1

OUTREACH PROGRAM 

www.epa.gov/cmop 

U.S. EPA 

Coalbed Methane
 

Coal Mine Methane (CMM) 

Finance Guide 

U.S. Environmental Protection Agency 

July 2009 

EPA-400-D-09-001 

Coal
Mine
Methane
(CMM)



Finance
Guide



United
States
Environmental
Protection
Agency



Office
of
Air
and
Radiation



1200
Pennsylvania
Avenue,
NW



Washington,
DC
20460



EPA-400-D-09-001



July
2009



www.epa.gov



NOTE:
Names
of
companies
and/or
organizations
mentioned
herein
are
provided
for
the
sake
of
illustration
and
should
not
be
interpreted
or
perceived
as
a


U.S.
EPA
endorsement
or
recommendation
of
their
services
or
activities.

ACKNOWLEDGEMENTS


This
report
was
prepared
by
Eastern
Research
Group,
Inc.
(ERG)
and
its
subcontractor,


Rudo
International
Advisors,
under
EPA
contract
EP­W­07­067.
Principle
contributing


authors
were
Brooke
Leigh
Robel
(ERG)
and
Dianne
S.
Rudo
(Rudo).

TABLE OF CONTENTS
 

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
 

OVERVIEW OF METHANE CAPTURE AND USE PROJECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
 

Why Target Methane? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
 

Sources of CMM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
 

Recovery and Use of CMM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
 

CMM Project Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
 

CMM Project Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
 

CMM Project Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
 

CMM PROJECT ECONOMICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
 

CMM Project Revenue Streams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
 

CMM Project Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
 

Assessing Financial Feasibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
 

CMM Project Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
 

Mine Operation Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
 

CMM PROJECT FINANCING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
 

Equity Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
 

Carbon Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
 

RISK MITIGATION SUPPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
 

Loan Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
 

Political Risk and Credit Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
 

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
 

APPENDIX A: CMM PROJECT PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
 

APPENDIX B: KEY ELEMENTS OF FEASIBILITY STUDIES AND U.S. GOVERNMENT SUPPORT. . . . . . . . .16
 

APPENDIX C: CMM PROJECT FUNDING SOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
 

APPENDIX D: RESOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
 

APPENDIX E: CMM PROJECT LENDING EVALUATION CHECKLIST . . . . . . . . . . . . . . . . . . . . . . .25
 

APPENDIX F: GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
 

i

INTRODUCTION



Global
methane
emissions
from
the
coal­mining
sector
can
be


reduced
through
recovery
and
utilization
projects
that
collect


methane
gas
from
coal
mines
and
use
it
productively
to
generate
electricity
or
to
provide
fuel
to
households
and
industry.


Often,
the
critical
barrier
to
developing
such
coal
mine
methane


(CMM)
projects
is
securing
financing.


The
U.S.
Environmental
Protection
Agency’s
(U.S.
EPA’s)
Coalbed


Methane
Outreach
Program
(CMOP)
is
a
voluntary
program
with


a
goal
of
reducing
methane
emissions
from
coal
mining
activities.
Our
mission
is
to
promote
the
profitable
recovery
and
utilization
of
CMM,
a
potent
greenhouse
gas
(GHG)
that
contributes


to
climate
change
if
emitted
to
the
atmosphere.
When
collected


and
used
for
energy,
CMM
is
a
valuable
fuel
source.


CMOP
estimates
that
more
than
220
CMM
projects
are
already


in
operation
around
the
world.
Many
more
project
opportunities


exist,
especially
in
emerging
market
countries.
Several
factors


have
prompted
the
resurgent
interest
in
CMM
projects
around


the
world.
First,
the
steep
growth
in
global
energy
demand


has
catalyzed
the
search
for
new,
unconventional
sources
of


natural
gas
and
power.
Second,
programs
such
as
the
Kyoto


Protocol’s
Clean
Development
Mechanism
(CDM)
and
Joint


Implementation
(JI)
have
created
financial
incentives
to
develop


projects
that
reduce
GHG
emissions.
Third,
multinational
collaborative
initiatives
such
as
the
Methane
to
Markets
Partnership


(www.methanetomarkets.org)
have
focused
on
overcoming


the
policy,
regulatory,
legal,
and
technical
barriers
that
inhibit


project
development.


Many
funding
and
investment
sources
emphasize
sustainable


development,
environmental
protection,
and
climate
change


mitigation
as
important
components
of
projects
that
they


finance.
CMM
projects
support
all
of
these
objectives.
CMOP


has
developed
this
guide
for
project
developers
and
investors


who
are
interested
in
pursuing
CMM
project
opportunities,


particularly
in
emerging
market
countries.
While
most
of
the


project
and
cost
information
described
in
the
following
pages
is


U.S.­based,
there
are
numerous
global
opportunities
for
CMM


project
development.


This
guide
summarizes
the
market
potential
for
CMM
projects


(e.g.,
sources/uses
of
CMM),
project
economics,
types
of
financing,
and
risk
mitigation.
Particular
attention
has
been
paid
to


the
emerging
markets
of
carbon
credits
as
potential
funding
for


CMM
projects.


1
OVERVIEW
OF
METHANE


CAPTURE
AND
USE
PROJECTS


Why	Target	Methane?	

Methane,
one
of
the
principal
GHGs,
is
second
only
to
carbon


dioxide
(CO2

)
in
its
contribution
to
climate
change.
Globally,
it


accounts
for
approximately
15
percent
of
global
total
GHGs.1


Methane
is
a
potent
GHG
that
is
more
than
20
times
more
effective
in
trapping
heat
than
a
ton
of
CO2


on
a
pound­for­pound


basis
over
100
years.
Global
average
atmospheric
methane
concentrations
have
more
than
doubled—from
approximately
700


to
1,774
parts
per
billion
by
volume—over
the
time
period
of


1750
to
2005.2
After
nearly
a
decade
of
stabilized
levels,
global


methane
emissions
rose
by
27
million
tons
in
2007.3


Sources	of	CMM	

Coal
mines
are
a
primary
source
of
methane,
responsible
for


approximately
6
percent
of
estimated
global
anthropogenic


methane
emissions
in
2005.4


Methane
and
coal
are
formed


together
during
the
conversion
of
vegetation
into
coal.
CMM


refers
to
methane
released
from
the
coal
and
surrounding
rock


strata
due
to
mining
activities.
In
underground
mines,
it
can
create
an
explosive
hazard
to
coal
miners,
so
it
is
removed
through


ventilation
systems.
In
some
instances,
it
is
necessary
to
supplement
the
ventilation
with
a
degasification
system
to
remove


methane
from
the
mine.
The
schematic
(next
page)
illustrates


how
methane
may
be
removed
from
longwall
mines
through


the
ventilation
system
and
a
combination
of
gob
wells,
pre­mine


drainage
wells,
and
in­mine
boreholes.


Recovery	and	Use	of	CMM	

Specific
CMM
end
uses
depend
on
the
gas
quality,
especially
the


concentration
of
methane
and
the
presence
of
other
contaminants.
Worldwide,
CMM
is
most
often
used
for
power
generation,
district
heating,
boiler
fuel,
and
town
gas,
or
it
is
sold
to


natural
gas
pipeline
systems.
Other
uses
of
CMM
include
the


following:


1
 U.S.
EPA.
Global
Anthropogenic
Non­CO2


Greenhouse
Gas
Emissions:
1990­

2020.
June
2006.
www.epa.gov/climatechange/economics/
downloads/


GlobalMitigationFullReport.pdf


2
 Intergovernmental
Panel
on
Climate
Change
(IPCC)
Fourth
Assessment


Report:
Climate
Change
2007,
Working
Group
I
Report
“The
Physical


Science
Basis,”
November
17,
2007.
www.ipcc.ch/pdf/assessment­report/


ar4/wg1/ar4­wg1­chapter2.pdf


3
 National
Oceanic
and
Atmospheric
Administration.
“Greenhouse
Gases,


Carbon
Dioxide
And
Methane,
Rise
Sharply
In
2007.”
ScienceDaily.
April
24,


2008.
www.sciencedaily.com/releases/2008/04/080423181652.htm


4
 U.S.
EPA,
idem


2

•
 Coal
drying


•
 Heat
source
for
mine
ventilation
air


•
 Supplemental
fuel
for
mine
boilers


•
 Vehicle
fuel
as
compressed
or
liquefied
natural
gas
(LNG)


•
 Manufacturing
feedstock


•
 Fuel
source
for
fuel
cells


•
 Direct
gas
sales
to
industrial
or
other
end
users


CMM	Project	Market	

There
are
more
than
220
CMM
projects
worldwide
in
13


countries
that,
in
total,
recover
and
use
more
than
3.8
billion


cubic
meters
of
gas
annually
from
active
and
abandoned
coal


mines,
thereby
avoiding
54
million
metric
tons
of
carbon
dioxide


equivalent
(MtCO2

e)
of
GHG
emissions
each
year.
A
comprehensive
list
of
global
CMM
projects
can
be
found
in
the
Methane
to


Markets
International
Coal
Mine
Methane
Projects
Database
at:


www2.ergweb.com/cmm/index.aspx.


Globally,
the
greatest
volume
of
CMM
recovered
and
used
is


from
drainage
(degasification)
systems
at
underground
coal


mines.
Degasification
systems
are
currently
employed
at
some
of


the
most
gassy
coal
mines
in
14
countries.
Technologies
to
recover
and
harness
dilute
methane
from
mine
ventilation
systems


are
also
beginning
to
be
employed
in
some
parts
of
the
world.


Several
countries
with
declining
coal
production
are
effectively


capturing
and
using
the
methane
from
their
abandoned
(closed)


underground
coal
mines.


Project	Opportunities	

Drained
gas
is
the
methane
captured
or
recovered
from
degasification
systems
at
underground
coal
mines.
Pre­mine
drainage


produces
very
high­quality
gas
with
methane
concentrations


that
can
exceed
90
percent.
Gob
wells
generally
produce
lower


quality
gas
due
to
entrained
air
and
other
impurities.
Methane


concentration
in
gob
gas
varies
widely,
from
less
than
25
percent
in
some
Chinese
mines
to
80
percent
in
some
U.S.
mines,


depending
on
how
carefully
air
intrusion
is
controlled.
Currently,


in
the
United
States,
24
underground
coal
mines
employ
degasification
systems,
liberating
more
than
36
billion
cubic
feet


(Bcf)
annually
(more
than
1
billion
cubic
meters)
in
2007.
Of
this


amount,
about
32
Bcf
are
recovered
and
utilized
for
energy.

Removal	of	CMM	From	Longwall	Mines		

Globally,
most
drained
gas
is
used
in
internal
combustion


engines
or
turbines
to
generate
power.
China
and
Australia,
for


example,
have
projects
of
this
type.
Other
uses
for
drained
gas


include
town
gas,
industrial
uses,
coal
drying,
and
vehicle
fuel.


Ventilation
air
methane
(VAM)
is
the
very
dilute
methane—typically
1
percent
or
less—released
from
underground
mine
ventilation
shafts.
VAM
represents
more
than
half
of
all
coal
mining


emissions
in
the
United
States
and
worldwide.
With
a
few


exceptions
(see
case
studies
on
page
12),
it
is
simply
released
to


the
atmosphere;
however,
it
is
technically
possible
to
convert
the


dilute
methane
in
ventilation
air
to
useful
energy.
The
economic


feasibility
of
these
projects
on
a
commercial
scale
is
currently


being
demonstrated
in
Australia,
and
projects
are
in
operation


or
under
development
in
China
and
the
United
States.


