[AAU and] Green Investment Scheme– and option for Post [2012] [X] [?] [!]December 201011.12.2010

1AgendaAAU and GIS – The Basics
AAU and GIS – Requirements for GIS
AAU and GIS – The Market
What has AAU trading taught us about ecological markets?
The future of Green Investment Schemes?

11.12.20102

AAU and GIS – The Basics


The United Nations Framework Convention of Climate Change (UNFCCC) wasestablished to combat anthropogenic climate change.
At the third Conference of the Parties (COP3) the Kyoto Protocol (KP) wasestablished to absolutely reduce global greenhouse gas (GHG) emissions until
the end of year 2012.
Two participating groups emerged:Industrialized states and economics in transition with a specific GHG emissions target(Annex I countries)
Developing countries with no specific GHG emission target (Non-Annex I countries).

The absolute reduction target of all Annex I countries is 5,2% less GHG emissions
based on the year 1990 GHG emissions.
To achieve these goals three flexible mechanisms are included in the KP

International Emissions Trading (IET)
Joint Implementation (JI)
Clean Development Mechanism (CDM)

11.12.20103

AAU and GIS – The Basics
The Primary cap-and-trade regime of the KP is International Emissions TradingAnnex I countries receive Assigned Amount Units (AAUs), that represent the total
GHG emissions in the year 1990 less their GHG emission target as written in theAnnex B of the KP times the years in the commitment period.

Within the commitment period excessive AAUs can be freely traded among Annex
I parties.
In theory excessive AAUs are the result of internal mitigation of GHG emissions
In practice there are the result of political bargaining.

The first KP commitment period is from 1.1.2008 until 31.12.2012.

Due to the vast amount of information compliance under IET is not to occur before
QI/QII 2015
 “True up period” allows AAU trading Post 201211.12.20104

AAU and GIS – The Basics
Deficit / Surplus 2008 - 2012 at 2008 emissions (in Mt CO2e)Japan
CanadaSpain
Italy
Austria
New ZealandDenm ark
Norw ay
Netherlands
Sw itzerland
Ireland
Luxem bourg
Slovenia
PortugalFinland
Belgium
GreeceSw edenLatviaGerm any
Slovakia
Estonia
LithuaniaHungary
FranceCzech Republic
Bulgaria
Australia
United Kingdom
Rom ania
PolandUkraine
Russia-2.000,00

11.12.2010-1.000,00

0,00

1.000,00

2.000,00

3.000,00

4.000,00

5.000,00

6.000,00

5AAU and GIS – The Basics
Oversupply of AAUs from Russia, Ukraine and eastern european statesGreen Investment Schemes (GIS) shall address the „hot air“ surplus of AAUs


Revenues of selling AAUs shall be channeled in a GIS to fund green investments inthe seller country
A GIS links AAUs with green investments and their emission reduction effortsYet

GIS is not legally binding under the KP
Purely voluntary commitmment by AAU purchasers
Only sanction available for purchasing/trading AAUs with out a GIS in the sellercountry is „blame and shame“That sanction applies also for AAUs from not well managed GIS

11.12.20106

AAU and GIS – Requirements for GIS
Two main drivers for setting up a GIS

GIS is a requirement by the AAU purchaser to increase integrity of AAU trading andto potentially enter the host country market with own technology
GIS has the potential for the GIS host country to foster green investments basedon market based sales of excessive AAUs

GIS Host Country and AAU purchaser jointly decide upon a greening planHard greeners:-High greening ratio, up to 1:1 greening per AAU (e.g. Pre-JI AAUs)
Continous monitoring, reporting and verification required
Certain control over fund allocation and implementation by AAU purchaser
Close to Joint Implementation

Soft greeners:-11.12.2010

Greening ratio depending sectors to invest in, also capacity buidling possible
Annual reporting to AAU purchaser
Passive position, relying on predefined GIS structure
Understanding GIS rather as subsidy then as project based mechanism
7

AAU and GIS – The Market

Market Participants in AAU and GIS
Annex I countries with a deficit- Only Japan allows private entities to used AAUs also for compliance under a national
voluntary ETS






Annex I parties with an AAU surplus
Few Intermediates
Technical consultants

Trading of AAUsNot publically traded on exchanges
Primarily OTC trading between governments of Annex I countries, sometimes with thehelp of intermediateslow liquidity, high volumes (>>1 Mio.)
Spot or forward trading?
Downward price spiral in 201011.12.20108

AAU and GIS – Carbon Financial Engineering Share deep understanding Understand the needs andcarbon market
mechanisms

 Analysis of market

Market Analysis

Assist informulating thedeal structure

goals of sellers and buyers

 Process intelligencedevelopments

 Understand legal issues
 Construct financial model Selection of other advisorsof project Risk assessment andsensitivity analysis

Valuation andFinancialModelling(legal and tax)

Due diligence andother advisors Coordinate advisors andminimise transaction cost Manage project specificissues Provide term sheets and Coordination of parties toproject management

meet dateline

 Liaison with potential
buyers and their advisors

 Services regarding project

Projectmanagement

Negotiations andtransaction
documents

documentation

 Negotiation with buyers

development

11.12.20109

What has AAU trading taught us about ecological markets?
What has worked?


What has to be improved?
„Greened“ AAUs provide a cost efficent compliance option for Annex I countries
Voluntary committment to build up Green Investment Schemes and challenge theAAU surplus with investments in green/ecologcial markets

Projects for GIS – public vs. Private sector acquisition
Building trust and transparency
Standardisation of a „greened“ AAU or a GIS

What will not survive?
Mismanagement of AAU proceeds
The large surplus in the KP committments for Annex I parties

11.12.201010

The future of GIS?
GIS can consider other financial resources, public or private, to foster green
investments continously in the future

GIS can use modern WEB 2.0 technolgies for project applications, selection,monitoring, etc.


UNFCCC webside shows the basis
Getting local and international communities to participate

GIS can build on a lighthouse project, visible, interesting, high tech, based on
multilateral joint efforts



Draft Conclusion by the LIFECF/2010/AWG-GT[AAU and] Green Investment Scheme – and option for Post 2012!

11.12.201011

Please contact usfor further information
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Germany
www.greentech-manegement.com
P: +49 (40) 485 0969 13
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m.hanakam@greentech-management.com

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