There is huge opportunity for arbitrage opportunities between exchange

A seamless market for trading of carbon credits around the world would be the most viable
option going forward in the future.

The future ahead

The Investor Network on Climate Change ( www.icnr.com ) , a network of North

American Investors with assets worth more than $ 3 trillion being managed
between them recognizes that climate change is a no longer just an environmental
issue but has implications on several areas of the business. The 50 participating
members like Goldman Sachs , JP Morgan , Morgan Stanley and like , of INCR
have identified climate change as a key fiduciary concern and as one of the greatest
challenges of the 21st century. In fact this network is actively engaged in policy
formulation of its portfolio companies on ways to tackle potential threats due to
climate risks and the opportunities it brings along with it. Such is the impact of
climate change risk worldwide on companies.

The CDM

The CDM by its very design is intended to a vehicle for investment and technology
transfer into developing countries . Investment of these kinds would assist those
countries to achieve "sustainable development" by enabling necessary economic
growth and at the same time reduce the greenhouse gas emissions on a global level.

India’s carbon credit market

In India so far, 242 projects have been identified for generating CERs while a total of 318
projects have received clearance by the Ministry of Forestry and Environment. For the
Indian carbon market — which has the potential to supply 30-50% of the projected global
market of 700 million CERs by 2012.

The role of carbon asset management services & Carbon aggregator

• Costs of completing the CDM project cycle have a strong fixed element

 Costs for PDD, methodology development, validation, verification are mostly

fixed
 Only CDM Executive Board administration fee is completely variable
 Projects with less than 10,000 CERs per year have problems in recovering these
costs due to the high fixed cost component.

The need to develop Renewable Energy and Energy Efficiency Projects

Traditionally investments were going in projects which had a huge potential

HFC23, a byproduct of chlorodifluoroethane (HCFC22) often used as coolant in

refrigerators, is thousands of times more potent than CO2. This means that HFC23 projects
generate large volumes of carbon credits to sell with relatively smaller investment.

Other highly dense

greenhouse gases include nitrous oxide (N2O) and methane. N2O is 310 times the potency
of CO2 and methane is 21 times that of CO2, which also mean that such projects offer
sellers larger volumes of CO2 credit to sell with lower investments.

The gases which are broadly traded are

What greenhouse gases are regulated under the Kyoto Protocol:

The six greenhouse gases specified in the Kyoto Protocol are:

• Carbon dioxide (CO2)

• Methane (CH4)
• Nitrous oxide (N20)
• Hydrofluorocarbons (HFCs)
• Perfluorocarbons (PFCs)
• Sulphur hexafluoride (SF6)

There are also 25 other gases but these gases do not produce adequate amount of carbon
credits.
So future carbon credits has to come only from RE and EE processes.

Bundling of projects

Bundling of projects refers to bring various Small Scale CDM (SSC) projects under one
portfolio without losing their distinct characteristics of the project. This bundling of
projects is important as the SME’s do not have the scale to construct projects which would
make them eligible for CER credits. We would play the role of aggregator and using our
products would

The future potential

Global warming, which many scientists say can cause more heat waves, droughts and
flooding has caused the investors to look up to rule makers to emission reductions more
seriously and on a sustainable basis. Stricter emission norms post Kyoto protocol could
transform this from a multibillion industry to a trillion dollar industry and enormous
amount of capital would be pumped into p

Points to be covered

a) need for climate exchange in asia- why an exchange in asia

look at ccx and their advantages and weaknesses
b) revenue model for our services
c) table for our services – competitiors , business model etc
d) risk mitigation strategies/exit strategies in India
e) rating services in india
f) how to attract buyers in India - terrapass
g) buyers in Europe
h) why it should be sooner

 The broad objectives of the CDM is:

 contribute to the emission reductions and thereby create a greener world,
 support the sustainable development of the country where the project is
proposed,
  to subsequently use the emission reductions to meet compliance requirements
of the developed countries.

 The revenue from CDM is additional apart from project revenue.

