Asia

Trading Carbon Assets

Asia Carbon Exchange Pte LtdA member of Asia Carbon Global

Basics of Emissions Trading

What options are most cost-effective?

Company A can reduce 1000 tons CO2e at $2/ton = $2000

Company B can reduce 1000 tons CO2e at $6/ton = $6000

Company A - Seller Company B - Buyer

1000 tons CO2e at $4/ton = $4000

SELL BUY

$2000 Profit $2000 Savings

Asia Carbon Global 2008 2

Carbon Market : Demand

Market Area Carbon Credit Shortage (in tons CO2) - (2008-12)

Japan 800,000,000

Canada 1,350,000,000

Europe 1,600,000,000

Total Short 3,750,000,000

However, fungibility of CERs will be limited by EU-LD, expressed in % of EU allowances, and differentiated in each EU country

Comparison of proposed vs. approved caps for 2008 to 2012

Source: Natsource & ACX

Source: EU

© Asia Carbon 2008

Carbon Market : Supply

Source :UNEP Risø Centre Sept 2008

Market Up to 2012 (Million tons CO2)

Up to 2020 (Million tons CO2)

CDM 2,744 6,527

JI(2008-2012)

292 -

© Asia Carbon 2008

CDM Update : UNFCCC

CDM Update : UNFCCC

Source :UNEP Risø Centre May 2008

Source :UNEP Risø Centre May 2008

Trade Figures

Primary CDM/JI Buyers

Asia and CDM Giants

India China

1046 projects 1377 projects

417 Mn CERs (15% of global carbon market & ~19% of Asia)

1464 Mn CERs (53% of Global carbon market & 67% of Asia )

76 Mn CERs per year (annual avg.) 294 Mn CERs per year (annual avg.)

Banking CERs Bilateral CERs

Flexible pricing China DNA floor price

Renewable Energy dominated HFC/ Landfill (CH4)/ Chemicals (N2O)

No tax on CERs Sliding scale tax on CERs (2-65%)

Global 2744 Mn CERs

Malaysia, Indonesia and Vietnam emerging significantly in Palm, Cement, Geothermal and Hydro sectors

Source :UNEP Risø Centre Sept 2008

Rest of Asia: Source of CERs

• Malaysia promoting only bilateral CDM projects (sectors : Palm and landfill)

• Indonesia emerging strong : Palm, Sago, Hydro, Geothermal, Biodiesel & Landfill

• Thailand :Sago, Biomass and landfill. Researched on trading unilateral CERs

• Vietnam : Hydro dominant and efficient DNA. Complexity in finalizing the country baseline scenario and Additionality

• Laos & Cambodia : Hydro dominant (one EE project registered : brewery!)

• Myanmar : recently notified DNA ! Keen to develop landfill, forestry and hydro projects – Asia Carbon involved

Carbon Trading: Unilateralism

Source :ACX - August 2008

Transactions

OTC (Over the counter) Transactions•The majority of volume of carbon trading still executed OTC•EUA trading well established; structured products

CERs are transacted throughout the origination cycle• pCERs (primary forwards): OTC broker, Auction• Secondary forwards(guaranteed): OTC brokers, Banks, Exchange• Spot : OTC brokers, Banks, Exchange, Auction• Derivatives: Listed futures; OTC

Trading and Exchanges : Fundamentals

• Making CERs a fungible commodity

• Price Discovery

• Transparency

• Distribution Network

• Competitive Transaction Costs

• Standardized Documentation

• Vintage based trading

• Level playing field

• Low procurement costs

• Product development

• Robust platform; Building trustworthy relationships

Regional Exchanges

Price Basis of the CER

• Percentage of the average weighted price of EUAs traded during a predetermined

period in the future.

• Percentage of EU Compliance Penalty Targets during each compliance period

2005-2007 & 2008-2012.

• Average current price offered on 1 on 1 ERPA negotiations

• Average price of CERs offered by national governmental programs globally.