Even
though
active
mining
no
longer
occurs,
abandoned
or
closed


underground
coal
mines
can
still
produce
signifi
cant
methane


emissions
(known
as
abandoned
mine
methane
[AMM])
from


diffuse
vents,
fi
ssures,
or
boreholes.
This
methane
can
be
deliberately
extracted
and
used
to
generate
power
or
for
other
end
uses.


There
are
several
thousand
abandoned
coal
mines
in
the
United


States.
Of
these,
U.S.
EPA
has
identifi
ed
some
400
abandoned


mines
that
are
considered
“gassy”
and
has
developed
profi
les


for
abandoned
mines
that
might
be
good
candidates
for
project


development
(see
www.epa.gov/cmop/docs/profi
les_2008_fi
nal.


pdf).
Abandoned
coal
mines
are
important
sources
of
methane


for
power
generation
projects
in
several
countries,
including


Germany,
Poland,
and
the
United
Kingdom.


CMM	Project	Development	

Project
development
involves
multiple
steps,
ranging
from


evaluating
project
economics
to
determining
how
to
mitigate


multiple
project
risks
(see
flow
chart
next
page).
Typical
project


participants
include
the
mine
operator,
the
project
developer,


regulatory
agencies,
and
the
end
user
or
energy
buyer.
Some


CMM
projects
might
be
pursued
as
“turnkey”
operations,
where


a
supplier/vendor
constructs
and
installs
the
necessary
equipment
and
maintains
responsibility
for
its
operating
performance.


Detailed
descriptions
of
potential
project
participants
can
be


found
in
Appendix
A.


For
the
purpose
of
this
guide,
we
focus
on
assessing
the
initial


project
economics
(e.g.,
costs)
and
securing
financing
for
CMM


projects.


CMM	Project	Feasibility	

The
demonstration
of
a
CMM
project’s
technical
viability
plays


an
important
role
in
securing
financing.
The
project’s
viability


can
be
demonstrated
through:
pre­feasibility
studies
(PFS);


full­scale,
comprehensive
feasibility
studies
(FS);
and
technology
demonstrations.
These
analyses
are
typically
funded
by
the


project
developer
or
investors,
although
some
government
agencies
fund
these
studies,
including
U.S.
Trade
and
Development


Agency
(USTDA),
U.S.
Agency
for
International
Development


(USAID),
U.S.
EPA,
Australia’s
Commonwealth
Scientific
and


Industrial
Research
Organisation
(CSIRO),
and
Australia’s
national
government.5


5
 Formerly
Australia
Greenhouse
Office,
now
Department
of
Climate
Change.


3
CMM	Project	Development	Activities		

Conduct initial 

exploration 

Perform data 

evaluation 

Compile preliminary 

information 

Develop drilling plan 

based on core data 

Identify gas 

treatment processes 

Develop gathering 

designs based on 

drilling plan and 

results 

Compile preliminary 

information 

Identify method(s) 

for handling 

produced fluids 

Obtain the 

necessary permits 

Conduct public 

relations to educate 

the community 

Develop a project 

team 

Evaluate preliminary 

project feasibility 

and economics 

Identify and contract 

with energy buyer 

Practice environmental stewardship 

Protect assets and 

mitigate identified 

project risks 

Pre-Feasibility	Studies	and	Feasibility	Studies	

One
of
the
first
steps
in
project
development
involves
performing
a
PFS
to
evaluate
potential
project
options.
The
PFS
is
a


first­order
analysis
of
possible
project
configurations
including
location,
size,
technology
to
be
employed,
market(s)
to
be


served,
costs,
and
revenues.
It
identifies
one
or
more
options


that
appear
to
be
technically
feasible
and
economically
attractive.
Typically,
the
PFS
will
be
conducted
at
a
level
of
detail


adequate
to
broadly
identify
financing
requirements
and
considers
the
potential
capital
structure,
taking
into
account
expected


project
cash
flows
under
various
scenarios.
If
the
PFS
indicates


a
potentially
viable
project,
a
more
in­depth
analysis,
such
as
a


comprehensive
FS,
would
be
conducted.


A
comprehensive
FS
is
a
rigorous,
detailed
assessment
of
the


technical
and
economic
viability
of
a
CMM
project
at
a
specific


site
or
group
of
sites.
The
objective
is
to
perform
due
diligence


to
determine
if
financial
investment
in
the
project
is
warranted,


given
the
project
risks.
A
comprehensive
FS
considers
the
financial
as
well
as
technical,
legal,
regulatory,
and
environmental


elements
of
the
potential
project.
Key
elements
of
a
comprehensive
FS
can
be
found
in
Appendix
B.


Logistical,
time,
and
financial
costs
are
quite
high
for
an
FS
at
a


coal
mine,
and
several
site
visits
and
detailed
information
collection
from
mine
site
personnel
are
required.
Such
a
study
can


typically
take
several
months
or
a
year
to
complete.


U.S.
government
funding
to
support
the
PFS/FS
efforts
for
CMM


projects
(see
examples
in
Appendix
B)
may
be
available
to
project


developers
depending
on
the
location
and
nature
of
the
project.


4
CMM
PROJECT
ECONOMICS



This
section
identifies
the
primary
revenue
streams
and
costs
for


typical
CMM
projects,
as
well
as
some
of
the
risks
associated


with
these
projects.


CMM	Project	Revenue	Streams	

•

Revenues:
CMM
projects
might
generate
revenues


through
the
sale
of
gas
or
electricity
and/or
realize
cost


savings
from
avoided
energy
costs.


•

Carbon
Credits
(e.g.,
GHG
offsets,
emission
reductions):


CMM
projects
capture
methane
that
would
otherwise


have
been
vented
into
the
atmosphere,
and
put
it
to
use,


thus
reducing
GHG
emissions.
These
emission
reductions,
if


properly
verifi
ed,
might
be
considered
GHG
offsets
and
sold


as
“carbon
credits.”
The
financing
opportunities
associated


with
carbon
credits
are
discussed
further
on
page
8.


•

 Tax
Credits:
In
certain
jurisdictions,
tax
credits
might
be


available
for
the
development
or
recovery
of
CMM
projects.6


CMM	Project	Costs	

There
are
three
general
categories
of
costs
associated
with


CMM
projects.


Capital	Costs	

Capital
costs
include
costs
associated
with
the
development,


construction,
and
financing
of
the
project.
Typical
capital
cost


components
are
listed
in
the
table
below.


The
total
capital
costs
of
a
simple
CMM
project
to
produce
and


sell
pipeline­quality
gas
are
likely
to
be
several
million
dollars.


Projects
involving
enrichment,
power
production
(electricity


generation),
or
equipment
conversion
will
be
more
expensive,


sometimes
involving
initial
costs
of
more
than
$10
million
even


with
an
existing
gas
recovery
system.


Operating	Expenses	

A
project’s
operating
costs
depend
on
the
project’s
complexity


and
the
end
product
that
is
being
sold.
Operating
costs
for
gas


sales
projects
using
high­quality
gas
from
pre­mine
drainage
are


generally
lower
than
gas
sales
projects
involving
gas
upgrade


or
enrichment,
which
are,
in
turn,
lower
than
operating
costs


for
electricity
generation
projects.
Operating
costs
components


include:


•

Personnel,
maintenance,
and
operation
of
gas
recovery


systems.


•

Annual
operating
costs
for
compressors,
water/gas


separator,
and
equipment
maintenance
and
insurance.


For
more
project­specific
information
on
capital
and
operating


costs,
please
see
U.S.
EPA’s
Coal
Mine
Methane
Project
Cash


Flow
Model
at:
www.epa.gov/cmop/resources/cashflow_model.


html.
This
online
model
will
be
updated
periodically
to
reflect


the
most
current
cost
data.
For
more
detailed
information
on


gas
upgrade
costs,
see
U.S.
EPA’s
document
Upgrading
Coal


Mine
Methane
to
Pipeline
Quality
(2008)
at:
www.epa.gov/


cmop/docs/red24.pdf.


Royalties,	Fees,	and	Other	Expenses	

Royalties
are
assessed
for
the
gas
used
by
project
developers
who


are
not
the
owner
of
the
gas
rights.
On
U.S.
federal
lands,
the
prevailing
royalty
rate
is
12.5
percent,
subject
to
individual
contract


negotiations.
On
private
lands/leases,
the
royalty
rate
is
negotiated


and
is
typically
within
this
range.


Capital	Cost	Component	 Description	of	Activities	and	Equipment	

Degasification
system
 Drill,
install,
and
complete
wells
and
boreholes,
including
water
disposal


Gas
collection
and
gathering
system
 Blowers,
compressors,
lines


Gas
processing
system
 Separators,
dehydrators


Electricity
generation
 Gas
turbines
or
IC
engines,
generator
sets,
utility
interconnections


Offsite
gas
sales
 Enrichment
equipment,
compressors,
sales
meter/gas
analyzer,
transmission
pipeline


Onsite
gas
use
 Conversion
of
mine
boilers


6
 Please
check
with
your
legal
and
accounting
advisors
to
determine
if
tax


credits
apply.


5
In
absolute
terms,
the
project
development
and
up­front
financing


costs
are
roughly
the
same
irrespective
of
the
size
of
the
project;


in
percentage
terms,
however,
they
are
a
much
bigger
burden


on
smaller
projects.
There
are
a
number
of
organizational
and


transactional
costs
associated
with
project
development,
which


might
represent
upwards
of
25
to
30
percent
of
the
total
capital


costs.
These
costs
include:


•

Conducting
“due
diligence”
or
examining
and
verifying


the
assertions
and
records
of
other
project
parties.


•

Performing
system
design,
engineering,
and
economic


assessment.


•

Negotiating
and
drafting
legal
documents
and



agreements.



•

Obtaining
the
necessary
permits,
licenses,
and
rights­ofway
for
pipelines
or
power
lines.


Other
significant
non­operational
expenses
that
are
regularly


incurred
include
the
following:


•

 Taxes
(federal,
state).


•

 Financing­related
costs
(including
interest).


Assessing	Financial	Feasibility	

There
are
two
standard
and
interrelated
methods
used
to
measure
an
investor’s
return
on
equity
for
assessing
CMM
project


fi
nancial
feasibility:


•

Discounted
Cash
Flow
Method:
The
sum
of
a
project’s


net
cash
flows
over
the
project’s
life
is
discounted
to
the


present
(i.e.,
the
net
present
value
[NPV]
of
the
project).


The
discount
rate
used
to
make
this
calculation
represents


the
investors’
cost
of
capital.
If
a
project’s
NPV
is
positive,


then
the
project
is
deemed
capable
of
yielding
the
investor’s
minimum
required
return.


•

 Internal
Rate
of
Return:
The
internal
rate
of
return
(IRR)


on
a
project
is
the
discount
rate
at
which
the
NPV
of
the


project’s
net
cash
flow
is
zero.
In
other
words,
it
is
the
rate


that
equates
the
present
value
of
future
cash
flows
with


the
initial
capital
investment.
A
project’s
expected
IRR
can


be
compared
with
return
rates
on
alternative
investment


opportunities.


Sensitivity
analysis
should
also
be
carried
out
to
examine
the


impact
of
risks
on
project
returns.
Risks
could
include
changes
in


key
fi
nancial
variables,
such
as
gas
production
or
electricity
prices.


As
previously
mentioned,
CMOP
has
developed
the
Coal
Mine


Methane
Project
Cash
Flow
Model,
a
Web­based
cost­benefit


analysis
tool
to
assist
developers
with
estimating
financial


scenarios
associated
with
CMM
projects.
The
online
tool
allows
users
to
enter
mine­specific
information
including
percent


methane
of
the
drained
gas,
distance
from
drainage
area
to


onsite
use,
compressor/blower
efficiencies,
drainage
well
and


blower
development
costs,
gas
availability,
project
lifetime,
loan


terms
and
interest
rate,
and
certified
emission
reduction
(CER)


unit
sale
price.
The
model
provides
estimated
outputs
including


equity
amount,
IRR,
and
a
cash
flow
analysis.
The
tool
is
available
on
the
CMOP
Web
site
at:
www.epa.gov/cmop/resources/


cashfl
ow_model.html.


