William A. Orme WORKING PAPER SERIES · decide the company's investment behavior, whichis one of the complex factors of company policies and management. Policy support the company

College of Business Administration

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2013/2014 No. 8

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WORKING PAPER SERIESencouraging creative research

Office of the DeanCollege of Business AdministrationBallentine Hall7 Lippitt RoadKingston, RI 02881401-874-2337www.cba.uri.edu

William A. Orme

Juan Yu, Xia Pan, and Jeffrey E. Jarrett

The Impact of "Low-Carbon" Economy to Corporate Financial Performance

The impact of “low-carbon” economy to corporate financial

performance

Juan Yu

Sun Yat-sen University

Xia Pan

Sun Yat-sen University

Jeffrey E. Jarrett

University of Rhode Island

The impact of “low-carbon” economy to corporate financial

performance

Chapter I Introduction

1.1 Background

Mankind has beenfightingwith nature since recorded history. With thedevelopment of human civilization, human beings are increasingly willing to usenatural resourcesfor the development ofourselves. However, especially since the industrial revolution,inprocess of abuse resources peopleignore the consideration about future. Global warming, carbon dioxide emissionshas causedthe greenhouse effect; natural disasters,floods, droughts, tsunamis and other extreme weather eventsare the nature revenge behavior for human excessive destruction. Fortunately, the world has reached a consensustoimprove theharshconsequences.WMO (World Meteorological Organization) andUNEP (United Nations Environment Program) jointly establishedIPCC (the IntergovernmentalPanel on Climate Change) in 1988,whichorganized more than3,000scientists forscientific assessmentsof global climate change(Lu Xuedu, 2007) .In the next few years, there werea series of meetingsto confrontclimate change.In December 1990, the 45thsession of the UNGeneral Assembly decided tomakethe United Nations Framework Convention onClimate Change; InFebruary 1991, officially launched thenegotiationsfor thisConvention. Aftera long time negotiation, onMay 9, 1992, theyadopted the United Nations Framework Convention onClimate Change;the conventioncame into effecton March 21, 1994.On December 11, 1997, United Nations Framework Conventionon Climate ChangeKyoto Protocol wasa “commitment” supplement of the fourthConvention. And the protocol providedthe obligation forthe developed countries, which they shouldreduce emission under the law in2008 to 2012.On February 16, 2005,the Kyoto Protocol came into effect (Lu Xuedu, 2007). Kyoto Protocol includes the emissions trading scheme, cleandevelopment mechanismand joint implementationproductionmechanisms. Protocolis the firstconventionto coordinatethe International Climate Change, and the Clean Development Mechanismasa portion that is the onlyoneinvolved indevelopingcountries to reduce emissionsperformance mechanism. The core

contentis thatdeveloped countrieswho undertake emission reductionobligationsshould invest anddevelopreduction projects in developingcountries, such as renewable energy, energy efficiencyor improvedprojects, etc.(Song Yang, 2010). Then theseprojectsgeneratetheCER (Certification Emission Reduction) which had committed by acquisition to completethe reduction obligations. Meanwhile developing countriescanbuildCDM projectsby domesticintroduce the international advancedemission reduction technologiesand receivefunding fromdeveloped countries, while it isefficient to sellthe CERs generated by project itselfto get theeconomic benefits. Chinais alarge developingcountry, and it is naturallyto be the main experimental country to implementthe CDM. TheChinesegovernment signed the Kyoto Protocolin 1998 and approvedin 2002(Song Yang, 2010). Chinaisnota party toundertakeemission reduction obligations. But untilOctober 2009, the Chinese government has approved the2232CDM projects, of which 663had receivedthe successfulproductionregistration ofUN's CleanDevelopmentMechanism ExecutiveBoard, and the registrationnumberand annualreductionsranksare the first in the world(HanJie, 2009).