• Average price of CERs offered by Carbon Funds

• China CERs Floor Price (€9 / CER)

Key Price Determinants

• CDM Risks

– Host country approval– Validation– Registration– ER vintage: pre or post 2012– Transaction cost– Liability for underperformance

• Other determinants

– Creditworthiness of project sponsor– Viability of underlying project– Physical status of project– Additional environment and social benefits

© Asia Carbon 2007

6-22 Euros per CER

• Only a PIN (or less) available• Project developing new methodology• No Host government approval • Poor Credit or No Credit• Project not registered• Flexible CER delivery schedule• No punitive damages • Unilateral• Advance payment• Payment upon CER issuance into pending

account

CER Price increases

Approved methodology Host government approval Strong project partners, technology supplier, EPC,

Operator, etc. Good Credit Ability for buyer to become a Project Participant Project is registered Guaranteed delivery schedule with punitive damages

for non-delivery Payment on delivery into buyer’s national registry

accountSource: Natsource

CERs : Risk Vs Price

Source: EcoSecurities

CDM cycle : Risk allocation

PINPIN

PDD

DNA approv

al

Validation

Registration

Monitoring

Verification

Issuance

Medium-risk forwards

Low-risk forwards

Registered projects Issued CERs

© Asia Carbon 2008Source : GTZ CDM newsletter

CER Price Trend

CER Dec 08 Future

EUA Dec 08 Future

EUA-CER spread : a few points

• EUAs-pCERs spread range : 28% - 72% (average of 51%) since 2005.

• Supply /Demand. EUA 225mt shortfall per year through phase2 (2008-2012). Enough CERS

• Spot spread now narrowing for 2008; Post-2012 still the major risk; also national linkage(USA ). Compliance period starts 2008

• Spread is increasing for Medium Risk (early cycle) forwards [before & during Validation] and Low Risk forwards [Registered] due to rising EUAs price

• CERs represent good value for EU compliance buyers. ( but imports are limited )

Asia Carbon Global 2008

EUA/CER DEC08 Spread

CER Prices

ACG – An Overview

• Group’s activities conceptualized, researched and developed since 2001

• Founded : Feb 4 2003 two years ahead of Kyoto coming into force

• One stop shop services : Carbon Advisory through Carbon Trading

• Presently operating 17 entities in 9 countries

• Presence in The Netherlands (Annex I) : to aggregate Buyers

• Asian presence in Singapore (Non Annex I) to develop unilateral CDM projects and also Aggregate Sellers of CERs

• Strategic Alliance – Japan, China, Korea, Bangladesh & Pakistan

• Centers of Excellence in Singapore, Vietnam, India, Indonesia

• Advance stage of development for a Centre of Excellence in China

• Current portfolio includes over 130 projects with 35 Mn CERs potential

• New services : VERs Trading & Registry & Projects monitoring

© Asia Carbon 2008

One stop solution In

Carbon advisoryCarbon Finance &

Carbon Asset management

Carbon Asset Management

Carbon Advisory

Carbon Finance & Project Finance

Vertically Integrated

Business Model

AC CE

AC-ADF™

ACXChange™

Group’s Unique Business ModelVertically Integrated to provide a one stop solution in carbon advisory, carbon finance and carbon asset management

ACX-Change™

First on line exchange in the world toProvide a common platform for

Sellers and Buyersof Carbon Assets

Outside of EU Allowances

Web based – online trading platform (spot and auction modules)

Trading of multiple products (CERs, VERs, EUAs, ERUs, AAUs etc.,)

Built in registry and trading facilities

Soft launch – Carbon Expo - May 2005, Cologne, Germany.

Fully operational since November 2005

Carried out several online auctions – 4.7 Mn CERs traded @ € 30 Mn

– 150,000 VERs traded @ € 3.76 Mn

Improvised and new look & feel platform – May 2006, Cologne, Germany

Launched VERs trading module – May 2007 Cologne, Germany

Asia Carbon’s Achievements and Awards

Golden Peacock Eco-Innovation Award 2007

Energy Business Asia Awards 2007

Revision in methodology for India project

New Consolidated Methodology approved by UNFCCC for a Singapore-Indonesia Project

“The supreme reality of our time is the vulnerability of our planet.” – John F. Kennedy

Thank you

Immanuel Edward. J. AAsia Carbon Exchange Pte Ltd

140, Cecil Street, #15-00ASingapore-069540Ph:+65 62251791

Fax:+65 62251562eddie@asiacarbon.com

www.asiacarbonexchange.comwww.asiacarbon.com