Market View of JI in the National Context

1. Market View of JI in the National Context Ben Feldman Managing Director Natsource LLC UNFCCC Technical Workshop on Joint Implementation Bonn, Germany October 16, 2007

2. Overview of Presentation • Natsource • Market View • JI Barriers and Risks • Overcoming the Barriers • Conclusions

3. 1. 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.

4. 2. Market View--Unrealized Potential Source: UNEP Riso, JI Pipeline Overview (Oct 1, 2007)

5. Market View: ERU Price driven by Risk and Contract Terms Price increases • 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 • 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 Barriers and Risks in National Context 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. Host Country Actions to Overcome Barriers • 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. Conclusions • 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