hiroshi tomita
TRANSCRIPT
Workshop 7Investor Engagement on Climate Change
Evolution of Carbon Market and the role of Finance Sector
Hiroshi Tomita, September 15, 2011Date
00/00/0000 2
Contents
1. Introduction to the Carbon Market
• BNP Paribas in the Carbon Market
• Growth of the Global Carbon Market
• Financial Institution's Role in mitigating the risk
• Carbon Price Evolution
• Price Finding Mechanism
• Future
3
Introduction to the Global Carbon Market
Kyoto Protocol
The Kyoto Protocol entered into force in February 2005 to limit greenhouse gas (GHG) emissions
Developed or Annex I Countries accept a cap on their Greenhouse Gases emissions over 2008-2012 (avg. 5.2% below 1990)
Countries at the same time set regulatory caps on selected sectors of the economy
Grant limited Emission Allowances
Kyoto Protocol introduced a cap and trade system and three mechanisms to achieve lowest-cost emissions reductions
Emission Trading
Clean Development Mechanism (CDM)
Projects in non Annex I countries that reduce emissions produce Certified Emission Reduction Credits (CERs)
Joint Implementation (JI)
Emission reduction or capture projects in Annex I countries produce Emission Reduction Units (ERUs)
JI/CDM turn greenhouse gases into a commodity: 1 carbon asset = 1 tonne of CO2e
Emission Trading Schemes:
The European Emissions Trading Scheme (EU-ETS)
Launched in 2005 The largest trading scheme of the world
covering over 12,000 installations in the industrial and power sectors and only CO2 emissions
European Union Allowances are allocated to installations at the national level
2008-12 (Kyoto Phase) Phase III 2013-2020 (Post Kyoto)
Japanese Voluntary Action Plan
Keidanren led the Japanese business community to organize “Voluntary Action Plan, (VAP)” and, 36 industries are pursuing the plans in cooperation with 137 industrial organizations from manufacturing and energy to distribution, transportation, finance, construction, and foreign trade.
Large corporations in Japan utilizes international credits (CER/ERU/AAU) to achieve their emission reduction targets under the VAP.
Emerging National Trading Schemes New Zealand (2009) Australia Regional trading schemes in N. America
4
Total Emission
Total Emission
Cap
ERU
Joint Implementation
Emission Trading between Annex-I Countries as a result of the reduction from the expected emission.
Total Emission Cap
AAU
Emission Trading between Annex-I Countries of a unused emission cap.
No Emission Cap
CDM ProjectCER
Non-Annex-I Countries
Host Countries (Developing countries) without Emission Caps
Kyoto Protocol: Creation of “Supply” and “Demand” of carbon
EU-ETS
Total Emission
Cap
Annex-I Countries
Host Countries (Developed Countries)
with Emission Caps
CER ERU
EUA
Japan: Voluntary Action Plan
CER
AAU
ERU
Demand Supply
5
BNP Paribas in the Carbon Market
• One of the major players on the European Emission Trading Scheme with a very large client base of more than 150 industrials and financial clients.
• BNP Paribas ranks among the top three financial institutions in terms of EUA and CDM trading activity (CERES 2008)
• To date BNP Paribas has traded over 1Bn tonnes of carbon credits
• BNP Paribas has signed off-take contracts with Project Sponsors for a volume in excess of 35mn tonnes and is a direct Project Participant in more than ten CDM projects
• Environmental Finance and Carbon Finance 9th Annual Market Survey:
• Kyoto Project Credits – BNP Paribas Best Trading Company – 1st Place
• EU Emissions Trading Scheme – BNP Paribas – Best Trading Company- Runner Up
• Dedicated Carbon team leading the edge of Carbon Trading and Finance delivering the following range of risk management solutions
• BNP Paribas Commodity Futures (CFL) is one of the largest clearing institutions on LCH, and regularly the largest by volume in clearing and execution of ECX EUA futures clearing on average over 20% of volumes exchanged on ECX
BNP Paribas believes that Carbon should be considered as a new asset class rather than a specific activity and has been following these developments by including Carbon assets (EUA, Carbon credits) in its existing lines of business.