1.2Research Methods

This articlewill use the method:comparative analysis; analysis thesamplefinancial data fromfouraspects. Comparethe financial statements of companies that introduceand not introduce CDM project in the similar size aboutsamedomesticindustry.This includesthe energyindustry, chemical industry, power industry, materials industry, etc.And the companysuit for environmental projects introduction.Compared several aspects of the data before and afterthe introduction, such asp/e ratio,the main businessprofit margins,return on net assets, return on assets, and we can find the impact of CDM projects on the company in themarket performance, growth capacity, profitability,solvencyand other aspects.At the same time, compared the relevant data of introduction andnon- introductioncompanyand look at differences offinancial statements abouttwocompanies.By thevertical and horizontalcomparison,it concluded whether the “low-carbon”had an impact on the company's financialdemands, if worked, what effect would it generate.

1.3Research Significance

Worldwidegreenis a hottopic, and the developed anddeveloping countrieshave both joinedthisglobal protection battle. The CDM ofKyoto Protocolcombined the developing anddeveloped countrieseffectively,and the protocol madeparticipantsinthis battlecan getwhat they need ina win-winstrategy. From many research reports on

socialeffect,the local economy,as well asenvironmental effects whichhave clearlyadvocatedthe development ofmechanismsto promotecleaner production. From the aspect ofthe individualcompanies, theyconcerned more aboutthe realeconomic benefits brought by the project itself; asa listed company, investorsalsoneed thefinancial statements performanceto rise up confidence about company; asthe industrycompetitors, they are waiting to seethefinancialeffect oftheimplementationprojects. During the 2012 protocol on maturity date, everyone is waiting and discussingthe CDMprojects futureof sustainable development. Therefore, the study“low-carbon”financial impacton the companybecomesverynecessary. From a macroperspective,the green economyis a big trend, and the future development prospects arebright.If the relevantenterprisescould give a hand,the sustainable developmentof the companywilladd anotherforce. Whilesomepeopleareoftenaffected bynegative newsand thesense of trustto companies are less and less.If companiesconsiderhuman living environmentas one of their ownstrategy, it will bring more publicconfidence aboutthe enterpriseand increasethe enterprise's social reputation. This goodaffectcontribute to the organizationlong-term development. From a microperspective,if companies wanta win-winsituation, they should pay moreattention tospecific benefits caused by the individual enterprisesabout the greeneconomy. In summary,“low-carbon” is worthy to studyboth in companyindividualimpactsandfinancial impacts.

1.4Structural Arrangements

This article is divided intofive chapters. Chapter I.Introduce the background and research methods of this subject. Besides, recommendthe significanceof this topicand thearrangement oftextstructure. Chapter II. The literature review. It illustrates the necessity of “low-carbon” for the globalindustrial development, from aspects of domestic and foreignpolitical, economic,social, technological, environmental, legally and so on.Itwill alsointroducesome detailsof CDM projects. The CDM projectsare hottopic oflow-carbon economy, and arethe mostcompelling evidence of green economy. This chapterdescribesprevious studieshave demonstratedthegreenbenefits as well, includingsocial, environmental andeconomic aspects.Raisedthe lacks ofprevious studies, andthis studyis based onthe inadequacies, soit isthe necessityfor this study.

Chapter III.Theempiricalcase.It willusethe CDM project as the representative to confirm the low-carbon economics effectiveness. Thislarge amount of datawill becollectedand organized,and the research samples are the financial data of 21listed companies,showingits financial indicators about profitability, solvency, growth capacity andmarket performance. In thischapterit will alsointroducethe content of 21companies CDMproject, and predicttheCERearnings. Chapter IV.Case studies. Use the method to analyze thefinancial indicators ofthe financial statements in last chapter, and try to findwhetherCDM projectshad asubstantialfinancialimpact. Then,explainthe inherentdeficiencies of this analysis. Chapter V.Conclusions and implications.In this chapter we summarizethe mainconclusionsand find thenew problems. Pointed outthe problems foundduring the analysis, and give thesuggestions to improve theseissues.