CMM	Project	Risks	

Project
risks
change
depending
on
the
stage
of
the
project:


development,
construction,
or
operation.
The
equity
investor


generally
bears
the
development
risks
of
a
project—those
risks


associated
with
the
developer’s
ability
to
complete
the
project


and
receive
project
cash
flows.
In
this
case,
the
developer/investor
would
be
unable
to
recover
“sunk”
costs,
such
as
legal
or


consulting
fees
incurred.
Construction
and
operations
risks
might


also
be
associated
with
substantial
losses.
Associated
CMM


project
risks
are
described
in
the
exhibit
on
page
7.


Mine	Operation	Risks	

Mine
operators
might
encounter
a
separate
set
of
potential


risks
than
project
developers
and/or
investors.
Maintaining
the


productivity
and
profitability
of
their
mining
operations
are
the


primary
concerns
of
mine
managers.
Mine
operators
are
also


concerned
about
potential
risks
that
the
CMM
project
could


pose
to
their
coal
operations
in
terms
of
safety
and
flexibility,


as
well
as
the
risks
of
the
project
itself.
Possible
risks
for
mine


operations
include:


•

 Interference
with
mining
operations.
Coordinating
gas


production
and
use
with
coal
operations
requires
both


detailed
planning
and
great
attention
in
implementation,


which
could
potentially
distract
from
or
interfere
with
coal


production,
or
both.


•

Reduction
in
mine
planning
flexibility.
Mine
operators


might
be
concerned
that
gas
operations
will
limit
their


ability
to
change
plans
at
a
given
mine
or
to
close
or


sell
a
mine
(e.g.,
contracts
requiring
delivery
of
specified


amounts
of
gas
over
a
given
time
frame
could
infringe
on


the
ability
to
alter
coal
mining
operations).


6
Risks	Associated	With	CMM	Projects	

Project	Development	Risks	 Construction	and	Operations	Risks	

•
 Inability
to
obtain
agreements
with
mining
company
and


adjacent
land
owners.


•
 Indications
of
marginal
gas
resource
(such
as
gas
quality,


rate
of
flow,
and
longevity).


•
 Inability
to
negotiate
energy
sale
agreements.


•
 Inability
to
obtain
permits.


•
 Insuffi
cient
development


capital.


•
 Inability
to
secure
financing.


•
 Construction
cost
overruns
or
delays
in
construction


completion.


•
 Poor
gas
productivity
(such
as
flow
rate,
reliability,


and
quality).


•
 Technological
risk
(poor
system
performance).


•
 Market
risk
(drop
in
revenues
due
to
price
changes).


•
 Contractual/legal
problems
with
customers,
mine

owner/


operator,
system
suppliers,
or
regulatory
agencies.


•
 Mine
closing
or
change
in
mining
plan,
causing
stranded


investment.


7
CMM
PROJECT
FINANCING



Appropriate
sources
of
financing
vary
depending
on
the
project.


Project
developers
often
manage
their
risk
exposure
by
using
project
financing,
a
financing
technique
used
to
raise
debt


financing
on
the
basis
of
a
project’s
projected
cash
flows.
Project


revenues
might
also
include
carbon
financing,
which
could
provide
a
revenue
stream
based
on
mitigated
carbon
emissions.


Equity	Investment	

Lenders
typically
require
that
developers
invest
equity
to
demonstrate
their
confidence
in
the
project’s
success
and
willingness


to
risk
their
own
financial
resources.
While
acceptable
debt­toequity
ratios
vary,
project
financing
using
project
debt
can
be


highly
leveraged.
The
actual
ratio
preferred
by
lenders
usually


reflects
the
project’s
perceived
risk
as
well
as
the
borrower’s


financial
stability.
In
practice,
many
CMM
projects
developed


in
the
United
States
have
been
financed
through
corporate


resources
rather
than
project­specific
debt
and
equity.


A
wide
variety
of
financial
institutions
or
financiers
provide
debt


or
equity
capital,
or
both
(see
examples
at
right).
These
entities


vary
in
terms
of
their
risk
tolerance;
some
will
accept
project
risk


and
others
will
not.
Multilateral
and
bilateral
funding
institutions,
such
as
the
Asian
Development
Bank,
the
World
Bank,
and


the
Japan
Bank
for
International
Cooperation,
have
played
a


significant
role
in
financing
CMM
projects.
Appendix
C
provides


a
more
complete
overview
of
these
and
other
project
funding


sources,
the
risk/return
profiles
of
these
institutions,
the
particular
investment
areas
in
which
they
specialize,
and
the
current


status
of
the
marketplace.


An
equity
investment
can
be
made
in
a
project
itself
(i.e.,
as


in
a
project
finance
transaction)
or
in
the
company
developing


the
project.
In
the
former
case,
the
investor’s
return
is
solely
a


function
of
the
project’s
financial
performance.
In
the
latter,
the


return
is
a
function
of
the
financial
performance
of
all
the
company’s
operations,
rather
than
the
project
alone.
Consequently,


the
investor
must
evaluate
the
company’s
strategy,
its
competitive
advantages
relative
to
other
firms
in
its
industry,
and
the


quality
of
its
management,
in
addition
to
the
economics
of
the


particular
project.


Equity
investors
can
become
involved
in
a
project
at
any
stage


in
the
project
development
process
depending
on
their
level


of
activity
and
risk
tolerance.
In
the
early
stages
of
project


Examples	of	Project	Funding	Sources	

•

Commercial
banks
profit
by
lending
money
at
higher


interest
rates
than
they
pay
on
deposits.
Banks
might


provide
short­,
medium­,
and
long­term
corporate


and
project
finance
loans
at
a
margin
or
spread
over


a
benchmark
rate
such
as
LIBOR.7


•

 Finance
companies
normally
provide
debt
financing


for
projects
and
transactions,
often
financing
projects


in
earlier
stages
than
banks
and
investing
in
a
wider


range
of
industries.
Most
finance
companies
will


not
put
up
initial
risk
capital
to
fund
project
development,
but
they
will
provide
subordinated
debt


financing
in
exchange
for
increased
lending
rates.


•

 Investment
bankers
provide
a
wide
variety
of
services


that
support
raising
financing.
They
provide
advice


on
corporate
and
project
financing
alternatives,


arrange
debt
and
equity
public
offerings
and
private


placements,
and
assist
in
transactions
such
as
mergers,
acquisitions,
and
divestitures.


development,
there
is
a
relatively
high
probability
that
the
project
will
never
be
implemented,
so
investors
who
fund
the
early


costs
bear
the
most
risk.
Most
equity
investors
will
consider
a


project
only
after
technical
and
economic
studies
(such
as
FS)


show
that
the
project
is
technically
and
financially
viable,
and


after
important
contracts
such
as
energy
purchase/sale
agreements
have
been
signed.


In
addition
to
the
typical
financial
sources
noted
above,
many


bilateral
and
multilateral
organizations
have
funding
available


for
climate
change­related
programs
or
initiatives,
and
several


are
currently
engaged
in
projects
to
mitigate
GHG
emissions


(see
selected
examples
in
Appendix
C).


Carbon	Financing	

Many
CMM
utilization
projects
can
offer
financial
returns
that


are
sufficient
on
their
own
merits
to
attract
traditional
investors
and
lenders.
For
other
projects,
the
sale
of
carbon
credits


from
GHG
emission
reductions
may
be
required
to
make
them


an
attractive
investment.
In
most
cases,
carbon
credit
revenues


7


London
Interbank
Offered
Rate,
comparable
to
the
U.S.
Federal
funds
rate.


8
Carbon	Credit	Terminology	

•	 Carbon	Financial	Instruments	(CFIs):
The
Chicago
Climate
Exchange
(CCX)
unit
of
trade,
which
can
be
issued
as


allowance­based
or
offset
credits.
One
CFI
represents
100
tCO2

e.


•	 Certified	Emission	Reductions	(CERs):
A
unit
of
GHG
emission
reductions
issued
pursuant
to
the
Clean


Development
Mechanism
of
the
Kyoto
Protocol,
and
measured
in
tCO2

e.
One
CER
represents
a
reduction
of
GHG


emissions
of
one
tCO2

e.


•	 Emission	Reduction	Units	(ERUs):
A
unit
of
emission
reductions
issued
pursuant
to
Joint
Implementation.
This
unit
is


equal
to
one
tCO2

e.


•	 European	Union	Allowances	(EUAs):
The
allowances
in
use
under
the
European
Union
Emissions
Trading
Scheme


(EU
ETS).
An
EUA
unit
is
equal
to
one
tCO2

e.


•	 Renewable	Energy	Certifi	cates	(RECs):
Tradable
environmental
commodities
in
the
United
States
which
represent


proof
that
1
megawatt­hour
(MWh)
of
electricity
was
generated
from
an
eligible
renewable
energy
resource.


•	 Verified	Emissions	Reductions	(VERs):
A
unit
of
GHG
emission
reductions
that
has
been
verified
by
an
independent


auditor
and
can
be
traded
on
the
voluntary
market.


Source:
World
Bank,
Ecosystem
Marketplace
and
New
Carbon
Finance.


alone
are
inadequate
to
provide
the
level
of
funding
necessary


for
project
planning
and
implementation.
Carbon
credits
are


particularly
useful
for
improving
the
cash
flow
of
projects
that


are
otherwise
economically
marginal
and,
therefore,
unattractive


to
investors.


The
emerging
carbon
credits
market
consists
of
three
main
types:


•

Regulatory
(Compliance)
Carbon
Markets:
Cap­and­trade


systems
under
regulatory
regimes,
such
as
the
Kyoto


Protocol
(through
the
Clean
Development
Mechanism
or


the
Joint
Implementation
scheme),
the
European
Union


Emissions
Trading
System
(EU
ETS),
or
the
Australia
New


South
Wales
(NSW)
trading
scheme.


•

Voluntary
Carbon
Exchanges:
Voluntary
yet
legally


binding,
membership­based
cap­and­trade
systems,
for


example
the
Chicago
Climate
Exchange.


•

Voluntary
Over­the­Counter
(OTC)
Markets:
Project­based


carbon
offsets
purchased
exclusive
of
a
cap­and­trade


system,
usually
through
negotiated
bilateral
agreements.


Regulated	Carbon	Markets	

The
Kyoto
Protocol
is
a
legally
binding
agreement
under
which


nearly
200
industrialized
countries
have
agreed
to
reduce
collective
GHG
emissions
to
an
average
of
5
percent
below
1990


emissions
levels
by
2012.
To
date,
the
regulated
overseas
GHG


markets
that
have
evolved
under
the
Kyoto
Protocol
are
flexible


cap­and­trade
mechanisms
that
enable
developed
countries
and


countries
with
economies
in
transition
(EITs)
to
purchase
carbon


credits
from
other
developed
countries
and
EITs
to
fulfill
emission
reductions
commitments
including:


•

Joint
Implementation
(JI):
A
project­based
transaction


system
under
the
Kyoto
Protocol
to
allow
emitters
in
developed
countries
(i.e.,
“Annex
1”
countries)
to
purchase


carbon
credits
from
GHG
reduction
projects
implemented


in
another
developed
country
or
EITs.


•

Clean
Development
Mechanism
(CDM):
A
project­based


transaction
system
under
the
Kyoto
Protocol,
through


which
developed
countries
can
accrue
carbon
credits
by


financing
GHG
reduction
projects
in
developing
countries.