6
CDM Projects: Examples in Mexico and Korea
Youngduk Wind Park Project - Republic of Korea
Wind power to generate electricity without depleting any natural resources or emitting CO2
Generation of approximately 96,680 MWh per year. It avoids the utilization of coal which is the dominating fuel for power generation in Korea
Estimated reductions of 420,500 tCO2 by 2012
El Gallo – Cutzamala de Pinzón - Mexico
Hydroelectric Project to generate renewable electricity and sell output to Mexican consumer partners
30 MW power plant at the existent irrigation dam of El Gallo. Avoided electricity generation at fossil fuel-fired power plants that would be generating electricity to the grid otherwise
Estimated reductions by 2012 = 459,928 tCO2e
7
Environmental Finance 2008 Best Trading Company Secondary Market Kyoto Projects Credits
(JI and CDM), Runner up Best Trading Company Spot & Futures EU ETS Runner up Best Trading Company Options EU ETS
Energy Risk Commodity Rankings 2009 UK/Europe – Gasoline Products - 3rd place 14.2% (out of 14
banks) UK/Europe – ULSD Products – 4th Place 10.6% (out of 13 banks) EUA options – 5th place 5.8% (out of 14 dealers)
Energy Finance House of the Year, Energy Risk, 2008
Best energy commodity finance bank, Trade Finance Magazine, 2008
Best overall commodity finance bank, Trade Finance Magazine, 2008
Bank of the Year for Europe, Middle East and Africa (EMEA) in Project Finance, Project Finance International, 2007
No.1 Global Mandated Arranger in Project Finance, Thomson Financial, 2007
No.1 Global Mandated Arranger in Project Finance, Thomson Financial, 2007
AsiaRisk Commodity Raking 2011, No.1 in Emission
Credentials
8
Contents
1. Introduction to the Carbon Market
• BNP Paribas in the Carbon Market
• Growth of the Global Carbon Market
• Financial Institution's Role in mitigating the risk
• Carbon Price Evolution
• Price Finding Mechanism
• Future
9
Growth of the Global Carbon Market• The Global Carbon Market has experienced significant growth since 2005.
• Although the global carbon market stagnated due to difficulties in the global economies and uncertainties of Post -2012 regulatory frame-work, the total value of the Global Carbon Market stayed at US$142billion.
• EUA accounts for 84% of the total trading volume and is the leading carbon instrument in the market.
0
20
40
60
80
100
120
140
160
(US$Bn)
2005 2006 2007 2008 2009 2010
Ye a r
Ca rbon Ma rke t Evo lut ion (2005- 2010)
o t h e r o f f- s e t sAAUPrima ry CERSe c onda ry CEREU- ETS
However, in the early days of the market, many difficulties emerged
Source: Point Carbon, World Bank
10
• In the early days, despite the optimistic expectation toward the future of the global carbon market, it has experienced many difficulties due to the lack of experience of many market players and the changes in global economic environment.
• Optimism vs. Cautiousness : Management of “expectation” was also an important factor to conduct a proper planning of the projects.
Procedures for CDM
PDD Preparation
DNA Approval
Validation
Monitoring
Registration
Verification
Issuance of CERs
Certification
(Start of Project Operation)
Project Design Document to be prepared by Project Participants
from Host Country & Annex I Country
by DOE (Methodology and Additionality shall be checked.)
by EB (Formal acceptance of a validated project.)
by Project Participants (All relevant data have to becollected for calculating GHG emission reductions.)
by DOE (Review of monitored GHG emission reductions.)
by DOE (Written assurance of verification.)
by EB
Development of CDM projects faced numerous types of risks
Change in policy or delay in political procedures in the Host Country
Bottlenecks in the administrative process for credit Issuance/ Transfer
Change of policy in CDM Executive Board
Uncertainties in the renewal of Crediting Period
Malfunction of monitoring systems, delay in Verification / Certification of credits
Fluctuation of project performance, overestimation of emission reduction
Delays in Registration process of the CDM projects.
Multiple issuance and renewal of crediting periods
11
CDM Process and the role of the Financier
Carbon credits offer the opportunity of enhancing the project financing structure thanks to numerous advantageous features such as:
Issued by international bodies and governments
Exchanged in hard currency Easily transferable in the trading platform Exchangeable on increasingly liquid
markets, mainly in Europe
Research carried out by BNP Paribas has shown that the use of carbon mechanisms can increase the free cash flows of a project by 10 to 15% depending on the nature and location of the project
A complete range of risk management solutions by the Financier
ProjectSponsor Lender
Offtaker/
User
Debt
AnnuitiesRevenues
MWh
CarbonOfftaker
/ User
Carbon credits
Revenues (€, U.S.$...)
Local
International[10%-15%]
RESULT: Additional cash flows or reduced project finance costs!
