Finance for sustainable development Nicola Steen SVP, Transaction Specialist, CO2e

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Finance for sustainable development Nicola
SteenSVP, Transaction Specialist, CO2e
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Market realities

• Environmental markets are real
• Billions of dollars invested in sustainable
  projects due to carbon markets
• c3 million EU Allowances traded daily
• Markets
• EUAs
• CERs Certified Emission Reductions
• VERs Verified Emission Reductions
• ERUs Emission Reduction Units
• AAUs Assigned Amount Units
• ROCs Renewable Obligation Certifications and RECs
  Renewable Energy Certificates
• Biofuels

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CO2e

• CO2e helps bring sustainable projects online
• structures, manages and brokers transactions
  works in all the carbon and environmental markets
• is owned by Cantor Fitzgerald and Mitsui two
  enormous financial houses with global span
• formed in 2000 from ten-year old sister company
• together with Cantor Environmental has done
  10bn of environmental transactions
• has offices in London, Tokyo, Toronto, Santiago,
  Mexico City, Sao Paulo and opening offices in
  India and a team of agents across the globe
• through its team has a global network of contacts
  established over fifteen years
• is regulated under the Financial Services
  Authority, City of London

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Why is there carbon value?
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Emissions trading basic mechanism

• Government sets a cap on total emissions and
  issues permits to emit - often referred to as
  allowances.
• At the end of the year, companies which emit need
  to possess a number of allowances equal to their
  total emissions during the period.
• Companies work out the cost of reducing
  emissions.
• A company with a low cost of reduction can invest
  in emission reducing activity, and sell the
  unused allowances to a company which has a high
  cost of reduction.
• This exists now in the European Union (started 1
  January 2005) and is anticipated in Japan and
  Canada from 2008.
• The environmental goal is met. The cost of
  meeting the goal is reduced.

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Use of project-based reductions

• Additional emissions reductions can be introduced
  into an allowance scheme from sources not
  regulated by it (both local and international)
• These emission reductions arise from projects
  which reduce emissions below what they would
  otherwise have been if the project had not
  occurred.
• Emissions reductions from projects cannot be
  counted if the project activity is mandated by
  regulation or supported by overseas government
  aid.
• These are usually referred to as emissions
  reductions or offsets.
• Most of this type of activity is in developing
  countries.

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CDM projects generating CERs

• Under Kyoto Protocols Clean Development
  Mechanism, projects can have Certified Emission
  Reductions CERs as part of their income stream
• CERs can come from a range of technologies and
  approaches, including energy efficiency,
  industrial projects, electricity generation from
  biomass, agricultural waste processing, renewable
  energy.
• To qualify, emission reductions must be
• additional,
• surplus, and
• measurable
• The project must reduce emissions below what
  they would otherwise have been if the project
  had not occurred.

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Example renewable energy

• Renewable energy displaces emissions from fossil
  fired generation
• Overall CO2 emissions from the mix of generating
  plant in developed grids are about 0.5 tonnes
  CO2eq/MWh, rising to gt1 tCO2eq/MWh for carbon
  intensive or remote systems
• For instance, in India say 0.7 tCO2eq/MWh
• Say 1MW of renewable energy will generate about
  7,000 MWh/year
• So, in this case, 1MW displaces 4,900 tCO2eq per
  year
• At 15/tCO2eq 73,500/MW/year
• PLUS, for biomass and waste-based generation
• also can avoid methane emissions from
  decomposition and
• can produce natural compost which displaces
  chemical fertilisers, which can have significant
  greenhouse emission benefits

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Size matters?

• Costs of CDM process can be prohibitive for
  smaller projects
• Sustainable projects are often smaller
• Often have no or minimal credit, so CERs could be
  hard to sell
• Are likely not to receive carbon finance through
  the CDM
• Can really benefit from hard currency
• Can be marketed to buyers in the voluntary market
  place as something excellent to help finance
• Really helping bring sustainable projects
  online that otherwise would not happen

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Voluntary retail market

• Reduce then offset
• Embryonic but growing in UK, Northern Europe,
  North America and Australia
• Emission reductions retired to offset emissions
  from entire corporations or particular products,
  services or events
• Buyers look for
• either local or developing country sources
• trade not aid opportunities
• strong sustainability attributes
• strong social attributes
• Buyers are willing to pay a significant premium
  for reductions from good projects
• Sometimes want projects that tie into their
  business
• Several recent high profile announcements have
  increased market awareness HSBC, London
  Olympics, UK Foreign Office

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Eritrean stoves
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Indian small offset project
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VER project Jamaica
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Retail buyers requirements

• Sustainability
• Monitoring
• Verification
• Retirement
• Credibility
• Transparency
• Standards being developed Climate Groups
  Voluntary Carbon Standard and the Gold Standard

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GHG market snapshot 2005-07
US markets ?
EU ETS
??
Kyoto pre-compliance
??
??
Canada
??
Japan
Retail market
??
Other national markets ??
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GHG market snapshot 2008-12
US Market ??
International Kyoto Market
EU ETS
Retail Market
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Biofuels and technology

• Biofuels is a growing market US 3.9bn gallons
  ethanol in 2005
• Demand as well as supply
• Innovative products hydrogen reformers, super
  lubricants
• Numerous applications cars, Virgin trains,
  electricity
• Next generation production technologies will
  economically produce bio-butanol (5 years?)
  making bio-fuel a possibility for flight
• Sustainable production is the key to the
  long-term health of the market

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How to do it
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Get into a position of choice

• Contact CO2e Global hub for carbon commerce
• New initiative in voluntary carbon market
  launching this year
• Readers of Environmental Finance voted CO2e best
  global broker of project-based emission
  reductions 2006 again
• Nicola Steen nsteen_at_CO2e.com
• tel [phone] mobile [phone]

Or simply visit our website at www.CO2e.com