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Strictly private and confidential

Carbon Offset MarketJune 2009

Strictly private and confidential

Carbon Offset Market Overview

OverviewGrowth of Carbon Offset Market

(2005-2009E)



Carbon offset market is valued at US$ 125bn (at theend of 2008) showing a robust growth of 84% y-o-y



Carbon market came into being when the carbontrading originated from the Kyoto protocol that cameinto force in 2005 with the intention to controlgreenhouse gas (GHG) emissions worldwide



The Kyoto Protocol describes 3 market mechanisms(Joint implementation, Clean developmentmechanism and Emissions trading) that make upthe carbon market wherein carbon credits in theform of carbon offsets are traded by variousparticipants such as businesses, governments,individuals etc.



A carbon offset is a financial instrument aimed atreducing GHG emissions

–

It is an emission reduction credit or unit that theparticipants receive by funding the environmentalprojects of various organizations

–

One carbon offset represents the reduction of onemetric ton of CO2 or its equivalent in other greenhouse gases



The offsets are a way to reduce carbon footprints of the participants and are traded in the regulated aswell as voluntary markets



Offsets trading in the voluntary market is growingmore rapidly than in the regulated market

–

Carbon offsets trading in the voluntary marketincreased 87%

y-o-y

in 2008 compared to theregulated market wherein it grew 40%

y-o-y

in thesame period

1130641251500204060801001201401602005 2006 2007 2008 2009Year

M a r k e t S i z e ( U S $ b n )

CAGR

(2005 - 2009E)

:92.2%

Source: Frost & Sullivan (2009), pressSource: Frost & Sullivan (2009)

Generation of Carbon offsetsTypes of Offset Projects and their cost



Carbon offsets are generated as the result of a GHGemission reduction project delivering measurablereductions in emissions through a variety of technologies



Various organizations undertake projects that help inreducing GHG emissions in the atmosphere

–

These projects include renewable energy & other energy efficiency projects



Such organization provide carbon offsets as creditsto individuals and companies that fund such projects

–

These credits (offsets) purchased by theindividuals and companies represent reduced,avoided or absorbed GHG emissions from theatmosphere through such projects



The buyers (individuals, companies etc.) can usethese offsets to compensate for their own GHGemissions

–

For example, to compensate for air travel, for emissions coming from driving a vehicle, usingelectricity & water or emissions from factories etc.



The organizations undertaking projects that reduceGHG emissions benefit from selling the offsets assuch projects become more economically viable



The buyers of these offsets also benefit as apartfrom using these offsets to mitigate their owngreenhouse gas emissions, they can save money asit may be less expensive for them to purchaseoffsets than to eliminate their own emissions



Wind Power:

Wind power is a conversion of windenergy into useful forms such as electricity usingwind turbines. A wind power project of 2.5kW to 6kWwould cost between £11,000 – £19,000. Wind offsetprojects cost from £7.50 - £16.50 per tonne CO2



Hydropower:

Hydroelectricity is a form of hydropower and is a widely used form of renewableenergy. Hydro costs are very site specific and arerelated to energy output. Low head systems costsaround £4,000 per kW. A typical 5kW domesticscheme may cost up to £20-25,000. Hydropower offset projects can cost from £7.50 - £16.50 per tonne CO2



Solar Power:

Solar power is the conversion of sunlight into electricity by photovoltaics andconcentrating solar thermal devices (water heating).A domestic sized Solar PV system can save around1.2 tonnes of carbon dioxide emissions per year andcan cost around £5,000 - £7,500 per kWp installed



Biomass:

Biomass refers to recently dead or livingbiological material that can be used as fuel. Abiomass stoves to heat a single room costs between£2,000 - £4,000 and provides a detached home with10% of annual space heating requirements couldsave around 840kg of CO2



Others:

Other offset projects include Cleaner Energy, Tree Planting, Rainforest Protection etc.

Source: PressSource: Press

Offset Tradingin different markets

(2008)

JointImplementation2%PrimaryCDM5%SecondaryCDM13%EU ETS79%Other 1%

Note:Other includes Voluntary OTC,CCX, Kyoto [AAU], New SouthWales, RGGI, Alberta’sSGER(a) and Other exchanges

Source: Ecosystem Marketplace,New Carbon Finance

EuropeanUnion EmissionTrading Scheme (EUETS) is currently theworld’s largestmultinational GHG-emissions tradingscheme. In 2008, theEU ETS market traded2,978MtCO2e, and themarket was valued atUS $94bn. EU ETScovers CO2 emissionsfrom approximately11,000 installations inenergy intensivesectors in the EU,accounting for approximately 46% of CO2 emissions per year EU intends to expandETS by linking it toother carbon tradingsystems by 2015 andinclude emergingeconomies by 2020