The market players endeavor to overcome those obstacles, and from financial sector point of view, a range of experience from various financial instruments were introduced and led to the improvements in the CDM project development, portfolio management and secondary trading.
12
Contents
1. Introduction to the Carbon Market
• BNP Paribas in the Carbon Market
• Growth of the Global Carbon Market
• Financial Institution's Role in mitigating the risk
• Carbon Price Evolution
• Price Finding Mechanism
• Future
13
Price finding efforts over the past 5-6 years EUA
“Today, no price data are available resulting from real life experiences concerning greenhouse gas emissions trading. As a result, only empirical estimates can guide our reflections. These show a large variety, ranging from €5 to some €58 per tonne of carbon dioxide equivalent traded between industrialised countries.” (“Green Paper on greenhouse gas emissions trading within the European Union”, Brussels, 8.3.2000)
Source: Point Carbon, World Bank
0
5
10
15
20
25
30
35
2004
/12/
1
2005
/3/1
2005
/6/1
2005
/9/1
2005
/12/
1
2006
/3/1
2006
/6/1
2006
/9/1
2006
/12/
1
2007
/3/1
2007
/6/1
2007
/9/1
2007
/12/
1
2008
/3/1
2008
/6/1
2008
/9/1
2008
/12/
1
2009
/3/1
2009
/6/1
2009
/9/1
2009
/12/
1
2010
/3/1
2010
/6/1
2010
/9/1
2010
/12/
1
2011
/3/1
2011
/6/1
EUA De c 2011EUA De c 2008EUA De c 2007EUA De c 2013s CER De c 2011
Start of EU-ETSInitially, utilities were active in purchasing EUAs but little sales from industrial sectors making EUA price move up.
Limitation of banking ’07 EUAs made the price go down to as low as 1 euro cent.
Introduction of CER into exchanges / widening of spread
After the publication of the emission data of ’05, over supply foreseen and the price declined.
Price declined due to the slow down of the European economy.
200
4CER
“Since there is no standard contract for purchasing carbon, it is not easy to compare prices across transactions. Prices are often not publicly disclosed. The information includes price information in only 60 percent of the transactions. While most public buyers are required to disclose the prices they are paying most private buyers are under no such obligation. (State and Trends of Carbon market 2004” Washington 2004)
CER PricePrice range and
average price( )
14
Current Market Pricing Relationship
Primary CERs
Price level Types of Credits
Primary ERUs
Difference between Secondary and Primary depending on the risk profile of each project /country /sector
AAU
Market based Pricing
Secondary CERsGuaranteed CERsG
EUA
Secondary ERUsGuaranteed ERUsG
Transparent market relationship in
EU-ETSPricing of AAUs are
negotiated under bilateral negotiations
with the holding governments
- Today, EU-ETS is the largest Carbon market and EUA is the Benchmark for the Global Carbon Price. - As there is no market price mechanism elsewhere, the price of CERs and ERUs are always defined by the movement of EUAs. - Together with the overall movements of each type of carbon credits, it is important to comprehend the relationship of
those prices by the characteristics of those products.
00/00/0000 15
Price of the carbon fluctuates by many factors including, power demand, energy prices, emission reduction related policies in various jurisdictions.
Also, it is important to know the difference of characteristics of many different types of carbon credits which represents different quality and value.
The financial market offers various products and support to optimise a company’s exposure to the Emission Trading System to comply with their emission reduction efforts.
Some of these products are related to the provisions in the regulation in the current state of each market reflecting the dynamic nature of the carbon market.
EUA sales and monetization
CER / EUA swaps
EUA curve optimisation
EUA-backed facility
Price finding mechanism is the key to the involvement of the new participants to the carbon market
16
Contents
1. Introduction to the Carbon Market
• BNP Paribas in the Carbon Market
• Growth of the Global Carbon Market
• Financial Institution's Role in mitigating the risk
• Carbon Price Evolution
• Price Finding Mechanism
• Future
17
Number of ETS initiatives exists internationally.
US
Regional initiatives
• EU-ETS, NZ-ETS and Switzerland are the ETS’ currently in operation.• Number of countries are considering to establish the Emission Trading Scheme based on their own Energy / Industrial Policy.
Kyoto Protocol: International Framework
EU-ETSJapan(?)
China
Regional Initiatives
NZ-ETS
Switzerland
South Korea(?)
Australia
Further diversification of ETS’ in the world shall require deep understanding of the correlation of each system.
18
How can we contribute to the future of the carbon market?