Project Related Risks (Write the solutions for project related risks- one of our key
strengths)

 Even where the project is registered there are several other issues involved with
regard to carbon credits

 Non-delivery of the contracted volume may attract exorbitant Penalty

 Price uncertainty – There is no certainty of CER price

 Liability to the lenders whether the project performs or not

 Developer may also be sued for non-fulfillment obligations by the lenders / by the
buyer

 The IRR worked out to 10.14% considering the incentives available for the biomass
based power projects. This IRR improves to 14.54 % with GHG income.
 A Sensitivity analysis has been carried out with three probable scenarios and the
IRR is worked out as under:

IRR(%) IRR (%) with

without GHG GHG
Normal case 10.14 14.54
10% decrease in PLF 7.99 12.01
10% increase in Project Cost 8.20 12.26
10% increase in Fuel Price 7.95 12.46

• CDM shall lead to “measurable and long term emission reductions that are
additional”
• Determination of reductions requires definition of baseline methodology and
monitoring of key parameters throughout the lifetime of the project
• Bottom-up development of methodologies for large projects, top-down for
small projects

Basic data about CDM

• 43 projects issued 15.5 million CERs

• 334 registered projects forecast 600 million CERs by 2012
• >900 submitted projects forecast 750 million CERs by 2012
• Governments and companies in industrialized countries have budgeted more
than 4.5 billion € for CER acquisition

Huge difference between different qualities of CER

30

25 No approved
methodology
20 Approved
methodology
15
Registered
10 project
Issued CER
5

0 EU allowance
2002 2003 2004 2005 2006 Sep-
2008
pre- 06
crash
 Two paths for post-2012
First Step Second Step Ultimate Regime
2008-2012 2013?-- 2030?--
“Cap First” Strategy

Kyoto Protocol: Another Cap

Cap & Trade & Trade Regime
Regime Ultimate Regime:
Consists of
Mutually Cap& Trade,
Reinforce, Technology, and
Or Conflict? Development

Technology
and
Developmen
t “Empower First”
Cooperation strategy
Capacity Generation Assumptions

1MWcapacity 8.7MUgeneration Assuming100%PLF

(365X24)
1MWcapacity 3.0MUgeneration Assuming 35%PLF

1MWcapacity 3.0MUgeneration Assuming:

x750CERs • 1CER=1tonneof CO2avoided
=2250CERs • Baselinefor northis.75
• 1MUgeneration=750tonnesavoided
or 750CERs
1MWcapacity 3.0MUgeneration Assuming:
x750CERs x10Euros • 1CERistradingbetweenEuros8to10
xRs56 • 1Euros=Rs.56

1MWcapacity 3.0MUgeneration =Rs.12.6lacsCDMrevenueless10%

• 5%Transactioncost
• 2%AdaptationFund
• 3%VerificationCost
I MWCapacity • Assuming4.5croresascapital cost per MW
• About 2.52% Returnoncapital cost
 under the Kyoto treaty, developed countries are required to cut emissions by
an average of 6% from 1990 levels by 2012. Each country is permitted to
emit a certain number of tons annually of carbon dioxide or its equivalent.
Governments then issue emission "allowances" to polluters within their
borders, and these can be bought and sold by companies worldwide.
Through this carbon trading system, big polluters in developed countries
can pay companies in developing nations to cut emissions in their stead.
Since many factories in developing countries use dirty, inefficient processes,
it's often cheaper to clean them up than to replace the more modern
equipment used in wealthy nations.

There's little doubt that India and China will be big sources of credits. Both
are industrializing at a breakneck pace with little regard for the
environmental consequences, so there's no shortage of areas where
pollution can be reined in. India has already negotiated dozens of carbon
credit sales in projects ranging from hydro stations to harnessing methane
gas released by decomposing garbage.

But as the market gets more efficient at separating smart projects from
wishful thinking -- and as companies in the West struggle to meet their
Kyoto targets -- prices are likely to rise. "As the deadline gets near," says
Andres Liebenthal, an environment specialist at the World Bank in Beijing,
"there is going to be a scramble" for credits.

