Perspective of Japanese Buyers towards Green -AAUs -opportunities and barriers-

Natsource Japan +81-3-5275-1710 www.natsourcejapan.com

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Perspective of Japanese Buyers towards Green-AAUs

-opportunities and barriers-

Facilitating Green Investment Schemes: first lessons learnt and the way forward Central and Eastern Europe, Belarus, Russia and Ukraine

Budapest, April 24-25, 2008

Itsuho Haruta

Natsource Japan Co., Ltd.


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Natsource Japan ~ Organization ~Natsource Japan ~ Organization ~Natsource Japan was established in May 2001, as a unique firm with multi private sectors’

shareholders.

Natsource JapanTokyo: Carbon Transaction

and Advisory

Natsource LLCNew York: Asset Management

Natsource LLCNew York: Asset Management

Totan HoldingsTokyo:Financial Products

Brokerage

Totan HoldingsTokyo:Financial Products

Brokerage

Other Shareholders

•Cosmo Oil Co., Ltd.

•ICAP Totan Holdings Co., Lt

d.

•Mizuho Securities Co.,Ltd.

•Nippon Petroleum Refining

Co.,Ltd.

•Osaka Gas Co.,Ltd.

•Sumitomo Corp

•The General Environmental T

echnos Co., Ltd.

•Tokyo Gas Co.,Ltd.

•Tokyo Sangyo Co.,Ltd.

•Toyota Tsusho Corp

Mitsubishi CorporationTokyo: Trading Company

Mitsubishi CorporationTokyo: Trading Company

Mitsubishi InternationalNew York

Mitsubishi InternationalNew York


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Natsource Japan 　～　 ActivitiesActivities ～sustainable development in the 21st century

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Advisory ServiceAdvisory Service

Natsource Japan

Transaction ServiceTransaction Service

Global WarmingGlobal Warming

CDM / JIProject

Carbon Fund

g-AAUs-AAUsCERs, ERUsCERs, ERUs

GIS

Collaboration with


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Kyoto credits: Buyers

Source: World Bank “ State and Trend of the Carbon Market 2007”


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Demand and Supply of Carbon Credits -1

Demand for Carbon Credits in: a) EU private sector…. 180 ～ 290 mt/y

⇒ NO g-AAUs, limited use of CERs/ERUs b) EU governments…. 20 ～ 110+ mt/y

⇒ Plans to use Flexible Mechanism c) Japan…. 52 ～ 70 mt/y

⇒ -Government (20mt/y=-1.6%); -Private (32-50mt/y)

d) Any other countries? --- 1,100 ～ 2,100 mt/y ?? ---

- Demand -

Source: Commission of the EC


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Demand and Supply of Carbon Credits -2

a) Project pipeline and estimated delivery

(as of Mar, 2008)

CDM+JI ⇒ 3,300+ projects

Credits Volume by ’12 ⇒ 2,700+ million tonnes

Any shortfall in delivery? ?

---1,900～ 2,200 mt---

b) Green-AAUs ⇒ 1,750 - 4,700 ?

- Supply -

Source: UNEP Risoe Centre


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Supply & Demand OverviewGreen-AAUs

Demand by 2012 Supply (likely to sell in the near future only)

EU Gov. 20-200 ?? Russia 1,000-3,000

JPN Gov. 60 ? Ukraine 400-1250

JPN Private 30 ? Poland 200-300

NZ Gov. 10 ? Czech 95

Canada Gov.

0 Latvia 30

U.S. 0 Hungary 30

TOTAL 120-400 TOTAL 1,750-4,700

There is a significant GAP!


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-0.6%

-6%

Japan’s GHG Emissions (FY 2006 - preliminary draft)

1,100

1,200

1,3001,261 mt

1,359 mt1,341 mt

1,185 mt

Sink: 3.8%Kyoto: 1.6%

Further 7%Reductionsare required

Base Year Emissions ('90 +) FY2005Emissions

FY2006Emissions

Kyoto PeriodEmissions('08-'12)

million tonnes

Japan’s GHG Emissions


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Demand of g-AAUs in Japan -1

Demand of Green-AAUs in Japan Maximum Demand for g-AAUs in: a) JPN private sectors…up to 10mt per host country ⇒ unlikely to purchase bulk g-AAUs from one

country = “country diversion” policy b) JPN public sector… >100mt in total but..

