Carbon Offsetting Markets (Post-2012)

28th February 2012

Boonrod.yaowapruek@iprplc-gdfsuez-asia.com +66 2 684 6064

Disclaimer

The release, publication or distribution of the materials to which this gatepost gives access in certain jurisdictions may be restricted by law and therefore persons in any such jurisdictions into which this announcement is released, published or distributed should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the laws of any such jurisdiction. These presentation reflects the IPR CDM teams beliefs and expectations and involve risk and uncertainty from the carbon markets because they relate to events and depend on circumstances that will occur in the future. No representation is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. Forward-looking statements speak only as at the date of the relevant materials and IPR CDM team and its advisers expressly disclaim any obligations or undertaking to release any update of, or revisions to, any forwardlooking statements in the materials. No statement in the materials is intended to be a profit forecast. As a result, you are cautioned not to place any undue reliance on such forward-looking statements. These materials do not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares nor shall it or any part of it, nor the fact of its distribution form the basis of, or be relied on in connection with, any contract commitment or investment decision.

Outline

1. Short introduction to GDF SUEZ group 2. Carbon Offsetting Markets 3. Market update and forecasted CER prices 4. Opportunities for Thai investors

GDF SUEZ is a leading group in three key businesses

We are developing our presence in Asia Pacific

Carbon Offsetting Markets

The Marketing Mix

Source: www.bbc.co.uk

Product: what is carbon credit?

a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent (tCO2e) equivalent to one tonne of carbon dioxide
Source: Wikipedia, 2012

Two types of markets:

1) Compliance Market Mandatory with penalty. International market=> Kyoto Protocol Regional market=> EU ETS Domestic market => Australia, South Korea, etc.

2) Voluntary Market No mandatory To reduce carbon foot print To enhance public image Just Happy to buy credits

Product: how to generate carbon credits?

Project owner

Consultant/ Project owner

Auditor (DOE)

CDM EB / RIT

CERs
Applying for CDM registration

Raw Data

Monitoring report

Verification report

Issuance process

$$$

Carbon credit (CER) Factory

In order to comply with the standard, a project must be registered as a CDM project activity (similar to getting a business license) before it can generate carbon credits

p. 9

How to generate carbon credits?

Project owner

Consultant/ Project owner

Auditor (DOE)

CDM EB / RIT

Applying with a

offset standard

Carbon Credits
Raw Data Monitoring report Verification report Issuance process

$$$

Carbon credit Factory

1. Clean Development Mechanism (CDM) 2. WBCSD/WRI GHG Protocol for Project Accounting 3. ISO 14064 4. Gold Standard 5. Verified Carbon Standard (VCS) 6. VER+ Standard 7. Chicago Climate Exchange 8. Climate Community & Biodiversity Standards (CCB Standards) 9. Plan Vivo System 10. Green-e Climate Program 11. Green-e Protocol for Renewable Energy
p. 10

Place: carbon markets around the world

Source: point carbon (2012)

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Traded volume and value in global carbon markets

Source: point carbon (2012)

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How do Carbon Credits work?

Allocation credits Offsetting credits

Kyoto Protocol
(2008 to 2012)

AAU

CER

CER

ERU

Kyoto Protocol
(2013 to 2018 /2020)

AAU

CER

CER

ERU

EU ETS phase II
(2008 to 2012)

EUA

CER

CER

ERU

EU ETS phase III

(2013 to 2020)*

EUA

LDC CER

CER*

ERU ?

Aviation EU ETS
(2012 to 2020)*

EUAA

EUA

LDC CER

CER*

ERU ?

Voluntary scheme

EUAA

EUA

VCU

GS CER

CER

CER

* Only allow CERs generated from pre-2013 registered CDM projects

CER

= CERs generated from Industrial gases projects

p. 13

When to sell carbon credits?

Operation

Construction Equipment ordered Financing secured Licenses

C B

secured
Feasibility study PIN PDD LoA Validated Registered Issuing

Emission Reduction Purchase Agreement

ERPA*
Pricing structure(s) Eligibility risk Delivery dates Upfront payment CDM development costs Events of Defaults Remedies Tax

Seller

Buyer

*Emission Reduction Purchase Agreement

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Price: historical spot CER prices

22.00 21.00 20.00 19.00 18.00 17.00 16.00 15.00 14.00 13.00 12.00 11.00 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 -

www.bluenext.eu as of 24th Feb2012

Market update

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Global market after Kyoto Protocol

Kyoto II (2013 to 2015 or 2018)
the Protocol essentially remains only relevant for the EU countries and maybe Oceania: Canada, Japan, Russia and the US have declared that they will not participate. Canada has even pulled out the Kyoto Protocol as a whole, meaning that it need not comply with its target in 2008-2012. Duration will be either 5 or 8 years (to be decided in Bonn in June 2012). The current market mechanisms continue. Treatment of accumulated surplus of hot air is to be decided by COP 18 (as Russia backs out, it only remains relevant for Ukraine and Eastern Europe). No specific decisions on continuation of JI were taken.