We observed many structural changes in the project developments and the history of “carbon price finding” in the Global Carbon Market.
In the coming years, we shall continue to face fundamental transformation of the Global Carbon Market as the end of the First Commitment Period of Kyoto Protocol is approaching.
It shall be indispensable to learn from the past experience and continue to integrate various experiences into the carbon market. We believe all the investors considering to approach the opportunities in this field shall benefit from these knowledge accumulated in the early years.
00/00/0000 19
金融商品取引法第 37 条に定める事項の表示
金融商品取引を行うにあたっては、各金融商品等に所定の手数料等（たとえば、株式のお取引の場合には、約定代金に対し、事前にお客様と合意した手数料率の委託手数料および消費税、投資信託のお取引の場合には、銘柄ごとに設定された販売手数料および信託報酬等の諸経費等）をご負担いただく場合があります。また、すべての金融商品には、関連するさまざまなリスクがあり、国内外の政治・経済・金融情勢、為替相場、株式相場、商品相場、金利水準等の市場情勢、発行体等の信用力、その他指標とされた原資産等の変動により、多額の損失または支払い義務が生じるおそれがあります。さらに、デリバティブのお取引の場合には、弊行との合意により具体的な額が定まる保証金等をお客様に差し入れていただくこと、加えて、追加保証金等を差し入れていただく可能性もあり、こうした取引についてはお取引の額が保証金等の額を上回る可能性があります（お取引の額の保証金等の額に対する比率は、現時点では具体的条件が定まっていないため算出できません。）。また、上記の指標とされた原資産の変動により、保証金等の額を上回る損失または支払い義務が生じるおそれがあります。さらに、取引の種類によっては、金融商品取引法施行令第 16条第1項第 6号が定める売付けの価格と買付けの価格に相当するものに差がある場合があります。なお、金融商品毎に手数料等およびリスクは異なりますので、当該金融商品等の契約締結前交付書面や目論見書またはお客様向け資料をよくお読みください。権利行使期間がある場合は権利を行使できる期間に制限がありますので留意が必要です。期限前解約条項、自動消滅条項等の早期終了条項が付されている場合は、予定された終了日の前に取引が終了する可能性があります。
商号等 / ビー・エヌ・ピー・パリバ銀行東京支店（登録金融機関） 登録金融機関 関東財務局長（登金）第 98号加入協会 / 日本証券業協会
00/00/0000 20
一般的に、本契約を含む金融取引は、金利や外国為替、有価証券、商品や指数などの変動のリスクを伴います。このようなリスクがあるため、お客様には個々の金融取引に伴う特性やリスクを正確に判断できる知識と経験が必要です。ビー・エヌ・ピー・パリバ銀行は金融取引の特性やリスクを正確に判断することができるようにお客様のお求めに応じて情報を提供できるよう努めます。そのうえで、お客様が金融取引を開始される時には、お客様はその取引の条件や伴うリスクをご理解されているものと考えます。お客様は、本契約に関してすべての財務面、法的側面、会計税制面等において詳細な検討をされ、それらの取引のメリットや適合性について評価しており、こうした評価をビー・エヌ・ピー・パリバ銀行に依存されていないと理解しております。ビー・エヌ・ピー・パリバ銀行は本書に含まれている情報については守秘を前提として提供いたします。本書に示される契約の諸条件は、ご案内提示時点におけるものであり、実際の契約条件は、契約が締結される時点での市場の状況によります。本契約に提示された金融取引を行われた場合、お客様の財務面に与える影響についてビー・エヌ・ピー・パリバ銀行はいかなる責任をも負いません。
また、当文書は、有価証券の購入、売却その他金融商品の取引を申し込み、勧誘し、または推奨するものではありません。ここに記載された取引条件は、参考資料として示されたものであり、弊社はここに記載された条件で、また他のいかなる条件でも、ここに記載された取引を行うことをお約束するものではありません。ここに記載された取引に伴うリスク、及び取引がお客様にとって妥当なものか否かに関する判断は、お客様が自己責任の原則に基づき独自にご判断ください。取引に関する法律上、税務上および会計上等の取扱いについては、お客様の責任において、それぞれの分野の専門家にご相談ください。弊社及びその関連会社はここに記載された取引の対象となる有価証券、その他の関連する資産、契約等を自己勘定で保有していることがあります。またお客様との取引と同一、または関連する取引の当事者となったり、対象証券の発行者と何らかの関係を有していることもあります。
注意事項