Case	Studies:	Leveraging	Carbon	Funds	for	CMM	

Projects	in	China	

Two
CDM
utilization
projects
are
underway
in
the
coal
mining
concession
area
of
the
Yangquan
Coal
Industry
(Group)


Company
Limited
(YCIG)
in
China.


•
 CMM
Capture
and
Use
for
Power
Generation:
This


project
installed
90
MW
of
gas
engines
for
power


generation
from
CMM.


•
 Using
CMM
for
Fuelling
a
Furnace
System:
This


project
represents
the
first
CMM­fuelled
aluminum


hydroxide
roasting
furnace
system
in
China
and


perhaps
the
world.
The
furnace
project
is
expected
to


reduce
methane
emissions
by
nearly
7
MtCO2

e
over


seven
years
(2007­2013).


Funding
for
both
projects
was
secured
through
the


European
Carbon
Fund
(ECF),
which
contributes
to
the


financing
of
projects
that
help
fight
climate
change
by


reducing
GHG
emissions
around
the
world.


9
CDM	Projects	by	Source,	2007		 JI	Projects	by	Source,	2007		

Waste Mgmt 

3% 

LFG 8% 

EE+Fuel 

Switching 23% 

Other 

Renewbles 1% Biomass 8% 

Fugitive 9% 

CMM 27% 

N2O16% 

Hydro 3% Wind 2% 

Biomass 5% 

Wind 7% 

Hydro 12% 

Fugitive 3% Other 1% 

N2O 9% 

CMM 5% 

Waste Mgmt 4% 

LFG 5% 

HFC 8% 

EE+Fuel Switching 41% 

Source:
World
Bank
State
and
Trends
of
the
Carbon
Market
2008


There
are
several
distinct
emissions
trading
systems
that
have


been
established
either
within
the
framework
of
the
Kyoto


Protocol
or
entirely
outside
of
it.
These
allowance­based
transaction
systems
set
a
regulatory
cap
or
limit
on
total
carbon
emissions
and
allow
trading
within
that
cap
to
meet
the
established


limits.
Some
of
the
caps
can
be
met
through
the
purchase
of


offsets.
These
systems
establish
legally­enforceable
limits
and


are
enforceable
in
their
own
right.
Examples
include
the
EU
ETS


and
Australia’s
NSW
Greenhouse
Gas
Reduction
(previously


“Abatement”)
Scheme
(GGAS).


Recent
Kyoto
Protocol
carbon
market
activity
is
reflected
in
the


pie
charts
on
the
previous
page,
with
CMM
representing
5
and


27
percent
in
CDM
and
JI
projects,
respectively.


In
the
United
States,
10
East
Coast
states
have
developed
the


Regional
Greenhouse
Gas
Initiative
(RGGI,
www.rggi.org),
a


regulated
carbon
market,
to
reduce
CO2


emissions
from
power


plants.8


Currently,
neither
the
RGGI
program
nor
other
regional


and
state­level
programs
underway
in
the
United
States,
such


as
the
Oregon
Standard
and
the
Western
Climate
Initiative,


explicitly
address
CMM
emissions
reductions,
but
they
may
in


the
future.9


8

 Connecticut,
Delaware,
Maryland,
Massachusetts,
Maine,
New
Hampshire,


New
Jersey,
New
York,
Rhode
Island,
and
Vermont
participate
in
RGGI.


9

 For
a
complete
summary,
see
“Forging
a
Frontier:
State
of
the
Voluntary


Carbon
Markets
2008”
at:
www.ecosystemmarketplace.com/documents/


cms_documents/2008_StateofVoluntaryCarbonMarket2.pdf.


Source:
World
Bank
State
and
Trends
of
the
Carbon
Market
2008


Voluntary	Carbon	Markets	

Voluntary
carbon
markets
can
be
divided
into
two
distinct
components:
carbon
exchanges
(e.g.,
CCX)
and
OTC
markets.


•

 The
Chicago
Climate
Exchange
(CCX)
was
launched
in


2003
and
describes
itself
as
“the
world’s
first
and
North


America’s
only
active
voluntary,
legally
binding
integrated


trading
system
to
reduce
emissions
of
all
six
major
GHGs


with
offset
projects
worldwide.”
CCX
Members
(full,


associate,
and
participant)
represent
all
sectors
of
the


global
economy.
They
make
a
voluntary
but
legally
binding


commitment
to
meet
annual
GHG
emission
reduction


targets.
Those
who
reduce
below
those
targets
have


surplus
allowances
to
sell
or
bank;
those
who
emit
above


the
targets
comply
with
their
commitment
by
purchasing


CFIs.
Two
U.S.
coal
mining
companies
have
joined
the
CCX


as
members
and
at
least
one
CMM
project
developer
has


joined
as
an
offset
provider.


•

Over­the­Counter
(OTC)
carbon
markets
are
not
driven


by
any
sort
of
emissions
cap
and
do
not
operate
via
a


formal
exchange
(e.g.,
trading).
Buyers
of
carbon
credits


are
typically
motivated
by
environmental
philanthropy,


public
relations
(demonstrating
sustainability),
or
pending
regulations.
OTC
sellers
include
project
developers,


aggregators/wholesalers,
retailers,
and
brokers.


10
Overall	Value	of	Global	Carbon	Markets	

Markets	 Volume	(MtCO2e)	 Value	(US$	million)	

2006	 2007	 2006	 2007	

Chicago
Climate
Exchange
(CCX)
 14.3
 42.1
 58.5
 258.4


Over­the­Counter
(OTC)
Carbon
Markets
 10.3
 22.9
 38.3
 72.4


Total	Voluntary	Markets	 24.6	 65.0	 96.7	 330.8	

European
Union
Emissions
Trading
Scheme
(EU
ETS)
 1,044
 2,061
 24,436
 50,097


Primary
Clean
Development
Mechanism
(CDM)10
 537
 551
 5,804
 7,426


Secondary
Clean
Development
Mechanism
(CDM)
 25
 240
 445
 5,451


Joint
Implementation
(JI)
 16
 41
 141
 499


Australia
New
South
Wales
(NSW)
Trading
Scheme
 20
 25
 225
 224


Total	Regulated	Markets	 1,642	 2,918	 31,051	 63,697	

Total	Global	Market	 1,667	 2,983	 31,148	 64,028	

Source:
New
Carbon
Finance,
Ecosystem
Marketplace,
World
Bank


While
the
regulated
or
compliance
markets
currently
outperform


the
voluntary
markets,
2006
and
2007
trading
volumes
and


values
suggest
that
the
OTC
market
is
gaining
momentum
(see


above).


Challenges	of	Carbon	Financing	

There
are
several
issues
associated
with
securing
carbon
credits


for
CMM
projects.
Some
of
these
challenges
or
barriers
include:


•

Lack
of
standardized
methodologies.
Because
there
is
no


one
universal
carbon
trading
program,
GHG
reduction


projects
are
subject
to
different
standards.
For
example:


−

CDM
and
JI
projects
are
subject
to
the
requirements
of
Approved
Consolidated
Methodologies


(e.g.,
ACM0008).
These
methodologies
require


that
the
project
demonstrate
its
“additionality”
or
emissions
reductions
in
excess
of
those


that
would
otherwise
occur
under
a
baseline


scenario.
http://cdm.unfccc.int/methodologies/DB/


UJW6WTG49X4VYQZK8U4TC8YWY51U1Y/view.html


−

Voluntary
carbon
markets
each
have
their
own
standards.
For
example:


❍ CCX
Offset
Project
Registration,
Verification
&


Crediting
Procedure:
www.chicagoclimatex.com/


content.jsf?id=104


10
Primary
CDM
transactions
refer
to
the
first
sale
of
CERs
from
the
project


owner
to
the
buyer.
Secondary
CDM
transactions
refer
to
subsequent
sales


of
primary
CERs.


❍ International
Organization
for
Standardization


(ISO)14064
Standards:


Part
1:
www.iso.org/iso/catalogue_


detail?csnumber=38381


Part
2:
www.iso.org/iso/catalogue_


detail?csnumber=38382


Part
3:
www.iso.org/iso/


catalogue_detail?csnumber=38700


❍ Voluntary
Carbon
Standard
(VCS):
www.v­c­s.org/


documents.html


•

Ownership
of
credits.
In
order
to
buy
or
sell
credits,
proof


of
ownership
must
be
demonstrated
and
legally
transferred


to
the
other
party
following
the
transaction.
Under
most


circumstances,
credit
ownership
will
be
recorded
under
the


appropriate
trading
mechanism
(e.g.,
CDM,
EU
ETS,
CCX)


but
in
the
absence
of
clear
reporting
(i.e.,
OTC
markets),


a
contract
specifying
ownership
of
the
resultant
carbon


credits
should
be
obtained.


•

 Process
for
validating/verifying
credits.
The
validation
of


carbon
credits
has
become
increasingly
important.
This
also


requires
having
an
acceptable
methodology
and
third­party


verifi
ers.
These
mechanisms
allow
the
market
to
impose


some
discipline
by
ensuring
that
credits
are
valid.


11
−

Regulated
markets:
There
have
been
substantial


delays
in
validating
and
verifying
CDM
projects,
in


particular.11
These
delays,
in
turn,
slow
the
issuance


of
CERs,
which
might
affect
project
financing
and


implementation.


−

Voluntary
markets:
Third­party
verification
has
become


prominent.
More
than
87
percent
of
credits
in
the


OTC
voluntary
markets
in
2007
were
verified
by
a


third
party.12


•

 Post­2012
uncertainty.
In
the
absence
of
a
global
trading


regime,
it
is
unclear
how
the
carbon
credit
markets
might


fair
in
the
post­Kyoto
period
(i.e.,
after
2012).
Financial


institutions
might
not
be
willing
to
invest
in
projects
for


which
there
is
limited
or
no
future
liquidity.
However,


national
governments,
multilateral
funds,
and/or
other


investors
with
mandates
for
alternative
investments
(e.g.,


venture
capital,
hedge
funds)
might
continue
to
pursue


carbon
credits
beyond
2012
if
certain
guarantees
can
be


secured
(e.g.,
future
“market
price,”
forward
contracts).


11
World
Bank’s
State
and
Trends
of
the
Carbon
Market
2008
 12
Ecosystem
Marketplace
and
New
Carbon
Finance,
2008


VAM	Mitigation:	Cutting	Edge	Technologies	Convert	Methane	Emissions	to	Income	

In
September
2007,
the
world’s
first
commercial­scale
power
plant
using
VAM
as
the
primary
fuel
went
into
full
operation
at
the


West
Cliff
Colliery
of
BHP
Billiton
in
Australia.
The
plant
generates
6
megawatts
(MW)
of
electricity
and
reduces
GHG
emissions


by
250,000
tonnes
of
carbon
dioxide
equivalent
(tCO2

e)
each
year,
thereby
allowing
BHP
Billiton
to
convert
the
reductions
into


corresponding
carbon
credits.
Use
of
this
extremely
lean
fuel
is
made
possible
by
a
patented
combination
of
emission
control
and


steam
cycle
technologies
developed
by
MEGTEC
Systems,
a
Methane
to
Markets
Project
Network
member.
By
using
its
flameless


VOCSIDIZER®
regenerative
thermal
oxidizer
(RTO)
as
an
energy
source,
MEGTEC
generates
high
grade,
super­heated
steam
from


a
fuel
with
0.9
percent
methane
content.
This
project
is
the
culmination
of
technology
demonstrations
conducted
in
Australia
and


the
United
Kingdom.
The
VOCSIDIZER®
has
also
been
demonstrated
in
the
United
States
at
a
CONSOL
Energy
mine.
The
West
Cliff


facility
received
financial
assistance
from
the
Australian
Greenhouse
Office
Greenhouse
Abatement
Programme.


