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NOT AN OFFICIAL UNCTAD RECORD

Carbon Finance and Oil and Gas Context Paul Soffe – Senior Adviser Africa Oil and Gas Conference April 2004. NOT AN OFFICIAL UNCTAD RECORD. 1) What is the opportunity?. The owners of sustainable assets in energy, natural resources, and environmental technology have the

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NOT AN OFFICIAL UNCTAD RECORD

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  1. Carbon Finance and Oil and Gas ContextPaul Soffe – Senior AdviserAfrica Oil and Gas Conference April 2004 NOT AN OFFICIAL UNCTAD RECORD

  2. 1) What is the opportunity? The owners of sustainable assets in energy, natural resources, and environmental technology have the potential to develop, capture and sell rights to the positive environmental performance they engender. The monetization of these environmental benefits is a rapidly growing business opportunity.

  3. $$$ conventional revenue stream Clean energy or forestry investment Carbon credits 1) Opportunity: An additional value from “clean” sector projects

  4. Types of qualifying projects in the energy sector “Retrofits” “Greenfield”

  5. All things equal, carbon trading would enhance competitiveness of clean energy technologies

  6. Opportunity: Monetizing carbon credits • can increase project IRR’s

  7. A Fugitive Methane Project Example BLUE Indicates Extra Debt Capacity

  8. Debt Equity Project Carbon 1) Opportunity: Leverage investment in ‘clean’ sectors • “Carbon capital” could leverage a much larger amount of investment in the real assets

  9. 3) The carbon market: What is it and where is it ?

  10. Forestry projects, to 1998 only. Source: Moura Costa & Stuart 1998 3) Market: CO2 market and environmental regulation (to 1998 only)

  11. Carbon market volumes (Source: Point Carbon: Global Market Outlook, 2003)

  12. The greenhouse gas emissions trading market is expected to grow from $300 mm today to $15 billion annually by 2012 Estimated size of the market for GHG emissions trading 25,000 20,000 Other Services 15,000 US$ millions Transaction Fees 10,000 5,000 Carbon Transactions 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

  13. Secondary markets and liquidity

  14. 3) Markets: Existing Buyers Kyoto compliant • World Bank Prototype Carbon Fund (PCF) and BCF • Dutch Government ERUPT and CERUPT Programme: JI & CDM • Dutch government IFC and PCF funds • Obligated companies under the UK ET Scheme, & under EU ET programme (2005) and other trading schemes • Private sector companies in Europe, Japan and Canada Non- Kyoto compliant • US schemes, states and cities (Seattle, Oregon, Massachusetts, Chicago) and federal levels • Canada – BC Hydro • Australia

  15. 3) Markets: Current price range Kyoto compliant • PCF – U$ 2.5 to 3.5 / t CO2 • ERUPT first round: € 5.00 to € 9.00 • ERUPT 2 and CERUPT: expected max € 4.00 • Private sector investors: U$ 3 to U$ 4 Non- Kyoto compliant • U$ 0.50 to U$ 2.00 EU trading system: • € 13-15 / t CO2 estimated

  16. 4) Rules for participation : How does it work, and what are the requirements • Additionality • Host country approval • Sustainable development benefits • Project cycle

  17. “Without project” emission level Carbon credits GHG emissions “With project” emission level Project commissioned Time 4) Rules: Additionality and Baseline

  18. Project design: Baseline report PDD Project validation / host country approval Project registration Investment & Operation Implementation Monitoring Verification Certification Issue of CER 4) Rules: CDM project cycle Pre-investment phase

  19. 5) Sectors and Project Types under the CDM Energy Supply Side - Renewables, Technological Upgrades,Biomass, Fuel Switching Energy Demand Side - End Use Efficiency Fugitive Methane Emissions Control - Landfill Gas, Coal Mine Methane, Water Treatment, Anaerobic digestion Agriculture Wastes Sinks - Forestry, Land Use Change, CO2 Scrubbing, Long Term Sequestration

  20. Oil & Gas Options • 1. Energy Efficiency • E.g., – BP & Shell have used carbon trading as driver to improve energy efficiency (oil & gas processing and delivery) • E.g., Rang Dong, oil production, gas flaring • Why? Saves money, makes money, makes sense. • 2. Clean Technologies – Renewables • E.g., – Petroleum Company of Jamaica – wind project • E.g., - Fiji Electricity Authority – building wind, hydro, geothermal plants • Why? Increasing cost of oil, security of supply, national interest, environmental concern, carbon finance

  21. The Economics of waste to energy projects are especially attractive Wind farm project: 20 MW installed capacity 50,000 t CO2 ER’s p.a.(10 years) Project costs: US$20m (+) Carbon value: @ $3/ t CO2 = $1.72m @ $5/ t CO2 = $2.87m Proportion of project costs: @ $3/ t CO2 = 8.6% @ $5/ t CO2 = 14.35% Waste to energy project: 2 MW installed capacity >50,000 t CO2 ER’s p.a.(10 years) Project costs: US$3.5m Carbon value: @$3 /t CO2 = $1.72m @$5 /t CO2 = $2.87m Proportion of project costs: @ $3/ t CO2 = 49.1% @ $5/ t CO2 = 82.0%

  22. NovaGerar Landfill gas-to-energy Project – Brasil

  23. Jamaican Wind Project

  24. Olkaria geothermal project in Kenya

  25. Pipeline: Transactional Services ProjectCountryTypeCO2e(t/yr)Status Okaria 3 Kenya Geothermal 75,000 LOI with World Bank Felda Malaysia Biomass 50,000 in negotiation PhilBio Philippines Anaerobic Dig. 150,000 In negotiation Licorcia Nicaragua Anaerobic Dig. 100,000 Patagonical Argentina Landfill 500,000 AT Biopower Thailand Biomass 200,000 LOI with IFC V&M Brazil Biomass 1,000,000 ERPA with IFC EEN El Salvador Biomass 30,000 SWI Thailand Anaerobic Dig. 250,000 In negotiation Nobracel Brazil Biomass 100,000 Buyer term sheet signed. Unidos Brazil Forestry 100,000 NovaGerar Brazil Landfill 300,000 ERPA agreed with World Bank t

  26. In summary: • Flexibility mechanisms have the potential to provide a substantial boost to clean energy sector • The market for ERs will be in the U$ billions, leveraging even more in other forms of capital • There is the potential for a large number of good projects to be developed • Need for policy certainty • Need to support entrepreneurial early movers • Need to support small scale projects

  27. For further information, please contact:paul@ecosecurities.com 01862 297489www.ecosecurities.com EcoSecurities Group Ltd.

  28. Paul Soffe at EcoSecurities • 5 years employment since leaving EcoSecurities • Difficult market & risky – how risky – Russian ratification or EU Burden sharing agreement • Activities – policy analysis & development, project development & structuring. Particular interest in transaction side of the business: • Recent Activities • EcoSecurities & Standard Bank London Carbon Fund for European Government • Spoke last week in Moscow at Carbon Forum – Illarionov! • Finalising Jamaica CDM Wind Project – Executive Board and buyer. • Capacity building – guidelines for a bank, workshops in ACP countries • Fiji hydro project CDM development

  29. A Wind Project Example BLUE Indicates Extra Debt Capacity

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