CHAPTER II Literature Review

2.1 Concept of GreenAppeal

Green appeal refers to a low carbon economy. By a variety of means to minimize the energy consumption of coal, carbon, oil, such as: technology innovation, industry transformation, new energy development, whichreduce greenhouse gas emissions and achieve a win-win economic development abouteconomic and social development and ecological environment protection. Low carbon economy is related to an international political problem. Consider the game between developed and emerging countries, it can be thought that the developed countries are trying to use the technology and legal to restrain the development of developing countries in their control. The purpose of developed countries is to control the world pattern continuously(Zhou Yi, 2010). In fact the process of historical evolution is also the process of legalization of low carbon economy development. It is a matter of property right definition and classification problems about international public goods - global atmospheric environmental resources (greenhouse gas emissions capacity resources), and the extension of the identified environmental rights of new international political and economic order. So the essence of low carbon economy is the politicized environmental problems. And low carbon economy has a great influence on national economic competitiveness. In 40 years of global climate negotiation, the western developed countries have always mastering the voice, andthe developing countries are essentially pulled into the rank of common responsibility, but the technical and financial aspects did not reach the original ideal state. In June 2007, China National Climate Change Program was official launched in China. There are two positive roles to develop the low carbon economy in China. One is to actively take responsibility of environmental protection, thus we can accomplish the indexof national saving energy and reducing consumption; another is to adjust the economic structure andto improve energy utilization efficiency. This is the best choice to make a win-win situation of the economic development and environmental protection (Zhou Yi, 2010). From the view of economic, low carbon economy is to adjust the structure of traditional economy, from high carbon energy model to energy efficient, low energy consumption and low carbon emissions economic development model. In the final analysis, the purpose and significance of economic development is to improve the

quality of human survival, not just for material abundance (Zhou Yi, 2010). In 1996 the United Nations conducted supplementary conditions, resulted the Kyoto protocol. This is a good opportunity for the developing countries to evolve the economic and adjust the economic structure. And it is not only benefits the technology transfer, but also introduce foreign investment fund in developed countries. The CDM stimulate the investment boom of "low carbon" (Nathan e. Hultman, Simone Pulver, LeticiaGuimar ~ aes, Ranjit Deshmukh, Jennifer Kane, 2010). Policy decide the company's investment behavior, which is one of the complex factors of company policies and management. Policy support the company investment in the "low carbon economy", and the CDM is a form of investment. A different impact on the company's investment behavior will caused by updatingthe fund combination of energy investment, importing tariffs and setting low carbon trading market rules, etc. The CDM develops fast and in 2008 CDM market capacity was about $6.5 million(Capoor and Ambrosi, 2008). Despite the success of the CDM has stimulated the project promotion in different industries, but it also has defects (Mathy et al., 2001; Streck, 2004; Wilkins, 2002). In the initial stages of CDM project promotion, the different purpose to implement CDM project developed the mechanisminto different aspects. Some people will emphasize the CDM's role in sustainable development (Hultman et al., 2009). On the other hand, some people think that the success of the CDM is that they found different ways to reduce costs in different countries (Wara, 2007). But in terms of CDM investment, the low carbon economy is just a small part of investmentthat has theextremely potential to develop. Although the development of the CDM is not mature, there are many countries involved in a short period of time, and CERs sales bonus, which contributes the actual economic benefit very considerable. The validity of the CDM is 2008-2012, but after 2012 there still will be many companies that are willing to develop the project. In September 2009, President Hu Jintao promisedin the United Nations climate change summit: "China will further cope with climate change into the economic and social development plan, and continue to take strong action. Firstly, strengthen energy conservation and improve work efficiency. The unit gross domestic product for 2020 carbon dioxide emissions would decline significantly than in 2005. Secondly, vigorously develop renewable energy and nuclear energy, and non-fossil energy will have a proportion of 15% in 2020 primary energy consumption. Thirdly,increase forest carbon sink. There are about 40 million hectares forest area and 1.3 billion cubic meters forest volume more in 2020. Fourthly, vigorously develop the green economy and actively develop low carbon economy and circular economy, at the same time to research and develop the promotion of climate-friendly technologies" (Hu, 2009). This commitment indicated the direction of the future economic development in China, and also broughtnew challenges for Chinese development. The enterprise plays an irreplaceable important role in this new challenge. Its role is different from the government or the public. Low carbon technologies involved in

