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BROKERAGE
GROUP
Greenhouse Gas
Presented at Katoomba V
Tokyo, Japan
November 5, 2002
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EMISSIONS
BROKERAGE
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Overview
Greenhouse Gas
Natsource Introduction
Basics of Emissions Trading
KP Update and Overview
The Market
Natsource’s Views
Questions
MARKET
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BROKERAGE
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Greenhouse Gas
Natsource Introduction
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ANALYSIS
EMISSIONS
BROKERAGE
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Natsource: At a Glance
Greenhouse Gas
Over-the-Counter commodities brokerage house
Global Reach
– Calgary, London, New York, Tokyo , Toronto, Oslo, Ottawa, Sydney ,
Washington D.C.
Large Energy and Environmental Broker
– Rated Top GHG Broker (Environmental Finance Magazine Survey, 2000 &
2001)
– Large Broker of SO2, NOX
– One of Highest Volume US Natural Gas Brokers
– Major US Electricity Broker
Greenhouse Gas (GHG) Advisory Services
Client base of over 600 major firms
– Utilities, Power marketers and Producers
– Large industrials
– Governments
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Organization in Japan
Natsource Japan was established in May 2001, as a unique firm to help
Greenhouse Gas
companies deal with and take advantage of drastic change in the energy and
environmental field.
Capital Increase
The Tokyo Tanshi Co.,Ltd. Undertaking Companies
Mitsubishi Corporation
Tokyo:Financial Products
Tokyo: Trading Company Cosmo Oil Co.,Ltd.
Broker
Geoscience&Petroleum
Consulting Corporation
Tullett & Tokyo Liberty Kansai Environment
Mitsubishi International
London: Financial Products Engineering Center Co.,Ltd.
New York
Broker
Mizuho Securities Co.,Ltd.
Nippon
Natsource LLC Petroleum Refining Co.,Ltd.
New York: Energy Products Osaka Gas Co.,Ltd.
Broker
Sumitomo Corp
Tokyo Gas Co.,Ltd.
Natsource Japan
Tokyo: Energy Products Tokyo Sangyo Co.,Ltd.
Broker Toyota Tsusho Corp
Tullett & Tokyo Liberty
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ANALYSIS
EMISSIONS
BROKERAGE
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Basics of Emissions
Greenhouse Gas
Trading
MARKET
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BROKERAGE
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Greenhouse Gas What Is Emissions Trading?
What options are most cost-effective?
Company A can reduce Company B can reduce
1000 tons CO2E at 1000 tons CO2E at
$2/ton = $2000 $6/ton = $6000
SELL BUY
1000 tons CO2E at $4/ton
= $4000
KP Update &
Greenhouse Gas
Overview
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BROKERAGE
GROUP
Greenhouse Gas 95 Countries Have Ratified
100
90
55 Parties
80 Needed to
Ratify
70
60
and
55 Current Total: 95
50
55% of Annex
1 Party 1990
40 CO2
Non-Annex 1 (70)
30 Emissions
20
10 Annex 1 (25)
Source: UNFCCC as of
MARKET 0
September 27, 2002
ANALYSIS
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Greenhouse Gas Options for Meeting the 55% Threshold
55.0 Poland? = 3.0% 55.0 Canada? = 3.3%
50.0 50.0
40.0 40.0
NOTE:
35.0 35.0
Japan = 8.5% Canada and Japan = 8.5%
Poland have both
30.0 30.0
indicated their
intent to ratify.
25.0 25.0
20.0 20.0
EU = 24.2% EU = 24.2%
15.0 15.0
10.0 10.0
5.0 5.0
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Greenhouse Gas Early Market:
Defining the Terms of Trade
With government rules still in formation,
participants define temporary rules
– Nature of tradable commodity
– Pricing structure
– Liability for non-performance
– Definition of baseline
– Monitoring & verification plan
As government rules are set, market will
conform
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BROKERAGE
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Greenhouse Gas Key Issues for International
GHG Market
MARKET
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BROKERAGE
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Greenhouse Gas
The Market(s)
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BROKERAGE
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Greenhouse Gas Early Market: Attributes of
Transactions
Early market began to emerge after 1997
agreement in Kyoto
Transactions involved:
– Early stage “emission reduction” units
– These evolved into “verified emissions
reductions” (3rd party review, higher credibility)
– In 2001, “candidate” CERs, ERUs and AAUs
emerged in market terminology
– In 2001, actual GHG compliance instruments
began trading in UK & Denmark
Higher quality commands higher price
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Greenhouse Gas Recent Market Activity
1997 to June 2002 Estimated 200 mmt GHG Traded
Last 12 months most active in GHG market (compliance
tools, VERS); 30 to 50 mmt CO2e traded in last year
UK GHG trading program
– DuPont - Mieco executed first GHG transaction of government-sanctioned
instrument
– Auction held to provide companies with funds to reduce emissions below a
baseline; $305 million allocated, 4 mmt of reductions committed
– Approximately 20 trades have occurred and 100,000 to 200,000 allowances
traded
Danish power sector cap & trade program
– Initial cap on CO2 of 23 million tons in 2000 is reduced 1 million tons per year
through 2003
– Approximately 10 trades have occurred and 300,000 to 500,000 allowances
traded
First swap of UK and Danish allowances brokered in 2002
Swaps of Danish allowances for VERs have occurred
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Greenhouse Gas GHG Market Is Evolving
Kyoto Protocol:
Australia:
Drives Demand and United Kingdom:
US$208 million in System
government Development Began April 2002;
tenders for GHG Tax discount in
reductions exchange for
reduction target
Other EU
Countries: Denmark:
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Greenhouse Gas Recent Market Pricing
GHG Prices by Commodity and Vintage (US$ per ton CO2E)
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Greenhouse Gas
Natsource Views
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BROKERAGE
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$45.00
Private Sector Study Group Estimates, 2005 and 2010
Natsource Estimates, 2005 and 2010
$40.00
Model Estimates: Without U.S. Participation, With Sinks, 2010
Model Estimates: Without U.S. Participation, With Sinks and Sales Limits, 2010
$35.00 Median
Mean
Price per metric ton CO2e (US$)
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
Observed Market Prices
$0.00
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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Greenhouse Gas Private sector price expectations
30
Transport
Energy companies Energy intensive industry Financial sector
25
Price expectations ($/tCO2e)
20
2005
15
2010
10
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Greenhouse Gas Natsource Views:
Market Characteristics 2002-2007
National-level and EU trading schemes will
continue to emerge
Voluntary corporate initiatives intensify
Market influenced by a few large buyers (e.g.,
Dutch CDM & JI programs)
Likely to see continued interest within Canada,
Japan, the U.S. for VERs
Gradually demand for VERs will shift to permits, as
superior risk-hedging tool
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Greenhouse Gas Natsource Estimates:
2002-2007 Prices
Fragmentation of markets is expected,
producing regional prices
No single global permit price is likely
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Natsource Estimates:
Greenhouse Gas
2008-2012 Prices
Global prices will emerge
Regional differences will narrow
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BROKERAGE
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Greenhouse Gas
Questions
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BROKERAGE
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Greenhouse Gas For More Information…
www.natsourcejapan.com
Natsource Japan : telephone 03.5200.1710
fax 03.5200.3369
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