Biothermica
Technologies
Inc.,
a
Methane
to
Markets
Project
Network
member,
announced
in
April
2009
that
its
VAMOXTM
CMM


abatement
system
is
fully
operational
at
Jim
Walter
Resources’
mine
no.
4
in
Brookwood,
Alabama.
For
the
first
time
in
the
United


States,
VAM
is
being
destroyed
at
an
active
coal
mine,
all
the
while
generating
bankable
carbon
credits.
Biothermica
will
use


its
VAMOXTM
RTO
to
mitigate
VAM
as
it
is
released
to
the
atmosphere,
creating
income
by
selling
carbon
credits
from
the
VAM


destruction.
Approved
by
the
U.S.
Mine
Safety
&
Health
Administration
(MSHA),
this
medium­size
unit
will
achieve
GHG
emission


reductions
amounting
to
approximately
40,000
tCO2

e
annually,
the
same
as
removing
8,000
cars
from
the
road.
Biothermica


plans
to
develop
additional
VAM
oxidation
projects
around
the
world
under
various
GHG
reduction
schemes.


12
RISK
MITIGATION
SUPPORT



Raising
debt
and
equity
to
finance
projects
in
developing


countries
can
be
challenging.
There
are
a
number
of
risk
mitigation
instruments
that
facilitate
raising
private
capital
in
these


markets.
These
instruments
are
designed
to
transfer
certain


defined
risks
from
lenders
and
equity
investors
to
creditworthy


third
parties
such
as
guarantors
or
insures.
Multilateral
institutions
(such
as
the
World
Bank,
Asian
Development
Bank,


Inter­American
Bank),
export
credit
agencies
(e.g.,
U.S.
ExportImport
Bank,
Japan
Bank
for
International
Cooperation,
Export


Development
Canada),
and
political
risk
insurers
(e.g.,
Overseas


Private
Investment
Corporation,
Nippon
Export
and
Investment


Insurance,
United
Kingdom’s
Export
Credit
Guarantee


Department)
provide
different
types
of
risk
mitigation
support.


The
CMM
project
sponsor
that
possesses
a
thorough
knowledge


of
these
instruments
and
practices
will
be
better
prepared
to


negotiate
with
potential
financiers
and,
ultimately,
is
more
likely


to
succeed
in
attracting
capital.


Loan	Guarantees	

In
order
to
reduce
political
risk
exposure
associated
with
cross


border
lending,
banks
or
other
lending
institutions
might
require


a
loan
guarantee
to
ensure
timely
repayment.
A
loan
guarantee
is
a
promise
of
an
acceptable,
creditworthy
party
to
repay


all
or
part
of
the
loan
in
the
event
(or
under
certain
specified


circumstances)
that
the
borrower
does
not
or
is
unable
to
repay


the
loan.
In
limited
recourse
project
finance,
project
developers


rarely
provide
guarantees
of
loan
repayment,
although
partial


guarantees
under
specified
circumstances
(such
as
construction


completion)
do
occur.
Loan
guarantees
are
typically
provided
by


national
governments
interested
in
catalyzing
economic
activity


in
their
areas
(see
text
box).
Depending
on
the
credit
quality


of
the
guarantor,
these
guarantees
reduce
the
loan
default
risk


which
in
turn
reduces
the
interest
rate
on
the
loan.


Some
financial
institutions
have
standardized
loan
application
forms
that
potential
borrowers
complete.
Most,
if
not
all,


institutions
will
expect
the
borrower
to
present
a
business
plan


(i.e.,
project
documents
and
technical
studies).
Appendix
E


provides
a
checklist
of
the
typical
lending
terms
and
conditions


that
financial
institutions
might
use
in
evaluating
CMM
projects.


This
document
should
provide
the
CMM
project
developer
with


a
good
sense
of
the
information
required
before
approaching
a


fi
nancial
institution.


Risk	Reduction	Assistance	

Certain
institutions
offer
financial
assistance
to
reduce
the


risks
that
domestic
companies
might
face
when
exporting


their
products
or
services
abroad.


•

 The
Export–Import	Bank	of	the	United	States	

(Ex–Im	Bank)
provides
long­term
loans
and
guarantees,
working
capital
guarantees,
and
political
risk


insurance
tied
to
the
sale
of
U.S.
goods
and
services.


It
also
offers
certain
special
financial
terms
to
companies
that
export
environmental
goods
to
foreign


companies
that
are
unable
to
obtain
traditional


financial
support.
www.exim.gov


•

 The
Overseas	Private	Investment	Corporation	

(OPIC)
helps
U.S.
businesses
invest
overseas
by
offering
support
to
mitigate
these
risks.
OPIC
provides


a
range
of
traditional
finance
resources,
such
as


loans
and
guarantees.
In
addition,
it
offers
political


risk
insurance
products
for
cross­border
lending
or


investing
in
emerging
markets.
www.opic.gov


•

As
a
member
of
the
World
Bank
Group,
the


Multilateral	Investment	Guarantee	Agency	

(MIGA)
promotes
foreign
direct
investment
into


developing
countries
to
help
support
economic


growth,
reduce
poverty,
and
improve
people’s
lives.


MIGA
addresses
investment
concerns
and
political


risk
perceptions
by
providing
political
risk
insurance,


technical
assistance,
and
dispute
mediation
services


to
help
remove
obstacles.
www.miga.org


Political	Risk	and	Credit	Insurance	

Risk
mitigation,
in
the
form
of
political
risk
insurance
or
credit
insurance,
is
offered
by
public
(multilateral
and
bilateral
development


institutions
­
see
text
box
above)
and
private
insurance
companies.


It
is
often
used
in
international
project
fi
nance
transactions
and
is


available
to
both
lenders
and
equity
investors.
Political
risk
insurance
typically
covers
the
following
risks:
inconvertibility
and
transferability
of
foreign
currency,
expropriation
and
nationalization,


political
violence
and
breach
of
contract.
Credit
insurance
covers


losses
in
the
event
of
a
debt
service
default
regardless
of
the
cause


(i.e.,
covering
both
political
and
commercial
risks)
and
is
often
used


when
a
government
entity
is
the
off­taker
of
the
product.


13
CONCLUSION



A
host
of
finance
and
revenue
sources
are
available
to
CMM


project
developers
worldwide.
By
tapping
the
appropriate
sources,
funding
can
be
secured
for
all
phases
of
the
project
development
cycle,
from
prefeasibility
studies,
to
technical
specification


development,
to
pilot/demonstration
studies
and
full
implementation.
The
finance
organizations
and
opportunities
outlined


in
this
guide
contribute
to
the
project
development
process
in


several
ways.
Some
provide
risk
reduction
products
to
mitigate
a


technology
or
service
provider’s
concerns
about
entering
foreign


markets.
Others
provide
lending
and
related
financial
assistance


for
projects
that
offer
environmental
benefits
and
contribute


to
sustainable
development
and
poverty
alleviation.
Still
others
purchase
carbon
credits
and
thereby
could
supplement
a


project’s
cash
flow.
The
preceding
examples
demonstrate
that
by


mixing
equity
investment
with
financing
available
from
a
variety


of
sources,
project
developers
can
support
even
the
largest


CMM
development
projects.


14
APPENDIX
A:
CMM


PROJECT
PARTICIPANTS


Construction	and	Operations	Risks	

Developer	 Responsible
for
conceptualizing,
assessing,
developing,
and
implementing
a
project.
Identifies
project


opportunities
and
then
completes
or
delegates
project
development
tasks.
Leads
the
project
through
all


phases,
which
include
project
development,
financing,
construction,
and
operation.
May
be
independent


of,
a
partner
with,
or
the
same
as,
the
mine
operator.


Mine	Operator	 A
critical
participant
and
at
a
minimum,
supplies
the
site
and
fuel
to
the
project.
Projects
using
coal


mine
methane
(CMM)
are
located
at
the
host
coal
company’s
mine,
typically
employing
the
mine’s
degasification
system.
Projects
might
take
place
prior,
during
or
after
mining,
depending
on
the
technology


employed.
Often
plays
a
much
more
extensive
role.
At
most
existing
CMM
projects
in
the
United
States,


also
functions
as
project
developer.


Regulatory	Agencies	 Provide
permits
and
approvals
in
the
United
States,
including:
U.S.
Mine
Safety
and
Health


Administration
(the
mine
operator
must
file
a
degasification
plan
as
an
amendment
to
the
mine
ventilation
and
dust
control
plan);
state
mining
authority;
state
oil
and
gas
agency;
and
state
environmental


or
natural
resources
department.
On
U.S.
federal
lands,
the
Bureau
of
Land
Management
deals
with


coal/gas
leases,
and
the
U.S.
Forest
Service
deals
with
surface
access
rights
on
restricted
lands
(e.g.,


Inventoried
Roadless
Areas).
The
developer
might
also
need
permits
for
rights
of
encroachment
on
the


land
owner’s
property
and
for
potential
environmental
impacts
related
to
pipeline
rights­of­way,
water


treatment,
and
combustion
related
to
gas
processing.
Most
permits
require
that
the
developer
file


detailed
project
plans,
designs
for
underground
and
surface
equipment,
and
land
surveys.


System	Supplier	 Provides
the
systems
that
convert
raw
gas
to
pipeline
quality
gas
or
electric
and
thermal
energy
that


might
require
more
than
the
off­the­shelf
compressors,
pipes,
and
meters
that
the
mine
operator
or


developer
can
install.
The
viability
of
a
project
depends
on
the
system
and
its
supplier’s
guarantees
and


therefore
is
considered
a
major
project
participant.
Vendors
will
often
sell
a
system
on
a
“turnkey
basis,”


where
the
vendor
is
responsible
for
the
installation
and
performance
of
the
entire
system.
Often
investors


will
insist
that
the
system
supplier
retain
system
ownership
until
rigorous
performance
testing
is
completed.
Suppliers
may
extend
their
warranties
through
the
project
life
by
means
of
a
maintenance
contract.


Project	Contractor	 Responsible
for
the
design,
procurement,
construction,
and/or
installation
of
CMM
project
equipment.


Either
possesses
all
necessary
capabilities
in­house,
or
will
enter
into
subcontracting
arrangement


with
other
firms.
Some
contractors,
in
conjunction
with
a
system
supplier,
will
provide
a
project
facility
on
a
guaranteed
turnkey
basis,
assuming
responsibility
for
the
project’s
completion
and
operational


performance.


Project	Operator	 Responsible
for
cost­effective
delivery
of
the
energy
product
throughout
the
life
of
the
project.
Performs


management
functions,
as
well
as
the
operation
and
maintenance
(O&M)
of
the
system,
typically
on
a


contractual
basis
with
the
project.
Can
be
a
separate
third­party
firm
under
contract
to
the
project
owners,
or
one
of
the
other
participants.
Major
maintenance
is
usually
the
function
of
the
system
supplier.


Energy	Product	

Buyer	

Provides
the
CMM
project’s
revenues.
Buyers
include
electric
utilities,
local
gas
distribution
companies,


gas
wholesalers/blenders,
major
gas
pipelines,
and
local
fuel
users
(e.g.,
boilers,
kilns).
The
mine
itself


could
take
delivery
of
CMM
project
electricity,
thermal
energy,
or
raw
gas
to
power
onsite
equipment.
In


order
to
obtain
financing
for
the
project,
the
project
must
contract
with
the
energy
product
buyer
for
a


period
not
less
than
the
term
of
the
senior
debt,
plus
a
2­3
year
“tail.”


