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Perspective of Japanese Buyers towards Green -AAUs -opportunities and barriers-

Facilitating Green Investment Schemes: first lessons learnt and the way forward Central and Eastern Europe, Belarus, Russia and Ukraine Budapest, April 24-25 , 2008. Perspective of Japanese Buyers towards Green -AAUs -opportunities and barriers-. Itsuho Haruta Natsource Japan Co., Ltd.

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Perspective of Japanese Buyers towards Green -AAUs -opportunities and barriers-

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  1. Facilitating Green Investment Schemes: first lessons learnt and the way forward Central and Eastern Europe, Belarus, Russia and UkraineBudapest, April24-25, 2008 Perspective of Japanese Buyers towards Green-AAUs -opportunities and barriers- Itsuho Haruta Natsource Japan Co., Ltd. Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  2. Other Shareholders • Cosmo Oil Co., Ltd. • ICAP Totan Holdings Co., Ltd. • Mizuho Securities Co.,Ltd. • Nippon Petroleum Refining • Co.,Ltd. • Osaka Gas Co.,Ltd. • Sumitomo Corp • The General Environmental Technos Co., Ltd. • Tokyo Gas Co.,Ltd. • Tokyo Sangyo Co.,Ltd. • Toyota Tsusho Corp Mitsubishi Corporation Tokyo: Trading Company Totan Holdings Tokyo:Financial Products Brokerage Mitsubishi International New York Natsource LLC New York: Asset Management Natsource Japan Tokyo: Carbon Transaction and Advisory Natsource Japan ~ Organization ~ Natsource Japan was established in May 2001, as a unique firm with multi private sectors’ shareholders. Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  3. Transaction Service Advisory Service Natsource Japan Natsource Japan 　～　Activities～ sustainable development in the 21st century Collaboration with Global Warming GIS g-AAUs CERs, ERUs CDM / JI Project Providing Best Solution Through Market Mechanism Carbon Fund Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  4. Kyoto credits: Buyers Source: World Bank “ State and Trend of the Carbon Market 2007” Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  5. Demand and Supply of Carbon Credits -1 - Demand - Demand for Carbon Credits in: a) EU private sector…. 180～290 mt/y ⇒ NOg-AAUs, limited use of CERs/ERUs b) EU governments…. 20～110+ mt/y ⇒ Plans to use Flexible Mechanism c) Japan…. 52～70 mt/y ⇒ -Government (20mt/y=-1.6%); -Private (32-50mt/y) d) Any other countries? --- 1,100 ～ 2,100 mt/y ?? --- Source: Commission of the EC Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  6. Demand and Supply of Carbon Credits -2 - Supply - a) Project pipeline and estimated delivery (as of Mar, 2008) CDM+JI ⇒ 3,300+projects Credits Volume by ’12 ⇒ 2,700+million tonnes Any shortfall in delivery? ? ---1,900～2,200 mt--- b) Green-AAUs ⇒ 1,750 - 4,700 ? Source: UNEP Risoe Centre Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  7. Supply & Demand OverviewGreen-AAUs There is a significant GAP! Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  8. Japan’s GHG Emissions Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  9. Demand of g-AAUs in Japan -1 Demand of Green-AAUs in Japan • Maximum Demand for g-AAUs in: • a) JPN private sectors…up to 10mt per host country • ⇒ unlikely to purchase bulk g-AAUs from one country = “country diversion” policy • b) JPN public sector… >100mt in total but.. • (1) has purchased approx. 20mt through CDM • (2) has entered into MoU with Hungary and Poland -20mt? • (3) expressed that it would reduce by domestic measures for its 7% surplus • (4) is only planning to purchase “Kyoto Units” for 100mt ⇒ no assurance for future national budget to purchase more than planned… ⇒ price limitation on g-AAUs against other Kyoto Units (i.e. Chinese Primary CERs) Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  10. Demand of g-AAUs in Japan -2 Price expectation of g-AAUs in Japan • What are the initial asking prices of the sellers? • Indicatively € 12-15 from a few host countries • Where are the appetites? • € 4? to €10?? • Depends on domestic measures in the host country (i.e. Degree and credibility of Greening) • Lower price attracts more demand  There is a gap! Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  11. Demand of g-AAUs in Japan -3 Expectation towards host countries -Regulatory- • MoU between the parties  MoU w/ Japanese Government is in place; or  The host country does not require MoU • Legislative development  Transparency in legal authority for the handling of g-AAUs Traceability of the funds (preferred less than 10 y)  Transparent reporting system of emission reductions by GIS  Robust human resources development programmes • Kyoto requirements  Kyoto Eligibility for International Emission Trading • Preferable Greening Project  Nothing particular but “No Go” to Nuclear Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  12. Demand of g-AAUs in Japan -4 Expectation towards host countries -Commercial- • Payment on Delivery of g-AAUs  Potential buyers maintain high creditworthiness - Aa to A by Moody’s • Without escrow arrangement for the payment Ditto -high creditworthiness • Price Competitiveness  Buyers compare g-AAUs with Primary CERs  Buyers are anticipating bearish market on g-AAUs • Contract  Neutral governing law Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  13. Demand of g-AAUs in Japan -5 Other Information to be aware…Private Sector • Timing of Purchase  Some are ready for g-AAU transaction  “First mover” may proceed next transaction with same buyer in larger volume  We are ready to represent the demand • Eligibility of the private buyers for g-AAUs  Confirmed: “Legal entities who opened registry account” are eligible. …approx 120 entities had opened their accounts • Mandate for the private buyers;  Keidanren’s voluntary target  Any Kyoto Units are eligible for its compliance (Tangible replacement may be required for t/l-CERs) • ITL Connection:  Japanese registry has linked with ITL since Nov 15, 2007  Barrier for EU member states to deliver g-AAUs to JPN by CITL-ITL connection Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  14. (A) Direct Acquisition as a Project Implementer (B) Indirect Acquisition from Annex I country NEDO Project Participants ERPA Purchase agreement Transfer NEDO ERPA Sharing contract AAUs Natsource Japan / Affiliate Non-Annex I project implementer Annex I project implementer ERPA GIS Host Country GIS Host Country Issuance Credits AAUs UNFCCC EB ITL Public sector’s purchase programme • NEDO is aiming to acquire credits through the following methods this fiscal year: • (A) Direct Acquisition as a Project Participant • - Participate in projects and sign emission reduction purchase agreements (ERPA) with otherproject implementers, NEDO will acquire credits directly from the credits issuers (the UN CDM Executive Board (CDM) and Annex I countries (JI and GIS)). • (B) Indirect Acquisition from Annex I countries (i.e. through Natsource Japan/Affiliate) • - Purchase AAUs with ERPA from Annex I countries who have eligibility of IET. GIS Scenarios CDM Project Scenarios Transfer Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

  15. Thank you for your attention Köszönöm! ありがとうございました Please contact to… Itsuho “Harry” Haruta (haruta@natsourcejapan.com); or Toshiaki “Toshi” Abe (abe@natsourcejapan.com) for further GIS inquiries Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

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