Financial innovations

a) securitization
b) climate exchange
c) rating agencies

Other business models

a) climate exchange
b) marketing strategies through the use of viral marketing – terrapass.com and carbon
fund.org
 c) think of a punchline and marketing strategies for the same

“Get serious about global warming -- or be prepared for the consequences.”

Terrapass and carbonfund.org

The services we provide
- take that from Chicago climate exchange & asian carbon

monitoring services –once project has been started

due diligence services

database registry ,

• As opposed to the traditional route the site owner/operator simply makes one call to
EcoMethane, who manage the complete process.
• EcoMethane undertakes ALL aspects of your project even down to the financing so
there is no financial risk or capital investment required on your behalf.

Tackle climate change or face deep recession, world's leaders

warned
Sir Nicholas Stern, a former chief economist with the World Bank, in his report on impact
of Climate Change on the world economy warned that governments need to tackle the
problem head-on by cutting emissions or face economic ruin. Countries are increasingly
becoming aware of the
The starting of the Carbon Exchange would mark the beginning of the Eco capitalism in
this part of the World.

With growing recognition

We feel that the voluntary market of carbon reductions has an enormous potential and this
initiative is a the first of its kind in India ( and in South East Asia too) for allowing our
customers to voluntarily reduce their emissions by purchasing credits from us.

We can target any of the industries like airlines, automobile sectors ( particularly the
premium car segments ) for buying credits from us.

These clean energy projects are off the limits of ordinary people who wants to contribute to
the economy but by aggregating their purchase we can successful invest in them.

Though we believe that initially the revenue from Indian operations on the buy side wil
contribute to a negligible percentage of our volumes, we would be the first of its kind in
both India as well as Asia to target this market .

The market consists broadly of 2 categories the polluting industries who are particular
about social Responsible investing and the customers ( say the car drivers, the airline flyers
) etc who wants to contribute to the environment in some way or the other.

This Vertically integrated business model in essence completes the loop for our
Carbon trading model and this gives us an economy of scope.

India as a potential market for selling credits

At present, India is rated as the 6th largest contributor of CO2 emissions with China being the
2nd. Fossil fuel emissions in India continue to result largely from coal burning as India is the
largest producer of coal in the world. India is highly vulnerable to climate change as its
economy is heavily reliant on climate sensitive sectors like agriculture and forestry.
In a study conducted by EIA ( Energy Information Administration) conducted by the US
department of Energy, the Global GHG emission is expected to grow by 30 to 85% by 2025
and by 70% to 210% , depending on the assumptions made. This poses an ominous signal for
the world’s environment and climate.

Projected GHG emissions (source US Department of Energy)

Among developing countries India and China and India, the world's two most populous
nations and emerging economic powers, are not only the most attractive CDM investment
destinations but also has the potential to become a huge buyers market.

India is the fifth-largest emitter of carbon dioxide after the US, China, Russia and Japan.
Although India & China, are adamantly opposed to accepting legally binding greenhouse-
gas reduction targets , it is only a matter of time that these countries adopt some sort of
Voluntary capping mechanism . In this context, it is very likely that in the coming years
after the end of the commitment 1 period , Socially responsible corporates in countries like
India and China, taking a cue from the US model start reducing their emissions at least on a
voluntary basis. This would make India and china as one of the key buyers in the market
place.

(Write about the corporate India going to be CSR responsible)

We plan to tap this space by establishing India’s First Carbon Exchange, which could well
be on its way to become South East Asia’s Carbon exchange in the not so far future.
How to participate and obtain in Carbon Credits?

A complete Service Package

 Determining project feasibility and ‘additionality’

One of the most critical prerequisites for a CDM project is proof of its additionality, i.e.
that the project would not have been implemented without the revenues from carbon
credits. Without such proof, the project cannot qualify.
With our expertise and knowledge, we would evaluate whether – and how – the project can
fulfill these requirements.