Financial	

Institutions/Carbon	

Financiers	

Fill
multiple
roles,
from
arranging
to
providing
the
financing
for
the
project.


15
APPENDIX
B:
KEY
ELEMENTS
OF


FEASIBILITY
STUDIES
AND
U.S.


GOVERNMENT
SUPPORT


A
comprehensive
feasibility
study
includes
the
following
key


elements:


•

A
summary
of
mine
characteristics
based
on
information


from
the
pre­feasibility
study
(PFS)
and
site
visit(s).


•

A
detailed
assessment
of
available
gas
resources
based


on
historical
gas
emissions
from
the
mine,
data
on
in
situ


gas
content,
and
plans
for
future
mine
activities.
This
element
might
include
pilot
well
tests.


•

A
detailed
assessment
of
degasification
technologies
and


mine
drainage
techniques,
both
those
currently
in
place


and
those
that
could
be
added
to
maximize
the
quality


and
quantity
of
drained
gas.


•

A
detailed
assessment
of
technical
possibilities
to
use
the


gas
based
on
its
quality,
the
overall
project
objectives,


and
the
PFS
results.
End
uses
to
be
considered
include


power
generation,
gas
sales
to
pipeline
(with
or
without


upgrade),
coal
drying,
and
mine
heating.


•

A
detailed
assessment
of
market
opportunities
for
gas


and/or
power,
including
factors
such
as
the
distance
to


nearby
pipelines,
the
current
and
projected
market
price


of
gas,
the
demand
for
and
price
of
power
generation
in


the
area,
and
the
possibility
of
carbon
credits.


•

A
detailed
assessment
of
proposed
project
costs
for
the


project
scenarios
of
interest,
using
estimates
and
financial


projections.
These
are
based
on
best­available
estimates


from
technology
vendors
and
technical
experts.


•

A
detailed
assessment
of
site­specific
legal,
regulatory,


and
environmental
issues,
including
the
status
of
gas


ownership
rights,
any
issues
associated
with
access


to
surface
lands
for
degasification
systems,
and
other


restrictions
on
the
potential
project
(e.g.,
wetlands


infringement).


•

A
detailed
cost–benefit
analysis
for
each
technically
viable
scenario
based
on
the
market
assessment
and
the


overall
project
objectives.


•

A
conclusion
section
that
includes
an
assessment


of
the
project’s
overall
viability,
whether
financial


investment
should
be
made,
and
any
other
appropriate


recommendations.


The
following
U.S.
government
agencies
provide
assistance


for
determining
project
feasibility,
ranging
from
pre­feasibility


studies
to
comprehensive
feasibility
studies
and
technology



demonstration
projects.


•	 U.S.	Trade	and	Development	Agency	(USTDA)	

provides
funding
to
facilitate
the
export
of
U.S.


technologies,
products,
and
services
to
developing
and


transitional
countries.
Applications
for
USTDA
feasibility


study
grants
and
technical
assistance
grants
can
be


submitted
via
two
mechanisms:
1)
sole
source
by
a


U.S.
company
partnering
with
a
project
abroad,
or
2)


competitive
bidding
by
a
foreign
grantee.
USTDA
has


provided
grant
funding
to
assess
the
feasibility
of
several


coal
mine
methane
(CMM)
projects.
For
instance,
USTDA


funded
a
study
of
potential
ventilation
air
methane


(VAM)
utilization
projects
in
Poland.
It
has
also
supplied


the
grant
funding
for
project
design
and
related
planning


at
the
Jincheng
Anthracite
Coal
Mining
Group’s
Sihe


Mine
in
Shanxi,
China,
which
involves
a
120
megawatts


(MW)
CMM­based
power
generation
project.
Recently,


the
agency
provided
about
US$500,000
in
grant
funding


for
a
feasibility
study
of
CMM
development
potential
in


Ukraine.
www.ustda.gov


•		U.S.	Agency	for	International	Development	

(USAID),
as
part
of
its
Methane
to
Markets
commitment,


offers
funding
support
for
methane
mitigation
projects.


USAID
missions,
such
as
those
in
India
and
Ukraine,


have
offered
Global
Development
Alliance
(GDA)


funding
support
to
energy
industry
representatives,


research
and
academic
groups,
financial
institutions,
and


nongovernmental
organizations
to
assist
in
promoting


methane
capture
and
productive
use.
One
of
their
key


activities
has
been
a
technology
demonstration
project
of


in­mine
drilling
and
methane
degasification
at
a
Ukraine


coal
mine).
www.usaid.gov


•		U.S.	Environmental	Protection	Agency	(U.S.	EPA)	

has
funded
a
number
of
CMM
project­level
technology


demonstration
projects,
pre­feasibility
studies
(PFS),
and


comprehensive
feasibility
studies
(FS).
Domestically,
the


U.S.
EPA
has
worked
with
the
U.S.
Department
of
Energy


to
support
a
demonstration
project
of
VAM
technology.


16
As
part
of
its
support
for
the
Methane
to
Markets


Partnership,
U.S.
EPA
has
also
funded
a
number
of
pre­


and
comprehensive
feasibility
studies
overseas,
including


these
activities
in
the
following
partner
countries:


−

China:
Three
comprehensive
feasibility
studies
of


CMM
projects;
a
PFS
of
VAM
mitigation;
and
a
technology
demonstration
of
VAM
technology.


−

India:
A
PFS
of
VAM
mitigation
at
two
mines.


−

Mexico:
A
demonstration
project.


−

Mongolia:
A
PFS
at
an
underground
coal
mine.


−

Nigeria:
A
PFS
at
an
underground
coal
mine.


−

Poland:
A
pre­feasibility
assessment
of
10
mines
for


VAM
mitigation
and
a
technology
demonstration.


For
more
information
on
U.S.
EPA’s
activities,
visit:
www.epa.


gov/cmop.


17
APPENDIX
C:
CMM


PROJECT
FUNDING
SOURCES


Types	of	Financiers	 Risk/Return	Portfolios	 Specialized	Investment	

Areas	

Current	Status	

Commercial	Banks	

Commercial
banks
profit


by
lending
money
at
higher


Because
banks
are
generally


conservative,
they
apply
risk


interest
rates
than
they
pay


on
deposits.
Banks
might


provide
short­,
medium­,


minimization
techniques.
A
project


developer
seeking
bank
financing


therefore
must
be
prepared
to


and
long­term
corporate


and
project
finance
loans
at


a
margin
or
spread
over
a


show
the
bank’s
loan
officer
all


important
project
contracts;
a


credible,
independent
project


benchmark
rate
such
as
the


London
Interbank
Offered


Rate.


technical
assessment;
and
pro


forma
financial
statements


demonstrating
the
project’s
ability


to
service
debt.
The
developer
also


should
be
prepared
to
discuss


its
own
project
development


experience
and
creditworthiness,


as
well
as
project
assets
that


could
serve
as
collateral.


Because
banks
are
regulated
at


the
federal
and/or
state
levels
and


are
legally
restricted
from
making


risky
loans,
they
are
conservative


lenders,
generally
providing
senior,


secured
loans
to
experienced


entities.
They
typically
do
not
fund


projects
in
their
development


stages,
preferring
to
wait
until


projects
are
well­characterized.


Bank
financing
has
been


used
to
fund
large­scale


coal
mine
methane
(CMM)


projects
that
require
major


capital
investments
in


both
gas
recovery
systems


and
collection/utilization


components.
Few,
if
any,


smaller
CMM
projects
have


been
bank­financed,
however,


because:


•
 Most
banks
are
unfamiliar


with
the
CMM
project


market.


•
 Smaller
projects
frequently


are
not
profitable
for
banks,


even
when
expected
pricing


is
high,
due
to
the
bank’s


costs
for
examining
and


processing
the
transaction.


CMM
projects
are
not


inherently
“unbankable,”


despite
the
lack
of
bank


participation
thus
far.
They


are
generally
supported


by
strong
contracts,
earn


sufficiently
high
rates


of
return,
and
employ


a
resource
that
is
wellcharacterized.
The
latter
point


is
especially
true
in
the
case


of
use
projects
at
mines
with


degasification
systems.
If


banks
find
a
CMM
project
of


an
acceptable
size
and
are


willing
to
lend
on
a
project


finance
basis,
they
could
play


a
more
significant
role
once


they
have
greater
familiarity


with
the
industry.
Banks


located
near
gas
resources


might
be
good
candidates


because
they
are
more
likely


to
have
experience
with
the


gas
industry
and,
therefore,


be
more
comfortable
with


CMM
projects.


Gas	Purchasers	

Gas
pipeline
companies
and
 These
companies
often
face
 Gas/purchase
sale
contracts
 Gas
companies
to
date
have


gas
distribution
companies
 “make
or
buy”
decisions:
will
it
be
 can
be
negotiated
between
 played
a
significant
role
in


are
potential
sources
of
 more
profitable
to
buy
or
develop
 the
CBM
project
and
the
gas
 financing
CBM
projects.


capital
for
CMM
projects
 gas
resources?
By
developing
 company
such
that
the
project


because
they
are
interested
 CMM
and
other
gas
projects,
 is
profitable
and
the
gas


in
securing
low­cost
supplies
 they
might
be
able
to
ensure
 company
pays
a
relatively
low


of
gas.
 themselves
long­term,
low­cost
 price
for
gas.


supplies.


18
Types	of	Financiers	 Risk/Return	Portfolios	 Specialized	Investment	

Areas	

Current	Status	

Venture	Capitalists	

Venture
capitalists
usually


invest
in
convertible


preferred
stock
because
this


instrument
greatly
increases


upside
potential.


Because
venture
capitalists


provide
risk
capital
to
fledgling


ventures
that
often
have
nothing


more
than
ideas,
many
of
their


investments
are
unsuccessful.
In


exchange
for
bearing
this
risk,


venture
capitalists
expect
to
earn


unusually
high
returns—in
the


range
of
40
percent
after
taxes.


Venture
capitalists
specialize


in
funding
startup
companies,


including
those
that
develop


energy
technologies.
They
might


not
be
suitable
investment


partners
for
small
CMM
project


developers,
however,
because


they
invest
in
companies
rather


than
projects
and
given
the


active
role
they
take
in
running


companies.
CMM
project


developers
that
partner
with


venture
capital
firms
might


have
to
be
willing
to
cede
some


control
of
their
companies.


In
recent
years,
venture


capital
investments
have


been
rushing
toward


clean
or
alternative
energy


technologies.13
According


to
the
United
Nations


Environment
Programme


(UNEP),
sustainable
energy


venture
capital
and
private


equity
investment
were
up


more
than
30
percent
in
the


second
quarter
of
2008
in


comparison
with
the
same


period
in
2007.14


Pension	Funds,	Insurance	Companies,	and	Other	Institutional	Investors	

Pension
funds,
mutual
funds,


and
other
institutional


investors
are
large,
regulated


companies
that
pool
money


provided
by
smaller
investors


and
then
make
investments.


They
control
billions
of


dollars
of
U.S.
investment


funds.


Most
institutional
investors
are


strictly
bound
by
U.S.
Securities


and
Exchange
Commission
(SEC)


laws
and
their
own
covenants


and
restrictions,
which
dictate
the


types
of
investments
the
investors


might
make.


Almost
all
money
under


institutional
management


must
be
invested
in
highly


rated,
publicly
traded
stocks,


bonds,
and
other
highly
liquid


securities.


Institutional
investors
have


limited
appetite
for
projects


and,
therefore,
generally


do
not
represent
potential


capital
sources
for
CMM


projects.


