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South Pole Carbon Asset Management Ltd The Importance of Voluntary Carbon Market in Turbulent Times of Negotiations

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South Pole is a global developer of climate change projects

Satellite office [staff number]

Head office [staff number]

Johannesburg [1]

Zurich [19]

Jakarta [8]

Bangkok [17]

Taipei [2]

Beijing [12]

Mexico City [7]

• Incorporated in July 2006

• 10 offices worldwide

• Over 75 carbon professionals

• Projects in 20 countries

• Specialized in high-quality “Gold Standard” projects

• Developing both voluntary and compliance credits

California [1]

Caracas [1]

Istanbul [2]

Islamabad [1]

Local presence [staff number]

as of February 2010

Hanoi [2]New Delhi [3]

Medellin [1]

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What South Pole can do for you:Project Development and Sales of carbon credits

Project Development:

• South Pole is guiding emission reduction projects through the whole development cycle, ensuring timely issuance of carbon credits

• Carbon Finance Solutions for Project Owners

• Gold Standard accreditation wherever possible

Sales of carbon credits:

• Drafting and reviewing of companies’ and governments’ sourcing strategies

• Thorough due diligence (technical, sustainability, reputational, ...)

• Unique access to highest quality Gold Standard certificates

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What South Pole can do for you:Advisory Services and IT Solutions

Advisory Services:

• Carbon Footprinting Services

• Carbon Reduction Strategies Advisory

• Assessment of carbon potential, including for the voluntary markets

• Methodology development

IT Solutions:

• Web Based Project Management Tool (PMT), developed by South Pole for carbon project milestones management, issuance logistics, timekeeping, expenses reporting, and information sharing

• The South Pole PMT currently holds information on ca. 900 emission reduction projects, consultancies, and sales projects, accessible for over 80 users

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Contents

• Carbon Markets Overview

• Voluntary Carbon Markets and Turkey

• Conclusions

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Carbon credits and markets – an overview

There are several different carbon markets:

A project that reduces greenhouse emissions can generate carbon credits that are certified under the Kyoto Protocol or voluntary standards. The carbon credits can be sold to governments or companies in industrialized countries who will use them to meet regulatory or voluntary requirements to lower emissions of greenhouse gases globally.

Compliance markets

Voluntarymarkets

ExamplesExamples Key featuresKey features

• EU Emission Trading Scheme

• Kyoto Protocol market• New Zealand Emission

Trading Scheme…

• Different types of compliance carbon credits• Kyoto credits (CDM and JI) can be sold

to Kyoto and EU markets• High liquidity• Unit price varies little across projects, but

premium for Gold Standard certified projects

• GS VERs• VCUs• VERs for Chicago

Climate Exchange,...

• Carbon credits generated on the basis of voluntary standards

• Not suitable for compliance purposes • Prices vary with quality of projects, with Gold

Standard projects fetching the highest price

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Compliance and voluntary carbon markets

Compliance markets

Voluntarymarkets

Kyoto Protocolmarket

EU EmissionTrading SchemeCarbon Credit

MarketsVER

EUA

CER

AAU

ERU

Carbon “currencies”CER Certified Emission Reductions (CDM)ERU Emission Reduction Units (JI)AAU Assigned Amount Units (emission trading)EUA European CO2 Allowance (EU internal trading)VER Verified Emission Reduction (voluntary market)

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Carbon credits are issued for reductions in greenhouse gas emissions

1

10'000

20,000

30,000

5 10 15Year

CO2 eq

Carbon Credits

Baseline emissions

21C

redi

ting

time Open lagoons

emitting methane

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Copenhagen deal shows a strong disconnect between 2°C temperature increas target and national emission pledges

Source: http://www.climateactiontracker.org/

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Contents

• Carbon Markets Overview

• Voluntary Carbon Markets and Turkey

• Conclusions

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A carbon offset ‘neutralizes’ a ton of CO2e (carbon dioxide equivalent) emitted in one place.

The act of offsetting consists of avoiding the release of a ton of CO2e elsewhere or absorbing / sequestering a ton of CO2e that would have otherwise remained in the atmosphere.