New Agreement (post 2020)

A silver lining at the horizon has been drawn by the agreement to give up the separation between industrialized and developing countries in a treaty with legal force to be negotiated by 2015, with commitments for all parties starting from 2020. This will be negotiated in an Ad Hoc Working Group on the Durban Platform for Enhanced Action (AWG-DPEA). It is revolutionary that developing and industrialized countries agree on a common approach, albeit many issues remain open, including how existing LCA work fits into this negotiation.

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Other emission trading schemes

Source: point carbon (2012)

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European Union Emission Trading Scheme (EU ETS)

Category Full name EU-27; Norway; Liechtenstein Member countries Legislative status Allowance Start date Mandatory vs voluntary Type Regulatory body Program dates Surrender of allowances EU-27 In operation European Union Allowance (EUA); also known as "permit" Phase 1 Phase 2 European Union emissions trading scheme Phase 3

1 Jan 2005
Mandatory

1 Jan 2008

1 Jan 2013

Cap-and-trade European Commission sets cap and other rules; member state governments implement and enforce regulations. 2005-07 2008-12 30 April of year n+1 to cover GHGs emitted in year n. 2013-20

Key source of information

http://ec.europa.eu/environment/climat/emission/index_en.htm
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European Union Emission Trading Scheme (EU ETS)

With European carbon prices too low to prod the private sector to invest in clean technology, EU lawmakers are examining different ways to support CO2 permit prices in the worlds biggest carbon market.

Low-carbon roadmap
In March 2011, EC published an analysis on how the bloc could best achieve its legally-binding target . It said the EU is already on schedule to cut emissions 25% by 2020 and suggested goals of 40% by 2030, 60% by 2040, and at least 80% by 2050. Legally it has no standing, but a ministerial declaration in the Council approving the plan could indicate how willing member states are to support CO2 prices and instruct the Commission to draft a bill.

Energy Efficiency Directive

Last year the EC drew up a bill aimed to help the EU meet its goal to reduce primary energy consumption 20% by 2020 in comparison with 1990 levels. In December, the environment committee voted to include three amendments that could have a big impact on the EU carbon market, including: a proposal to withdraw permit supply by 1.4 billion. The bill must be voted on by an industry committee of MEPs on Feb. 28 and by the full EU Parliament after April.

Deeper target (20% to 30%)

Denmark, Sweden and the UK support a 30% goal regardless and five others France, Germany, Hungary, Slovenia and Spain have previously said they could support such a move. Any change in the target would require an amendment to the EU Emissions Trading Directive to change the cap, a lengthy process that could take three years.

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Australian carbon market

"Clean Energy Future" plan to price carbon, which involves an initial fixed-price period followed by cap-and-trade after July 2015 Passed 8 November 2011 Carbon Unit 1 July 2012 for fixed price period 1 July 2015 for at the cap-and-trade scheme Mandatory 3 years fixed price fee system (2012-2015), transitioning to cap-and-trade in 2015 Australian Clean Energy Regulator, established by the government will begin operations 2 April 2012. Fixed price from July 2012 on, with cap-and-trade beginning in 2015 - annual caps for 2015-2020 set in 2014 Once a year http://www.cleanenergyfuture.gov.au/clean-energy-future/securing-a-clean-energyfuture/#content011
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Full name Legislative status Allowance/ credit Start date Mandatory vs voluntary Type Supply Regulator Length of compliance Surrender of allowances Key source of information

Forecasted CER prices

Scenarios 2012 CER forward curve on ICE ECX Scenario#1 Point Carbon Scenario#2 Bloomberg 4.66 5.17 5.40 5.50 5.59 5.72 5.90 6.13 6.39 4.67 2013 5.50 CER prices in nominal value (EUR/tCO2) 2014 5.79 2015 6.06 2016 6.13 2017 6.37 2018 6.62 2019 6.87 2020 7.12

4.50

7.00

7.00

7.00

7.00

8.00

9.00

10.00

10.00

Remark CER Forward curve built on ICE ECX December contract updated as of 23th Jan 2012. Scenario#1: Thomson Reuters Point Carbon scenario as of 30th Jan 2012. Scenario#2: Bloomberg New Energy Finance scenario as of 2nd February 2012.

Thailand Renewable Energy Development (2008-2022)

Source: DEDE

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Opportunities in Thailand

Type

Technical Potentials (MW) 4,400 >5,000 1,600 700 190 400 ? ?

IRR without CERs * 9.7% 5.3% 11.5% 4.5% 9.6%

IRR with CERs* 15% 12.1% 20% 12.5%

Biomass Solar Power Wind Power Hydro Power Biogas MSW Energy Efficiency CCS: Carbon Capture and Storage
Source: IPR-GDF SUEZ, DEDE, IGES (2011) * average data from Thai CDM projects

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Any question/query, please contact : Boonrod Yaowapruek

Senior Originator IPR-GDF SUEZ Asia Boonrod.yaowapruek@iprplc-gdfsuez-asia.com Tel : + 66 (0) 2 684 6064