Investment	Bankers	

Investment
bankers
provide


a
wide
variety
of
financial


services
(e.g.,
advice
on


corporate/project
financing


alternatives;
arrange
debt/


equity
public
offerings
and


private
placements;
assist


in
transactions
such
as


mergers,
acquisitions,
and


divestitures).


Investment
bankers
have


minimum
size
requirements
and


are
unlikely
to
be
interested
in


project
financing
less
than
$25­50


million.
They
might,
however,
be


able
to
place
equity
with
private


investors.


Investment
bankers
could


be
useful
to
CMM
projects


because
they
are
able
to


identify
investors
interested


in
investing
in
oil
and
gas


projects,
not
bound
by


investment
restrictions,
and


able
to
invest
in
smaller


projects.
Investment
banks
also


might
be
able
to
help
project


developers
identify
suitable


partners
such
as
oil
and
gas


exploration
companies.


To
date,
a
number
of
CMM


projects
have
been
financed


through
private
investments.


Numerous
investment
banks


have
arranged
CMM
project


financing,
while
others,


although
they
have
not
been


involved
in
CMM
projects,


have
worked
with
energy


project
developers
and
are


interested
in
assisting
CMM


projects.


13
Wald,
Matthew
L.
“Venture
Capital
Rushes
into
Alternative
Energy.”
The
New
York
Times.
April
30,
2007.
www.nytimes.com/2007/04/30/business/


30energy.html?_r=1&oref=slogin


14
UNEP.
“Clean
Energy
Investments
Charge
Forward
Despite
Financial
Market
Turmoil.”
June
2008.
www.unep.org/Documents.Multilingual/


Default.asp?DocumentID=538&ArticleID=5849&l=en


19
Types	of	Financiers	 Risk/Return	Portfolios	 Specialized	Investment	

Areas	

Current	Status	

Multilateral	Sources	(Examples)	

•
 The
Asian
Development
 •
 ADB
provides
projects
 •
 ADB
has
been
a
sigBank
(ADB),
a
multilater­ with
technical
assistance,
 nificant
supporter
of
the


al
development
organi­ grants,
and
loans.
In
recent
 world’s
largest
CMMzation,
strives
to
improve
 years,
ADB
has
focused
on
 based
power
generation


the
social
welfare
of
 supporting
clean
energy
 project
at
the
Jincheng


people
in
the
Asia
and
 projects
under
its
Energy
 Coal
Mining
Authority’s


Pacifi
c
regions.
 2000
policy,
which
seeks
to
 Sihe
Mine
in
Shanxi
Prov­

•
 The
Global
Environment
 reorient
the
energy
sector
 ince,
China.


Facility
(GEF)
works
 in
member
countries
to
 •
 Jincheng
project
cash
flow


through
three
imple­ address
regional
and
global
 also
will
be
supplemented


menting
agencies—the
 environmental
effects.
 by
the
sale
of
carbon


World
Bank,
the
United
 www.adb.org
 credits
(4.5
tCO2

e)
to
the


Nations
Development
 •
 The
GEF
Operational
 World
Bank’s
Prototype


Programme
(UNDP),
and
 Strategy
requires
that
any
 Carbon
Fund.


the
UN
Environment
 GEF­funded
activity
relating
 •
 IFC
has
successfully
conProgramme
(UNEP)—to
 to
climate
change
be
fully
 cluded
an
agreement
to


provide
cost­sharing
 compliant
with
the
direc­ purchase
credits
via
ING


grants
and
concessional
 tives
of
the
UN
Framework
 Bank
from
a
project
that


funding
to
help
develop­ on
Climate
Change
Con­ generates
power
using


ing
countries
fund
proj­ vention
(UNFCCC).
www.
 methane
captured
from


ects
and
programs
that
 gefweb.org
 coal
mines
in
Ukraine.


protect
the
environment,
 •
 Projects
that
are
smaller


such
as
climate
change
 than
the
World
Bank’s


mitigation
projects.
 preferred
minimum
lending


•
 The
World
Bank
provides
 threshold
of
~US$50
million


funding
for
projects
that
 may
be
bundled
with
other


are
consistent
with
its
 development
activities
to


mission
to
fight
poverty
 construct
a
finance
packand
improve
the
living
 age
of
adequate
size.
www.


standards
of
people
in
 worldbank.org


the
developing
world.
 •
 EBRD
and
the
European


The
International
Finance
 Investment
Bank
(EIB)


Corporation
(IFC),
the
 established
the
Multilateral


private
sector
arm
of
 Carbon
Credit
Fund
(MCCF)


the
World
Bank
Group,
 to
assist
its
27
member


provides
financing
for
 countries
in
securing
carbon


a
variety
of
sustainable
 emission
reductions
for


energy
and
climate
 eligible
projects.
Although


change
mitigation
ven­ it
does
not
specifically


tures.
IFC
financing
can
 mention
methane
emission


include
both
debt
and
 reduction,
it
does
supequity
finance
of
private
 port
fuel­switching
from


ventures.
 carbon­intensive
(e.g.,
coal,


•
 The
European
Bank
for
 heating
oil,
oil
shale)
to
less


Reconstruction
and
De­ carbon­intensive
fuels
such


velopment
(EBRD)
uses
 as
natural
gas.


investment
tools
to
help
 www.ebrd.com


build
market
economies


and
democracies
in
countries
from
central
Europe


to
central
Asia.


20
Types	of	Financiers	 Risk/Return	Portfolios	 Specialized	Investment	

Areas	

Current	Status	

Bilateral	Sources	(Examples)	

The
Japanese
Bank
for


International
Cooperation


(JBIC),
as
the
international


wing
of
the
Japan


Finance
Corporation


(JFC),
contributes
to
the


sustainable
and
sound


development
of
the


international
and
Japanese


economies.


JBIC
provided
$20
million


in
loan
financing
for
the


Jincheng
project
above.


JBIC
also
recently
signed


a
memorandum
of


understanding
(MOU)
with


The
Energy
and
Resources


Institute
(TERI)
of
India
in


the
development
of
GHG


reduction
projects
in
India.


www.jbic.go.jp/en/index.html


Electric	Utilities	

Historically,
electric
utilities


have
been
required
to


purchase
power
from


independent
power


producers
(IPPs)
with


“qualifying
facility”
status


(for
which
many
CMM


projects
would
be
eligible).


While
competition
in
the


electricity
industry
has


reduced
IPP
business
to


some
extent,
it
also
might


create
increased
electric


utility
interest
in
the
CMM


market.


This
strategy
serves
two
strategic


purposes
(in
addition
to
the


retention
of
a
large
customer).


First,
by
taking
a
customer
“offline,”
the
utility
will
reduce
the


burden
on
its
own
transmission


and
distribution
system,
thereby


enabling
the
utility
to
defer


significant
investment.
This
type


of
saving
could
be
important
in


a
more
competitive
environment.


Second,
taking
a
large
load
offline
also
will
free
up
the
utility’s


own
generating
capacity
so
that
it


will
be
able
to
compete
for
more


business
in
new
markets.


Increased
competition
means


that
utilities
will
have
to
find


creative
new
ways
of
serving


the
energy
needs
of
customers.


This
is
where
CMM
projects


might
be
valuable:
The
utility


might
find
that
the
best
way
to


retain
a
client
is
to
provide
the


client
with
the
equipment
and


financing
they
need
to
selfgenerate.
The
utility
thus
would


earn
profits
by
financing
and


selling
equipment,
providing


O&M
services,
and
selling


backup
power,
rather
than


through
the
traditional
method


of
selling
kilowatt­hours.


Under
a
more
competitive


industry
structure,
all
utilities


will
be
looking
to
develop


low­cost
electricity
sources


wherever
they
might
find


them.
CMM
projects
might


represent
relatively
low­cost


generating
sources,
and
as


such
might
provide
a
way


for
higher
cost
utilities
to


compete
in
low­cost
regions.


Equipment	Vendors	/	Turnkey	Developers	

Some
equipment/


technology
vendors/


providers
are
also
planning


to
provide
full
turnkey


service,
including
carbon


financing
for
offsets/


emissions
avoided.


So
far,
VAM
mitigation
or


energy
recovery
technologies


are
the
first
in
this
market


niche.


For
example,
Biothermica


is
developing
a
project


using
their
VAM
oxidation


technology
at
a
JWR
mine


in
Alabama,
including
a


negotiated
deal
for
carbon


credits
(see
page
12).


21
Types	of	Financiers	 Risk/Return	Portfolios	 Specialized	Investment	

Areas	

Current	Status	

Carbon	Financing		

In
countries
that
are


participating
in
the
Kyoto


Protocol
(notably
China),


carbon
financing
is
an


important
source
of
project


revenue
and
is
closely


considered
part
of
the


overall
project
financing


and
economics.
In
the


United
States,
there
is
a


rapidly
emerging
voluntary


carbon
market
that
is


having
a
growing
impact
on


CMM
project
development.


Regulatory
(compliance)


markets:


•
 Kyoto
Protocol—Clean


Development
Mechanism


(CDM)
and
Joint
Implementation
(JI)


•
 Australia
New
South
Wales


(NWS)
Trading
Scheme


•
 European
Union
Emissions


Trading
Scheme
(EU
ETS)


Voluntary
markets:


•
 Chicago
Climate
Exchange


(CCX)
(voluntary
trade
&


cap);
currently
includes
two


U.S.
coal
mining
companies


as
participating
members


and
one
gas
company
(in












the
CBM/CMM
field)
as
an


offset
provider.


•
 Over­the­counter
(OTC)


offset/carbon
credit
scheme


involving
retailers,
wholesalers
or
 aggregators,
and


brokers.


Emerging
cap­and­trade


systems:


•
 Regional
Greenhouse
Gas


Initiative
(RGGI),
does
not


include
methane
at
this


point.


There
are
currently
55


projects
at
various
stages


in
the
CDM
pipeline
with


a
total
potential
for
121


million
tonnes
of
carbon


dioxide
equivalent
(MtCO2

e)


through
2012.
Two
other


CMM
projects
have
been


issued
certified
emission


reductions
(CERs)
totaling


638,000
tCO2

e.
In
the
U.S.


voluntary
market,
CMM
is


a
major
source
of
offset


credits,
accounting
for


approximately
30
percent
of


CCX
transactions.


22
APPENDIX
D:
RESOURCES



SELECTED	REFERENCES	

Carpoor,
K.
and
P.
Ambrosi.
State
and
Trends
of
the
Carbon


Market
2008.
Funded
by
the
World
Bank
Institute.
May
2008.


http://carbonfi
nance.org/docs/State_Trends_FINAL.pdf


Hamilton,
K.,
M.
Sjardin,
T.
Marcello,
and
G.
Xu.
Forging
a


Frontier:
State
of
the
Voluntary
Carbon
Markets
2008.
A
report


by
Ecosystem
Marketplace
&
New
Carbon
Finance.
May
8,
2008.


www.ecosystemmarketplace.com/documents/


cms_documents/2008_StateofVoluntaryCarbonMarket2.pdf


Kollmuss,
A.
(SEI­US),
H.
Zink
(Tricorona),
and
C.
Polycarp


(SEI­US).
Making
Sense
of
the
Voluntary
Carbon
Market:
A


Comparison
of
Carbon
Offset
Standards.
Published
by
WWFGermany.
Prepared
by
Stockholm
Environmental
Institute
(SEI)


and
Tricorona.
March
2008.
www.sei­us.org/wwf_


standcomp_080305%20_web.pdf


U.S.
Environmental
Protection
Agency
(U.S.
EPA).
A
Guide


to
Financing
Coalbed
Methane
Projects.
EPA430­B­97­001.


January
1997.
Contact
CMOP
to
obtain
a
copy.