electric power, transportation, construction, metallurgical, chemical, petrochemical and other industries, including the renewable energy and new energy, clean utilization of coal, oil and gas resources and the development in the field of new technology to effectively control greenhouse gas emissions. The enterprise that have a strategic vision will pay close attention to national "low carbon" policy , then invest low-carbon economy to cope with the situation changes both at home and abroad. While observe the legal system construction of low-carbon economy in the view of law, legal rights and obligations achieve the social pattern adjustment of low carbon economy by configurate different social relations. On the adjustment process of legal mechanism, it should pay attention to the accurate positioning of the government's role, stimulate the social responsibility of enterprises and encourage the public to personal participation mechanism (Yang Weisong, fan carrier, 2010). Above all, low-carbon economy has a profound significance in terms of political and economic development, and the broad support of society and the sound legal system are provided a hotbed for the development of low-carbon economy. Referred to a low-carbon economy, it is inevitably refer to the current hot topic - the clean production development mechanism (CDM), and the following article will be focusing on the concrete embodiment of low carbon economyof CDM projects.

2.2 Introduction of CDM

The world is to accept the challenge of severe climate change, and people all over the world are considering the solution. The Kyoto protocol, which is arose at the historic moment. This is the first international treaty aimed at coordinating work on climate change. It is a treaty that industrial power except the U.S.have obligation to reduce the greenhouse gas emissions. The CDM as part of this convention, allows developed countries investment and development reduction projects in developing countries, such as renewable energy generation, energy efficiency or improvement projects, etc. And obtain CER produced by these projects. The action leads to a lower cost to fulfilldeveloped countries’ obligations.Developing countries gained development investment capital and advanced technology in CDM project, and substantial economic benefits were obtained through the sale of CERs (Song Yang, 2010). There aremany environmental projects and several standards to identify whether it belong to the CDM project. The test focus on the reality of emissions reduction effect, measurable properties, and the additional of project. “Additional” refers to the comparedthe emissions data of a potential project with a reasonable reference scenario known as baseline emissions (Song Yang, 2010). Project need to build a monitoring plan for accurate data collection, in addition when project owners measure

the data they should refer to the methodology approved by international CDM executive board (EB), including baseline methodology and monitoring methodology, and the measuring emissions will be more authenticity and credibility. Of course, the project owner can develop their own new methodology for monitor which obtain the EB recognition. In China, projects and monitoring methodology need to be approved by the national development and reform commission (NDRC). The CER is 8euros/ton to developed countries, according to the national minimum price. As an example to illustrate the sale of CERs brought considerable economic benefits. Assumed a 10 million KWH joint heat supply project, and estimated annual reductions emission can be up to 10 tons.Thus sale CERsone year, the revenue is 800,000 euros. Of course, the final reduction benefits of this project is not only this part, but also includes the activities of the project, such as: produced in generating capacity, energy saving, heating value, etc. (Song Yang, 2010). CDM projects should be consistent the following several aspects of requirements and choices: (1) conform the requirements of sustainable development, which means it is conducive to the development of national economy, local economic development, increase employment, and environmental protection; (2) the project meet the national standards and can be approved by the national development and reform commission (NDRC); (3) the development of the project must be able to obtain additional funding and access to advanced technology support; (4) the reasonable CERs sold price; (5) the design of project file should conform to the stipulations of the convention; (6) appropriate methodology selected by the project. Although the vision of CDM project development is very good, but is still meet with some limitations in the process of implementing. After the international level of big discussion, the bureaucracy and implementation of CDM projects has a big improvement, but it is still a discomforting problem in the later operation mechanism. (Heller and Shukla, 2003; Brown et al., 2004; Sterk and Wittneben, 2006). In spite of the CDM is designed to provide additionalincentive onimproving climate change and the necessary technology, and resources on reducing greenhouse gas intensity project development. The biggest controversy is that with the increasing number of CER emissions,the trading capital is high. And there is no economic feasibility for small-scale CDM projects, because of high transaction costs and the complicated bureaucratic approval process (Brown et al., 2004; Taiyab, 2006). It is more likely to establish and implement CDM projects in large developing countries, such as: China, India and Brazil. While for small developing countries the investors will detour, such as: Africa (Bob Lloyd, SrikanthSubbarao, 2009). The limitations of CDM projects need to ponder question for globalization development clean production mechanism.