(1) has purchased approx. 20mt through CDM (2) has entered into MoU with Hungary and Poland -20mt? (3) expressed that it would reduce by domestic measures for

its 7% surplus (4) is only planning to purchase “Kyoto Units” for 100mt

⇒ no assurance for future national budget to purchase more than planned…⇒ price limitation on g-AAUs against other Kyoto Units (i.e. Chinese Primary CERs)


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Price expectation of g-AAUs in Japan What are the initial asking prices of the

sellers? Indicatively € 12-15 from a few host countries

Where are the appetites? € 4? to €10??

Depends on domestic measures in the host country (i.e. Degree and credibility of Greening)

Lower price attracts more demand There is a gap!


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Expectation towards host countries

-Regulatory-1. MoU between the parties

MoU w/ Japanese Government is in place; or The host country does not require MoU

2. Legislative development Transparency in legal authority for the handling of g-AAUs Traceability of the funds (preferred less than 10 y) Transparent reporting system of emission reductions by GIS Robust human resources development programmes

3. Kyoto requirements Kyoto Eligibility for International Emission Trading

4. Preferable Greening Project Nothing particular but “No Go” to Nuclear


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Expectation towards host countries

-Commercial-1. Payment on Delivery of g-AAUs

Potential buyers maintain high creditworthiness - Aa to A by Moody’s

2. Without escrow arrangement for the paymentDitto -high creditworthiness

3. Price Competitiveness Buyers compare g-AAUs with Primary CERs Buyers are anticipating bearish market on g-AAUs

4. Contract Neutral governing law


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Other Information to be aware…Private Sector1. Timing of Purchase

Some are ready for g-AAU transaction “First mover” may proceed next transaction with same buyer in larger volume We are ready to represent the demand

2. Eligibility of the private buyers for g-AAUs Confirmed: “Legal entities who opened registry account” are eligible.

…approx 120 entities had opened their accounts3. Mandate for the private buyers;

Keidanren’s voluntary target Any Kyoto Units are eligible for its compliance (Tangible replacement may be required for t/l-CERs)

4. ITL Connection: Japanese registry has linked with ITL since Nov 15, 2007 Barrier for EU member states to deliver g-AAUs to JPN by CITL-ITL connection


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(A) Direct Acquisition as a Project Implementer

Non-Annex Iproject implementer

NEDO

UNFCCC EBCredits

ERPA

Sharing contract

Issuance

Annex I project implementer

Project Participants

NEDO is aiming to acquire credits through the following methods this fiscal year: (A) Direct Acquisition as a Project Participant - Participate in projects and sign emission reduction purchase agreements (ERPA) with other project

implementers, NEDO will acquire credits directly from the credits issuers (the UN CDM Executive Board (CDM) and Annex I countries (JI and GIS)).

(B) Indirect Acquisition from Annex I countries (i.e. through Natsource Japan/Affiliate) - Purchase AAUs with ERPA from Annex I countries who have eligibility of IET.

(B) Indirect Acquisitionfrom Annex I country

GIS Host CountryGIS Host Country

NEDO

Natsource Japan / Affiliate

ITL

AAUs

ERPAPurchase agreement

ERPA

AAUs

Transfer

Transfer

CDM Project Scenarios GIS Scenarios

Public sector’s purchase programme


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Thank you for your attention

Köszönöm!

ありがとうございました

Please contact to…

Itsuho “Harry” Haruta ([email protected]); or Toshiaki “Toshi” Abe ([email protected])

for further GIS inquiries

Perspective of Japanese Buyers towards Green -AAUs -opportunities and barriers-

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