1

Market View of JI in the Market View of JI in the National ContextNational Context

Ben Feldman

Managing Director

Natsource LLC

UNFCCC Technical Workshop on Joint Implementation

Bonn, Germany

October 16, 2007

2

Overview of PresentationOverview of Presentation

1. Natsource

2. Market View

3. JI Barriers and Risks

4. Overcoming the Barriers

5. Conclusions

1. Natsource Overview1. Natsource Overview

One of the largest private sector greenhouse gas (GHG) asset managers GG-CAP purchases and manages a large pool of compliance instruments on behalf of 24 participants

for use to comply with GHG emissions targets up to 2012 Combined balance sheet of GG-CAP participants of US$300 billion Managed Accounts and Aeolus Funds take advantage of opportunities that exist in emissions and

renewable energy markets to achieve superior returns for their investors Together GG-CAP, Managed Accounts and Aeolus Funds have combined assets in excess of US$1

billion under management Natsource utilizes its regulatory, market and trading expertise to:

Assist private firms in the strategic management of environmental risk Provide superior returns to investors by taking advantage of opportunities in local, regional, and

global emissions and renewable energy markets Natsource’s global business is comprised of three integrated business units:

Asset Management Transaction Services Advisory and Research Services

Natsource size and location: 55 employees world-wide Headquartered in New York, with offices in Calgary, La Paz, London, Ottawa, Panama City, Tokyo

and Washington, D.C.

2. Market View--Unrealized Potential2. Market View--Unrealized Potential

Source: UNEP Riso, JI Pipeline Overview (Oct 1, 2007)

Number kERUs 2012 kERUs Number kERUs 2012 kERUs Number kERUs 2012 kERUs

Russia & Ukraine 73 27,438 136,498 0 0 0 1 756 3023

Russia 47 18,701 93,550 0 0 0 0 0 0

Ukraine 26 8,737 42,948 0 0 0 1 756 3023

Eastern Europe 106 9,787 49,021 1 53 267 0 0 0

Bulgaria 21 3,325 16,658 1 53 267 0 0 0

Czech Republic 21 814 4,070 0 0 0 0 0 0

Romania 15 1,590 8,093 0 0 0 0 0 0

Poland 15 921 4,565 0 0 0 0 0 0

Hungary 11 1,437 7,078 0 0 0 0 0 0

Estonia 11 602 3,063 0 0 0 0 0 0

Latvia 1 5 27 0 0 0 0 0 0

Lithuania 7 796 3,980 0 0 0 0 0 0

Slovakia 4 298 1,488 0 0 0 0 0 0

Others 7 500 2,501 0 0 0 0 0 0

Germany 3 194 972 0 0 0 0 0 0

New Zealand 4 306 1,529 0 0 0 0 0 0

Total JI countries 186 37,726 188,019 1 53 267 1 756 3023

At validation + determination Request final determination Final determinationHost region/country for JI projects by status

Market View: ERU Price driven by Risk and Contract TermsMarket View: ERU Price driven by Risk and Contract Terms

● Only a PIN available● Project developing new

methodology● No DFP or Host

government approval● Poor Seller Credit● Flexible delivery terms● No punitive damages ● Unilateral● Upfront payment

Price increases

Approved methodology Host government approval Strong project partners,

technology supplier Good Seller Credit Ability for buyer to become

a Project Participant (Multilateral)

Project registered Guaranteed delivery

schedule with punitive damages for non-delivery

Payment on Delivery

6

3. Market 3. Market Barriers and Risks in National Barriers and Risks in National ContextContext

Institutional Challenges

Political/Operational constraints—LoAs not being issued

Insufficient capacity within Host Country institutions

Financial/commercial

Country risk – countries with greatest JI potential are economies in an intermediate level of transition to market economy with challenging business environment

Proponent/seller risk

• Ownership issues (state vs. private)

• Assessment of creditworthiness (lack of ratings from western agencies)

Perceived ERU issuance/delivery risk relative to CDM project cycle

7

4. 4. Host Country Actions to Overcome Host Country Actions to Overcome BarriersBarriers

Consolidate institutional arrangements to facilitate the effective functioning of JI at the national level

• Consistent and Transparent approach to issuance of LoAs

Establish legislative basis for regulating ERU ownership

Foster efficient procedures with consistent, predictable outcomes

8

5. 5. ConclusionsConclusions JI process still entails high degree of uncertainty, thus

significant perceived risk for buyers

risk (perceived or actual) results in discounted pricing and/or other mitigation

Host Countries can take steps to reduce perceived risk and attract investment

Given short ‘window’ (2008-2012) progress essential

Investment is taking place but greater transparency and certainty required before potential can be realized