100-500 MtCO2e (avg: 350MtCO2e)Expected demand from Ro Europe and NZ: 200 MtCO2e

Based on varying assumptions of Parties about performance of additional (and existing) policies and measures

Will sufficient supply be stimulated, contracted and delivered?– CDM/JI: How many reductions will they deliver on time?

At what price?– AAU/GIS: How many, when and at what price? Some host countries

have expressed their interest in setting GIS (Ukraine, Latvia)

7

Expected Kyoto Balance

0

500

1 000

1 500

2 000

2 500

Vol

ume

(MtC

O2 e

)

Already contracted917 MtCO2e

Residual demand1,083 MtCO2e

Already contracted930 MtCO2e

Not yet contracted> 975 MtCO2e

Potential supply6000-7,100 MtCO2e

Demand for KMs CDM/JI supply AAU/GIS

?

: amount not yet contracted

EU ETS

EU-15 govts

Japan

RoEurope + NZ

Canada ??

CDM

JI

8

Choice of Buyer

• Price & Terms (Compare Apples to Apples)

• Allocation of Regulatory Risk (CER, VER)

• Payment upon Delivery/Advance Payment

• Credit Rating of Buyer (“Buy and Goodbye”)

• Project & Operational Experience

• Remedies/Penalties/Termination