The voluntary market

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Historic Values for the Voluntary Carbon Markets

Voluntary Carbon Markets showed a strong increase despite the global financial crisis

Source: Ecosystem Marketplace, New Carbon Finance

• Voluntary Carbon Projects are independent from compliance markets and can also take place in countries where Kyoto Protocol isn’t ratified

• Voluntary Carbon Projects are sold on project basis to the buyers who want to offset their carbon emissions on a voluntary basis

• The voluntary carbon markets volume is increasing as Global Warming & Climate awareness improves

$61M$39M$35M

$1M

$3M$38M

$3M

$23M$43M

$171M

0

100

200

300

400

500

600

700

800

20092008

$72M

pre-2002 2004

$397M

$1M

$307M

2003

$705M

Other Exchanges

$262M

$335M

$42M

OTC

CCX

20062005 2007

$38M$99M

MtC

O2e

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Offsetting works especially for service products with moderate environmental attributes

Source: The business case for carbon offsetting by Bloomberg New Energy Finance 2009

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Corporate reputation seen as main reason for voluntary carbon offsetting of companies

Source: The business case for carbon offsetting by Bloomberg New Energy Finance 2009

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Positive impacts by offsetting

„If there would be an offer, 55 % of consumers in Germany would paya higher price for a product or a service if it would be CO2 neutral.“

„The announcement of carbon neutrality and or purchase of carbon offsets has got a positive influence on public companies stock price“

„With carbon neutral products / services, companies can make themselves more attractive to their clients and can arise even stronger from the financial crisis.“

Idw – informationservice science

University of Toronto

PWC

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Turkey is the leading provider of Goldstandard VERs for the voluntary market

Source: Ecosystem Marketplace, New Carbon Finance. (1) Based on 335 observations

• Turkey has gained a strong position in the Voluntary Markets with more than 78 projects listed on Gold Standard and increasing number of project on VCS

• Turkey is world wide the largest supplier in the voluntary market for high quality Gold Standard Credits

• Gold Standard credits have prooven to be very robust in terms of pricing (not so much VCUs)

• Certain of project types (landfill /biogas) generate major revenues from carbon credits.

• Project owners should keep in mind that there will be a post 2012 regime and carbon revenues will play an important role in energy investments.

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• Carbon Markets Overview

• Status of Turkey on Voluntary Carbon Markets

• Conclusions

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Uncertain how carbon markets are looking like post 2012 but high likelihood that they will exist

• Turkey is going under a transformation of energy sources as renewable energy is becoming an important source of supply. All this projects are eligible for generating credits in the carbon markets pre and post 2012.

• Turkey is currently a Annex I country with no cap and can therefore only benefit from the voluntary market (not CDM)

• The negotiations for post 2012 are ongoing. Neither outcome of Cancun nor the position of Turkey are clear.

• However, if humanity is serious about climate change carbon markets have to be in place in order to solve the problem.

• Carbon Markets post 2012 will have mechanisms that range from1. Project based mechanism2. Programmatic approach3. NAMAs (National appropriate mitigation actions, can be financed from

abroad)4. Emissions trading scheme (similar to EU ETS)

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Project owners are advised to develop carbon side of project alongside the project development

• Voluntary market has the advantage to be in place already now and being the only market which will definitely be in place post 2012.

• Voluntary projects are eligible to generate credits post 2012 unless there is a nation wide cap.

• Project owners have the biggest option tree if they develop the carbon side in parallel to the normal project development also pre 2012.

• Grandfathering of early action (development of VER project) into post 2012 scheme likely (SP has similar experience for VER projects developed in Thailand that became CDM afterwards)

• It’s essential to assess such potential during planning of your project

• Carbon developers can help you to assess your emission reduction potential and the evaluate the best carbon standard to be used

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Turkey can use its experience in the voluntary market to prepare itself for Post 2012 carbon market regime (Example PoA)

• PoAs are a first step towards NAMAs and Emission trading scheme

• Turkey can use its experience in the voluntary market to prepare itself for Post 2012 carbon market regime

• PoAs can now also be developed in the Voluntary market (Goldstandard)

• Other countries with unclear outcome post 2012 (Example India) explore also new mechanisms in the carbon markets such as PoAs

• Progammatic approaches could be used to further enlarge the project types that benefit from the carbon markets in Turkey

• Examples are: Energy Efficiency projects in Small and medium entreprises, Solar water heater programm, Energy Efficiency in Buildings etc.

• Experience from other countries show that Banks and Industryassociations will play an important role in setting up PoAs.

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South Pole Carbon Asset Management Ltd.Thomas CamerataCIO & Partner

Technoparkstr. 1CH-8005 ZurichTel.: +41 78 640 40 84t.camerata@southpolecarbon.com

www.southpolecarbon.com

Contact:

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Thank youfor your attentiont.camerata@southpolecarbon.com

www.southpolecarbon.com

This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from South Pole Carbon Asset Management Ltd. This material was used by South Pole Carbon

Asset Management Ltd during an oral presentation; it is not a complete record of the discussionSource: Photo under the Creative Commons-license of Flickr. Photographer: Jeff Kubina