 Preparing the Project Design Document (PDD)

We intend to take care of preparing the Project Design Document (PDD)
in line with the Kyoto protocol provisions as well as more recent
developments in the approval of baseline methodologies by the UNFCCC.

 Validation and registration

We plan to support clients in validating and registering CDM projects with the CDM
Executive Board.

 Selling carbon credits

Parallel to registration, we shall start up the process of selling carbon credits, which
includes the following steps.
• We write and submit the project idea note on your behalf to inform and attract potential
buyers.
• We identify potential clients within our large network, which includes private companies,
banks, brokers and government representatives.
• We will negotiate the best conditions for you and arrange the signing of an Emission
Reduction Purchase Agreement.

 Monitoring and reporting

After a year of operation, a Designated Operational Entity must verify the CO2 emission
reductions achieved (set against the monitoring plan). The figures are then certified and the
project obtains its first CERs (Certified Emission Reductions).
We shall help to implement the monitoring so that everything goes according to plan.

 Additional services
Equity or investment arrangements
Identifying technology partners

OUR STRENGTHS

We understand and appreciate that CDM is an investment scheme. So we intend to

facilitate the investors with
 Well-established institutional set-up, e.g. one-stop shopping.
 Clear and transparent rules and approval procedure.
 Minimum uncertainty and low transaction costs

COMMON REASONS FOR FAILURE + OUR APPORACH TOWARDS THEM

 Complexity and difficulty of the project.

We are aware that the more complex and difficult the project, the less attractive it will
be to CDM investors, although many are willing to take on these risks in return for a
proportion of the carbon credits. Projects that minimize risk will attract CDM
investment, and therefore projects scaling up or replicating existing successful processes
will be more likely to succeed.

 Instability and governance measures missing.

A stable political environment and good governance is necessary to attract CDM
investment. Importantly, the host country must have ratified the Kyoto protocol, and set
up a designated national authority to approve CDM projects.

 Donor competition in certain countries

It is difficult to avoid but we plan to coordinate different donors by organizing Advisory Body
meeting.

 Uncoordinated workshops and activities without follow-up and coordination

We plan to organize co-workshops with other donors to maximize synergies.
  Flow back of a high share of project budgets into investor country or international
consultants:
We plan to reduce that by using 60% for in-country activities

 No funding for real institution buildings:

We intend to budget to set up DNA but need to ensure its post project financial sustainability

Risk Management System

Need is to develop a proprietary decision-making support system that addresses and

quantifies the risks associated with Clean Development Mechanism (CDM) projects. We
plan to develop an Excel-based, systematic tool that evaluates and ranks CDM or JI
projects in a portfolio. The system includes

 Review, assessment, rating, and ranking of CDM projects based on their

likelihood to deliver Certified Emission Reductions (CER) or Emission
Reduction Units (ERU).
 A risk-weighted estimation of the number of CERs or ERUs delivered.
 Calculation of Net Present Value (NPV) of the portfolio's discounted worth.

Risk Assessment for following risks perceived:

Project Project
Process Country
Technology Proponents
Risk Risk
Risk Risk

Likelihood Likelihood
Likelihood of of project Likelihood
of successful
CER issuance technology performance of approval
performance by project of project.
proponents

Individual risk ratings are compiled for each project and for each of the four elements
based on the user input/selection of responses to queries.

Strategies to attract buyers and sellers

1. Promotion of Exchange

AGENDA
 Formalized national project approval procedures
 CDM promotional publications & brochures
 A national CDM website
 Pipelines of CDM projects: PINs, PDDs

2. Participating and Organizing of Investors forum:

Audience of such forums shall be Carbon investors, carbon brokers, national carbon
funds and VER brokers.

AGENDA
 Marketing of CDM project portfolio in participating countries and their
neighbors.
 Informed the sellers on Terms & Conditions of some of the existing Emission
Reductions purchase programs.
 Informed the buyers on CDM institutional preparedness of countries in the
region (DNA & KP ratification).
 Discussions between buyers and sellers regarding CDM project details.

