Contents of Presentation

1. Carbon Trading – Joint Implementation and Clean Development Mechanism FocusApril 2005Paul Soffe - EcoSecurities Mary O’Carroll - Standard Bank

2. Contents of Presentation Presentation – two sections • EcoSecurities perspective on JI / CDM market • EcoSecurities & Standard Bank Carbon Facility - including background on Standard Bank

3. Section 1: Content • Unique perspective • What is carbon finance & carbon project mechanisms – JI and CDM • Status of Regulations • Market status – demand, prices – EU ETS, JI/CDM case studies

4. I. A Unique Perspective Share insights based on experience on both sides of project development fence: • Core role has been JI / CDM, focus more on EU ETS from now on • As a project principle and project advisor • Currently invested in a number of LFG projects globally, now focussing on CMM. EcoMethane- prepared to invest in projects and take risk on an IPP/Concession basis- www.ecomethane.com • Advice to project developers globally – power, waste, energy efficiency, etc • As a buyer of ERUs or CERs • Buying on behalf of governments. EcoSecurities- Standard Bank Carbon Facility (ESSB)- http://www.essbcarbonfacility.com keystone investment from Danish Government - €10mill & Austrian Government €6.5mill • Buying on behalf of corporations – mainly market EU Emission Trading Scheme

5. €€€ conventional revenue stream e.g. electricity sales Project - e.g.: Clean energy €€€ Carbon sales II. Carbon Finance & Project based mechanisms

6. How Do Projects Work? A transfer of finances to Host Nation Flow of Finances Investor Nation Host Nation Flow of Credits A transfer of CERs or ERUs to Investor Nation

7. What Kyoto instruments generate carbon finance? • Kyoto Protocol • Clean Development Mechanism, CDM (CERs) – developing countries. Operational. • Joint Implementation, JI (ERUs) – developed countries. Not formally operational – will become operational at the end 2005. • International Emission Trading – IET - (AAUs) – where? developed countries. Not formally operational. • EU Emission Trading System – trading between EU corporatations with emission caps for CO2 emission only. Operational (January 2005).

8. JI/CDM Projects - Geography • CDM • South and Central America • Caribbean, Pacific and Indian Ocean • Central Asia (Former Soviet republics) • Far and South East Asia (including India, China) • Africa • Some Middle East countries • JI • New EU CEE countries – Baltic states, • Russia (Now it has ratified !!!) • Ukraine • New Zealand • UK? – one application for chemical project

9. JI/CDM Project Types Types of Projects 1. Waste management sector • Landfills & sewage gas mitigation, solid waste incineration, 2. Energy supply • Renewable energy, fuel switching, technology retrofit (efficiency gain) 3. Industry process emissions • Chemical, oil/gas, cement, steel/iron, non-ferous metals, coal mine methane 4. Industry energy efficiency • Technology upgrades, e.g. boiler upgrades 5. Land use change and forestry.

10. Pre-Feasibility Assessment - how to capture GHG benefits? Final Project Design - full management plan Initial Project Concept Project Implementation Feasibility Assessment - is project viable? Validation, Registration, Approval Integrating Carbon & Project Design

11. What is the process? In order to be a CDM project, several elements must be achieved • Produce a Project Design Document (PDD)- A document containing all the project parameters • Demonstrate Additionality- Project must demonstrate it is not the most likely alternative • Quantify Emissions Reductions- Project must reduce GHG emissions (compared to baseline scenario, or “most likely alternative • Apply an Accepted Methodology- The process for achieving the above is set out in a ‘methodology’ that is accepted by the CDM Executive Board, the agency regulating the CDM, or relevant documents under JI • Set out Environmental & Social Impacts- Impacts must demonstrate an improvement on the baseline scenario, and be mitigated where ever possible. • Obtain Host Nation Approval- The project must be acceptable to the host nation, and obtain its approval for the project • Test Stakeholder Acceptability- Scrutiny of the project (within reason) will be carried out in the public domain, through stakeholder consultation • Undertake Validation- An audit of of the project by a third party is carried out • Monitoring and Verification- Emissions Reductions Claimed must be verifiable through a process of monitoring

12. “Without project” emission level. Baseline Carbon credits GHG emissions “With project” emission level Project commissioned Time Quantifying Emissions and Emissions Reductions

13. Additionality Additionality • An extremely difficult concept to pin down definition of • Test to show additionality can assess industrial trends, barriers to implementation and investment analysis • Aim is to show one option is more likely than the project under consideration- the project is not the baseline! • A range of options assessed, the most likely is called the baseline, a counterfactual BAU scenario