Many previous literature researcheson CDM projectswere from the social effect, international policy and regional economic analysis. A consensus was reached that cleaner production development mechanism is a win-win mechanism of international economic cooperation. Clean development mechanism(CDM) is one of the three flexible mechanisms of the Kyoto protocol, and have a closer link to the developing countries such as China. On the one hand, this mechanism alleviates the contradiction between the developed countries and developing countries. On the other hand it also create good development opportunities for developing countries. Since February 2005 the Kyoto protocol took effect, the greenhouse emissions has entered a quantifiable era, and has promoted the relationship between developing countries and developed countries in dealing with international economic cooperation on climate change. The international carbon trading can be divided into two models: the EU emissions trading system and the CDM. Each play a role in the development of united carbon market. Previous papers analyzed the trading system and wanted to get some ideas from the mature EU emissions trading system that developed in the third stage mechanism. The CDM is in the first stage of development.And it has beenchallengedfrom internal and external, especially from a strong impact on the EU emissions trading system. In order to keep the energy of Kyoto mechanisms, CDM must learn from the EU emissions trading system. The origin of two systems is different. The European Union emissions trading system was based on the agreement whichthe European Union and the international environment committeereached on July 2003 and came into effect on January 1, 2005.It allowed the EU member states enterprises freely trade the greenhouse gas emissions reductions, according to their respective cost differently. From the market trade, carbon emissions quotas fulfill its legal obligations or make a profit. This means the EU have a relatively low cost to perform the Kyoto commitments, and help to complete the EU emissions targets in the longer term. At the beginning of designing the European Union emissions trading system, itmight involve related problems and specific implementation in detail from the horizontal and vertical level. (Chan, 2011). CDM is the only emissions system based on the model project which linked to developing countries. In the first stage, it facesthe inadequate legal system and management system and commercial risk. Besides,there are existing questions on whether it can truly achieve the emission reduction targets and achieve sustainable development. So if we want to continue to grow in the second stage, we have to revolutionize the system. From an economic sense, the CDM can be explained by the natural endowments theory of the international trade (Heck Herschel, 1919). The core content of natural endowmentstheory is the basis of mutually beneficial trade between countries lies on different resources. According to the natural endowments theory a country

comparative advantage is to export products which intensively use the relatively abundant and cheap production factor, and import products which should be intensively used the relatively scarce and expensive production factor. In short, the country is rich in labor export the labour-intensive goods, while import capital intensive goods; On the contrary, the country is rich in capital export of capital-intensive goods, while imported labor-intensive goods. Considering environment, capital and technology as production factors, the difference in environmental protection and supervision make the cost of environmental protection differently. Depending on the natural endowments theory, the two countries trade is set up. The endowment cost little, and the environmental regulation treatsdeveloping countries as a group loosely; and the endowment cost highly, environmental regulation treat developed countries as a group strictly. Developed counstries should export reduction projects, and use their own money and technology to help developing countries complete the project operation and development. While the developing countries that have high natural endowment, but lack in technology and funds should sell their CER to developed countries and trade between the two countries. It turns out that CDM follows this principle in practical operation. And according to the natural endowments theory, the international trade transactions will get benefit from the trade and improve the amount of the country welfare (Zhou Yangyang, 2011). And as a participant of the CDM, China have huge impact on present and future. In the short term, there is no pressure to reduce emissions of China andwe can introduce foreign capital and advanced technologies during emissions trade. This will help Chinese enterprises establishCDM as the core circulation capital by using model to set up the consciousness of energy conservation and emissions reduction. But in the long term, with the evolution of the international situation and the growth of the economy development in the future, we will also bear the obligation to reduce emissions. Now developed countries can get returns at a smaller cost. But according to the law of diminishing marginal returns, it is impossible to obtain the same scale taken by developed countries by investment the equal amount of money and technique. Chinacan introduce the equipment to carry out CDM projects, but we have to research products, becauselong-term development depends on ourown innovation ability. A lot of researches are from the perspective of the future of CDM and countermeasures that China is likely to take. The Kyoto protocol expires in 2012, and the CDM will also expire. There are difficultiesin the second commitment period of negotiations, but the world has put a lot of human resources and capitals to build the basic condition of the project, such as the methodology of research. So the CDM has few opportunity to be cancelled, otherwise it will cause a huge losses. And the home and abroad pressure would forcethe United States involved in the Kyoto protocol.The commitment to reduce emissions quantity will rise and involve the U.S in,an important potential customer of ChinaCDM market. At present, the main market of China CDM project is the European Union and Japan, and these countries regional