Ways to obtain Carbon Credits

Exposure in Carbon Credits can be obtained only through three major ways
a) Directly generating Carbon credits by developing CDM projects
b) Indirectly obtain exposure by investing in Carbon Funds
c) Obtain derivative instruments through buying Credits in
Exchange

Business Proposition for SME

Insert Picture in PPT ( RASHIMA)

What will be future of Carbon Trading after the first commitment period?

There are uncertainties about the future of carbon trading and the role of carbon
intermediaries after the first commitment period. We believe that with the growing
concern of both the various governments, regulatory bodies and Corporates due to
the detrimental effects of Climate change and global warming, the Kyoto protocol
in its next Version would only get stronger. Some states in USA (USA is not a
signatory of the current version of Kyoto protocol due to non inclusion of countries
like India and China has signatories) like California have taken the right step by
voluntarily reducing emissions and other countries like Russia , Ukraine are
expected to follow suit and if happens has the potential to increase the market
manifold. So Carbon Trading would likely continue atleast for the next 20 years to
come.

Future of Kyoto Protocol

First Step Second Step Ultimate Regime

2008-2012 2013?-- 2030?--

“Cap First” Strategy

Kyoto Protocol: Another Cap

Cap & Trade & Trade Regime
Regime Ultimate Regime:
Consists of
Mutually Cap& Trade,
Reinforce, Technology, and
Or Conflict? Development

Technology
and
Development
Cooperation “Empower first”
strategy

Financial innovations in this sector

About the financial innovations

We primarily in the business of energy intervention services would work towards

sustainable development of the host country’s economy with a special focus on the Kyoto
Protocols.

We would want to start a online carbon exchange to facilitate the price discovery of carbon
credits in an efficient and transparent manner.

The Clean Development Mechanism’s dual goals of attaining sustainable

development and at the same time creating cost effective greenhouse gas emission
reductions can be achieved only via carefully structured financial instruments.
CDM transactions offer specific challenges, as the parties involved are varied and
often have extremely different business and cultural perspectives.

Issues Facing the SME’s in the CDM implementation and our Business
Solutions

Most financing deals to the project developers from carbon funds occur after the
carbon credits are fully validated, certified, registered and transferred. It takes 1-2.5
years on an average for a typical small /and medium size CDM project to be started
and implemented and project developer is provided no finance when he needs
most. This causes many project developers not to take up potentially lucrative
CDM projects due to non availability of finances

Securitization – An innovative financial solution of packaging illiquid assets

into liquid securities could well be the big trigger for CDM projects in India.
This will help bridge the divide between the sellers need for upfront capital
and buyers risk aversion.

INSERT DIAGARAM

One of the important impediments to securitization contracts is the lack of

knowledge about the CDM projects to investors and the in ability to monitor the
project for variances on a regular basis.

An independent third party analysis on the viability of the future CER credits and
the project would go a long way in attracting more investors.
 We would like to provide third party rating services (the first of its kind) in
association with a Rating agency like ICRA , Crisil to rate the underlying asset pool
( The CDM projects ) and thereby help the rating agency to rate the securities
thereby lending credibility and increasing marketability of the securities.

Rating and Risk evaluation System

CAPITAL COST
Rating and Evaluation System for FIXED&VARIABLE RUNNING COSTS
Prioritizing Investments in Reducing
IMPLEMENTATION RISKS
Emissions is very critical for an
DELIEVERY RISKS
investor. We plan to develop a smart
tool which can assist managers in RATING MANAGEMENT TIME DEMANDS

prioritizing their energy and carbon VARIABLES AVOIDED FUEL & POWER COSTS

saving options. It shall help the CARBON VALUE RELEASED

investors in analyzing the variables PROJECT LIFE CYCLE

that determine the value and feasibility PROJECT PHASING

of an energy or carbon-saving project REPUTATIONAL VALUE

in the real-world commercial
environment. Following are the variables which we consider utmost important to rate a
CDM project.