Opportunities in greenhouse gas emission trading

1
Opportunities in greenhouse gas emission trading

• Dr Josef Janssen
• Managing Director
• European Energy Venture Fair 2004
• Zurich, 28 September 2004

2
Overview

• About ETSG
• Global greenhouse gas markets
• CO2 emissions trading in the EU
• Opportunities
• Conclusions

3
ETSG in brief

• Professional service firm focussing on greenhouse
  gas markets
• Spin-off of University of St. Gallen (HSG)
• Aktiengesellschaft headquartered in St. Gallen
• Core competences in finance, economics and
  business administration
• Main target markets Germany, Italy, Austria,
  Switzerland
• Our philosophy
• Making the best of greenhouse gases
• Taking advantage of greenhouse gas markets

4
Products and services
Strategy Developmentand Implementation
Market Access
Project Development(JI, CDM, etc.)
IT-based Tools
Financial Solutions and Risk Management
Training and Seminars
5
What is being traded on global greenhouse gas
markets?

• Emission allowances and credits of six greenhouse
  gases (GHG)
• Conversion into CO2 equivalents (CO2e) by global
  warming potential
• Absolute values tonnes of CO2e
• Do not confuse with green certificates

6
Structure of global greenhouse gas markets
Use of JI and CDM in the EU regulated by Linking
Directive
7
Total estimated value of project-based (mainly
JI/CDM) greenhouse gas deals million USD
Source Lecocq, F. (2004), State and Trends of
the Carbon Market, World Bank
8
Project cycle of the Clean Development Mechanism
Process advanced to first request of registration
9
First request for registration (01/09/04)
decision by CDM EB due on 27/10/04
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Emissions trading in the EU (cap-and-trade system)

• EC Directive 2003/87/EC from 1 January 2005
  onwards covered installations in the EU-25
  emitting carbon dioxide (CO2)
• need to have a permit to emit
• are allowed to emit not more than the total
  quantity of their allowances
• allocated emissions allowances
• bought allowances
• sold allowances
• Sanctions for non-compliance
• 2005-2007 40 EUR per tonne CO2
• 2008 onwards 100 EUR per tonne CO2
• publication of the names of operators (Name and
  shame)

surrender amount of the deficite allowances
next year
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Activities covered in EU emissions trading scheme
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EU emissions trading scheme what happened since
last EEVG?
10/2003
Entry into force of Emissions Trading Directive
04/2004
Adoption of Linking Directive regarding Kyoto
Mechanisms
07/2004
European Commission approves National Allocation
Plans of Austria, Denmark, Germany, Ireland, The
Netherlands, Slovenia, Sweden, UK
09/2004
All National Allocation Plans published, except
for Czech Republic, Greece, Hungary
2005-2007
First trading period use of emission credits
from Clean Development Mechanism projects for
compliance
2008-2012()
Second () trading period use of emission
credits from Joint Implementation and Clean
Development Mechanism projects for compliance
13
Accumulated distribution of plant operators and
allowances in Germany (provisional)
14
Ten largest plant operators covered in Germany
allowances and share (provisional) Mt CO2
15
Price development in EU market 2005 forwards(in
illiquid markets!)
Estimated volume 2003 gt 650 kt CO2 01-06/2004
gt 200 kt CO2
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Price predictions for CO2 allowances (POLES)
Benchmark for price expectations?
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How can alternative energy companies benefit?
Reduce GHG emissions or energy consumption
Generate marketable surplus allowances
As operator of plants
Earn marketable emission credits (via JI/CDM)
Increasing power prices (in the EU)
As operator of power plants

• Increased demand for GHG reducing technologies,
  depending on specific abatement costs
• Sharing of emission credits / allowances

As provider of (energy) technology
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Increasing the rate of return of (project)
investments through the Kyoto Mechanisms
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Expected impact of emissions trading on wholesale
power prices (Ilex, 2004)
20
Opportunities for technology providers examples
of greenhouse gas reduction projects

• Incineration of HFC 23 waste streams
• Landfill gas capture and flaring
• Renewable energy generation
• Removal of nitrous oxide from the stack gases of
  nitric acid plants
• Manure management systems
• Fuel switching from coal and petroleum fuels to
  natural gas
• Recovery and utilization of gas from oil wells
• Capture and utilization of methane emissions of
  municipal solid waste disposal

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Opportunities for venture capitalist in GHG
markets?
Market players
Examples(established / start-up)
Project developers
IT Power / Camco
Technology suppliers
VA Tech Hydro / Ocean Power Delivery
Traders, brokers, trading platforms
RWE Trading, Greenstream Network
At all stages established companies and new
specialised ventures
Suppliers of climate-neutral products
Future Forests
Software providers
SAP / CarbonSim
But limited market potential and high
(political) risk (entry into force of Kyoto
Proctol etc.)
Consultancies
PWC / ETSG
Information providers
Dow Jones / Point Carbon
Providers of measurement devices?
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Main conclusions

• Mandatory CO2 emissions trading system in EU-25
  by 2005, even if Kyoto Protocol should not enter
  into force (no ratification by Russia, USA)
• Global GHG markets are emerging, but limited size
  and uncertain future
• Educated guess on CO2 prices 5-15 EUR / tCO2e
• Alternative energy companies can benefit form
  emissions trading
• by generating (surplus) emission allowances /
  credits
• as a result of increasing power market prices
• increased demand for alternative energy
  technologies
• Besides established firms also start-ups active
  in CO2 markets, thus opportunities for VC
  investments
• Recommendation explore the specific implications
  of emissions trading on your (future) investments!

23
Thank you for your attention!

• ETSG
• Emissions Trading Solutions St. Gallen AG
• Dr Josef JANSSEN
• Neugasse 24
• PO Box 513
• CH 9001 St. Gallen
• Schwitzerland
• Phone [phone]
• Fax [phone]
• Josef.Janssen_at_etsg.ch
• www.etsg.ch