14. III. Status of Regulation • Regulatory defined market – Key Uncertainty removed • Autumn 2004 President Putin (Russia) ratified Kyoto Protocol • Entry into force 16th February 2005, Key risk factor removed – risk that entire Kyoto agreement unravels • But no certainty beyond 2012

15. What is status of KP trading infrastructure? • Registries & transaction logs: • 1. Kyoto Protocol– JI, CDM, AAUs • - CDM registry • - International Transaction Log – under construction. When will it be ready? Major implication for EU company trading system. • - National registries • Problem – No trading between National registries short term because of the trading eligibility of Parties – timetable mean that is unlikely before the end of 2007. • 2. Second Tier instrument - EU trading system for companies (January 2005) • - Registry (February) • - EU Transaction log • - Trading Platforms – Euronext, Powernext, EEX, ECX, Nord Pool, EXAA, Climex

16. V. Market info – overall demand • The Kyoto Protocol targets leave a compliance gap of at least 2.5 billion (tCO2e) for ratifying OECD countries. • Governments are short 2.5 Billion tonnes then the size of market in financial terms is €7.5 - 12.5 billion (assuming €3-5 euros price). • World Bank says that globally that in 2004 that the total booked CDM assets will only generate about 150 million tCO2e until 2012, and JI assets only 50 million tCO2e.

17. Demand – Who buys JI/CDM credits? • Main part of market is developed country Governments – NL, ES, AU, FI, IRE, DK, etc. • Corporations – Canadian, European, & Japanese – compliance/speculation motive have played a supporting role. Structures: Institutional Multilateral Funds– World Bank, IFC, CABEI, EBRD Public Sector Unilateral/Domestic – Dutch (ERUPT), Danish (Direct), Austrian government programmes. Private Sector Funds/Facilities – CDC European Carbon, EcoSecurities Standard Bank Carbon Facility, Rabobank, Bilateral transactions – some are open while others are quite discreet BC Hydro, Transalta, Nuon, Shell, Tokyo Power Corporation, Chubu, etc

18. Why are companies slow? EU carbon strategy decision tree

19. Pricing of credits & allowances? • CDM / JI • Prices from €1.00 – 10.00 – many buyers motivated by other concerns than price. Depends on who assumes what risk & status of project development. • Example of one buyers pricing ERUPT first round: € 5.00 to € 9.00 (2002 – 2003) • With development of market price disclosure much more sensitive • Must not confuse primary market (higher risk lower price) secondary market (low risk – project already approved). • CDM credits used in EU ETS can be banked into second commitment period, EUAs cannot! Premium for this! Time to buy is now – projects also have long gestation period. • Uncertainty over supplementarity – is this 40%, 50%, 70%? EU trading system (2005-2008): • € 10-20.00 / t CO2 estimated • Aprox. €8 (2004), down to €6 (Jan 2005), up to €16 (March 2006). Why? Warm winter, higher energy consumption in northern Europe - short term trading factors.

20. JI / CDM Market is active – deals by the day ………….

21. EcoSecurities Project Pipeline - Examples • Biomass Energy – Brazil, El Salvador, Malaysia, Thailand • Anaerobic Digestion – Thailand, Philippines, Nicaragua, Nepal • Landfill Gas – Brazil (5 Locations), others confidential • Hydro – Peru, Romania, Guatemala, Brazil, Fiji • Wind Power - Jamaica • Geothermal – Kenya, Nicaragua, Papua New Guinea • Municipal Waste Management – Argentina, Philippines • Biodiesel – Argentina, Malaysia • Coal Mine Methane – China, Russia, Ukraine, UK • Generation Efficiency – Colombia, Romania • Gas Pipelines - confidential

23. NovaGerar – World’s First Registered CDM Project

24. Jamaica Wind Project – Survived 2004 Hurricane!

25. JI/CDM Project Case Studies Wind power project: -20 MW electricity output -50,000 t CO2 emission reductions per year (for 10 years) -Project costs: US$20m (+) -Carbon value -@$3 US/tonne CO2e= $1.72m US -@$5 US/tonne CO2e = $2.87m US -Proportion of project costs: @ $3/tonne - 8.6% @ $5/tonne - 14.35% Waste to energy project: -2 MW electricity output -50,000 t CO2e (+) emissions reductions (for 10 years) -Project costs: US$3.5m -Carbon value -@$3 US/tonne CO2e= $1.72m US -@$5 US/tonne CO2e = $2.87m US -Proportion of project costs: @ $3/tonne - 49.1% @ $5/tonne - 82.0%