U.S.
EPA.
Global
Anthropogenic
Non­CO2


Greenhouse
Gas


Emissions:
1990–2020.
EPA430­R­06­003.
June
2006.


www.epa.gov/climatechange/economics/downloads/


GlobalAnthroEmissionsReport.pdf


World
Bank
Carbon
Finance
Glossary
of
Terms,


http://go.worldbank.org/HZGVW3QN20


SELECTED	ORGANIZATIONS	

Chicago	Climate	Exchange	(CCX)
is
North
America’s
only


cap­and­trade
system
for
all
six
GHGs,
with
global
affiliates
and


projects
worldwide.
CCX
Members
are
leaders
in
GHG
management
and
represent
all
sectors
of
the
global
economy,
as
well
as


public
sector
innovators.
Reductions
achieved
through
CCX
are


the
only
reductions
made
in
North
America
through
a
legallybinding
compliance
regime
that
includes
independent,
thirdparty
verification.
www.chicagoclimatex.com


The
Climate	Action	Reserve	(Reserve)
is
a
national
501(c)


(3)
nonprofit
organization
representing
international
interests
in


addressing
climate
change
and
bringing
together
participants


from
the
government,
environment
and
business
sectors.
It


works
to
ensure
integrity,
transparency,
and
financial
value
in


GHG
emissions
accounting
and
reduction
and
the
progressive


GHG
emissions
policy
movement
nationally
and
in
the
western


United
States.
The
Reserve
is
parent
to
three
programs:
the


California
Climate
Action
Registry,
Climate
Action
Reserve,
and


Center
for
Climate
Action.
www.climateactionreserve.org


Climate	Leaders
is
a
U.S.
EPA
industry–government
partnership
that
works
with
companies
to
develop
comprehensive


climate
change
strategies.
Partner
companies
commit
to
reducing
their
impact
on
the
global
environment
by
completing
a


corporate­wide
inventory
of
their
GHG
emissions
based
on
a


quality
management
system,
setting
aggressive
reduction
goals,


and
annually
reporting
their
progress
to
U.S.
EPA.
Through
program
participation,
companies
create
a
credible
record
of
their


accomplishments
and
receive
U.S.
EPA
recognition
as
corporate


environmental
leaders.
www.epa.gov/climateleaders


The
Energy	Information	Administration	(EIA),
a
statistical


agency
of
the
U.S.
Department
of
Energy,
provides
policy­neutral


data,
forecasts,
and
analyses
to
promote
sound
policymaking,


efficient
markets,
and
public
understanding
regarding
energy


and
its
interaction
with
the
U.S.
economy
and
the
environment.


EIA
administers
the
Voluntary
Reporting
of
Greenhouse
Gases


Program,
established
by
Section
1605(b)
of
the
Energy
Policy
Act


of
1992,
which
provides
a
means
for
organizations
and
individuals
that
have
reduced
their
GHG
emissions
to
record
their


accomplishments
and
share
their
ideas
for
action.


The
Environmental	Markets	Association	(EMA)
is
the
premiere
trade
association
for
environmental
industry
professionals


who
are
active
or
interested
in
the
market­based
solutions
to


combat
pollution
and
create
a
sustainable
environment.
EMA


members
include
large
utilities,
emissions
brokers
and
traders,
consultants,
financiers,
members
of
the
press,
government


agencies,
nonprofit
organizations
and
academics.


www.environmentalmarkets.org


The
International	Emissions	Trading	Association	(IETA)	

is
a
nonprofit
business
organization
created
to
establish
a


functional
international
framework
for
trading
in
GHG
emission


reductions.
IETA’s
membership
includes
leading
international


companies
from
across
the
carbon
trading
cycle.
www.ieta.org


23
The
Pew	Center	on	Global	Climate	Change
brings
together


business
leaders,
policymakers,
scientists,
and
other
experts
to


bring
a
new
approach
to
a
complex
and
often
controversial
issue.


Pew’s
approach
is
based
on
sound
science,
straight
talk,
and
a
belief
that
multiple
entities
can
work
together
to
protect
the
climate


while
sustaining
economic
growth.
www.pewclimate.org


Under
partnership
between
the
World	Resources	Institute	

(WRI)	and
the
World	Business	Council	for	Sustainable	

Development	(WBCSD),
the
Greenhouse
Gas
Protocol
(GHG


Protocol)
is
the
most
widely
used
international
accounting
tool


for
government
and
business
leaders
to
understand,
quantify,


and
manage
GHG
emissions.
www.ghgprotocol.org


24
APPENDIX
E:
CMM
PROJECT
LENDING


EVALUATION
CHECKLIST


PROJECT	OVERVIEW	

•

Project
description


•

Business
plan


•

Project
financial
projections
including
all
assumptions


•

Description
of
principal
project
risks
and
risk



mitigation
analysis



•

 Financing
plan
with
detailed
sources
and
uses
of
funds


(e.g.,
equipment,
financing
costs)


−

Project
cost
breakdown


−

Evaluation
of
equity
or
collateral
contributed
(e.g.,


cash,
prepaid
development
expenses)


−

Leverage
(i.e.,
financing
provided
by
borrower
and


fi
nancing
requested)


•

Carbon
finance
plan
(if
applicable)


BORROWER	INFORMATION	

•

Corporate
documents
(e.g.,
Articles
of
Incorporation,


Partnership
Agreement,
LLC
Articles,
operating


agreement)


•

Relevant
experience
in
CMM
project(s)
and



related
technology



•

Resume(s)
of
project
development
staff


•

Audited
financial
statements
(e.g.,
balance
sheet,
income


statement,
cash
flow)
–
year­to­date,
plus
2­3
previous


years,
if
available


•

 Three­year
pro
forma
financial
statements
demonstrating
anticipated
results
or
expected
impact
of
proposed


transaction.


•

Corporate
tax
returns
(most
recent
2­3
years)
may
be


required
from
project
developer


PROJECT	FEASIBILITY	AND	CONTRACTUAL	

DOCUMENTATION	

•

Project
implementation
schedule,
showing
target
dates


for
achieving
essential
project
milestones


•

 Feasibility
studies,
technical
and
market
reports
(sufficient
to
demonstrate
project’s
technical
feasibility),
with


detailed
information
including
the
following:


−

Anticipated
gas
flow
rate
(e.g.,
billion
cubic
feet/day)


−

Projected
gas
quality
(i.e.,
percent
methane


and
range)


−

For
projects
at
active
coal
mines:

projected
mine
life,


description
of
mining
plan
(e.g.,
seams
to
be
mined,


planned
production
levels,
seam
depth)
including


mine
maps


−

Planned
end­use
for
CMM
and
documentation
about


projected
capital,
operating,
maintenance
costs,
and


expected
performance


•

Contractual
flow
chart
(i.e.,
project
participants



and
contracts)



•

Environmental
assessment


•

Description
of
project
contracts
(i.e.,
project
contracts


to
be
included
such
as
construction
contract),
especially


agreement
with
mine
owner
/operator
(for
projects
at
active
coal
mines),
and
all
agreements
with
surface
owners


and
documentation
of
rights
to
the
CMM.


•

Background
information
on
each
of
the
project
participants,
including
financial
information.


25
APPENDIX
F:
GLOSSARY



Additionality:	According
to
the
Kyoto
Protocol,
greenhouse


gas
emission
reductions
generated
by
Clean
Development


Mechanism
(CDM)
and
Joint
Implementation
(JI)
project
activities
must
be
additional
to
those
that
otherwise
would
occur.


Additionality
is
established
when
there
is
a
positive
difference


between
the
emissions
that
occur
in
the
baseline
scenario
and


the
emissions
that
occur
in
the
proposed
project.


*Broker/Trader:	A
party
that
mediates
between
a
buyer
and
a


seller
(e.g.,
for
the
sale
of
carbon
offsets).


Carbon	Finance:
Resources
provided
to
projects
generating


(or
expected
to
generate)
greenhouse
gas
(GHG)
(or
carbon)


emission
reductions
in
the
form
of
the
purchase
of
such
emission
reductions.


*Carbon	Financial	Instruments	(CFIs):	The
Chicago
Climate


Exchange
(CCX)
unit
of
trade,
which
can
be
issued
as
allowance­based
or
offset
credits.
One
CFI
represents
100
tonnes
of


carbon
dioxide
equivalent
(tCO2

e).


Certified	Emission	Reductions	(CERs):	A
unit
of
GHG


emission
reductions
issued
pursuant
to
the
CDM
of
the
Kyoto


Protocol,
and
measured
in
tonnes
of
carbon
dioxide
equivalent


(tCO2

e).
One
CER
represents
a
reduction
of
GHG
emissions
of


one
tCO2

e.


Clean	Development	Mechanism	(CDM):
The
mechanism


provided
by
Article
12
of
the
Kyoto
Protocol,
designed
to
assist


developing
countries
in
achieving
sustainable
development
by


permitting
industrialized
countries
to
finance
projects
for
reducing
GHG
emissions
in
developing
countries
and
receive
credit
for


doing
so.


*Discounted	Cash	Flow	Method:	The
sum
of
a
project’s
net


cash
flows
over
the
project’s
life
is
discounted
to
the
present


(i.e.,
the
net
present
value
[NPV]
of
the
project).
The
discount


rate
used
to
make
this
calculation
represents
the
investors’


cost
of
capital.
If
a
project’s
NPV
is
positive,
then
the
project
is


deemed
capable
of
yielding
the
minimum
required
return.


Emission	Reduction	Units	(ERUs):	A
unit
of
emission
reductions
issued
pursuant
to
JI.
This
unit
is
equal
to
one
tCO2

e.


European	Union	Allowances	(EUAs):	The
allowances
in
use


under
the
European
Union
Emissions
Trading
Scheme
(EU
ETS).


An
EUA
unit
is
equal
to
one
tCO2

e.


*Internal	Rate	of	Return	(IRR):
Discount
rate
at
which
the


NPV
of
the
project’s
net
cash
flow
is
zero.
In
other
words,
it
is


the
rate
that
equates
the
present
value
of
future
cash
flows


with
the
initial
capital
investment.
The
expected
IRR
on
a
project


can
be
compared
to
return
rates
on
alternative
investment


opportunities.


Joint	Implementation	(JI):
Mechanism
provided
by
Article
6


of
the
Kyoto
Protocol,
whereby
a
country
included
in
Annex
I
of


the
United
Nations
Framework
Convention
on
Climate
Change


(UNFCCC)
and
the
Kyoto
Protocol
might
acquire
Emission


Reduction
Units
when
it
helps
to
finance
projects
that
reduce


net
emissions
in
another
industrialized
country
(including
countries
with
economies
in
transition).


*Retailer:
Refers
to
parties
who
sell
relatively
small
amounts


of
carbon
offset
credits
to
individuals
or
organizations
and
have


ownership
of
a
portfolio
of
credits.


Renewable	Energy	Certifi	cates	(RECs):
Tradable
environmental
commodities
in
the
United
States
which
represent
proof


that
1
megawatt­hour
(MWh)
of
electricity
was
generated
from


an
eligible
renewable
energy
resource.


*Turnkey:	A
project
or
contract
that
provides
for
the
complete


design,
procurement
(of
equipment),
construction,
and
start­up


of
a
facility—by
a
date
certain—for
a
fixed
sum
and
at
guaranteed
performance
levels.


Verified	Emission	Reductions	(VERs):	A
unit
of
GHG
emission
reductions
that
has
been
verified
by
an
independent
auditor.
This
designates
emission
reductions
units
that
are
traded
on


the
voluntary
market.


Compliments
of
the
World
Bank
Carbon
Finance
Glossary
of
Terms
http://go.worldbank.org/HZGVW3QN20),
except
indicated
by
an
asterisk
(*).


26