emissions trading system support the development of international greenhouse gas emission market.CDM projects will play an important role in this market , because of the advantages in the relatively low reduction carbon cost. No matter what results come out in the later conference to the Kyoto protocol, China and the conduct of CDM project will not be impacted strongly. CDM can sustainable develop in the foreseeable future, and the rules could be more strictly in the future of the Kyoto protocol.It probably requires a commitment from the developing countries to reduce the carbon emissions. In response to this change, national development and reform commission (NDRC) will do appropriate resources reserves for the domestic buyer market which commit to reduce. But from the perspective of the marginal utility of reducing greenhouse gas emissions, China still has considerable reduction space. Therefore, we should actively prepare the CDM projects. Chinaset up Chinese CDM funds to finance the project development, responding to the development prospects of the CDM. The Chinese CDM fund have three sources:the national income gained by the CDM project transfer of greenhouse gas emissions; the operation income gained by fund itself;the donation income donated by domestic and foreign institutions, organizations and individual (li Yang, nguyen fragrance, 2011). And there are three dimensions the project development by funds support: the renewable energy sector, including hydropower, wind power, solar power plants and related equipment manufacturing; the clean energy, such as natural gas development and utilization, etc.; the efficiency energy projects, including industrial boiler, building energy efficiency and carbon dioxide emission reduction projects(li Yang, nguyen fragrance, 2011). In addition, ChineseCDM funds have some policy-related financing tool. First, preferential loans. Fund loan interest is lower 15% than commercial loansrate in the same period; Second, direct equity investment. It just belongs to the early stage, and many businesses are in the process of preparation; Third, cooperation with commercial Banks. Take financing guarantee mode, including products, supply and design (li Yang, nguyen fragrance, 2011)

2.3 Lack of Previous Study

Previous papers research the development trend and the economic profile which caused for the developing countries from three dimensions: the support of national policy, the project policy financing tools, and trend of the project itself. But there are some research projects focusing on individual company imported

development project. It is help for enterprises that implement the project, to a certain extent, it is enthusiastic. And investors are most concerned about financial data, if there is no research data to support, they will reduce the confidence to enterprise. In fact whether the project can continue grow, it depend on how much confidence project would bear and enterprise would receive. Thus the purpose of the research for this articleis to find more convincing evidence and make enterprise more interested in investing the CDM construction. At the same time we give more confidence to investors to pay attention to a green economy.

2.4 Introduction of the Important Analysis Tool

Combining the lack of the previousresearch, these articles will analyze financial statement analysis and the impact of CDM on the company. More intuitive reflected by the economic benefits will show whether is worth to promote the CDM. This article will use the important analysis tool: the comparative analysis of financial indicators. The trend analysis and the comparative analysis is the main analytic tools. Trend analysis is to analyze the contrast of project amount in early or continuous period. This method is a dynamic analysis which is longitudinal comparative analysis of financial statements program. By analyzing the contrast of project financial statements in currentthe stages and the early stages (last quarter, compared with the same period last year) we can find problems, reasons and the way to improve the work. The comparison of several phase of the project financial statements can reflect the trend of enterprise's development and reveal the current financial status. Finding the reason cause the operating condition changes. Finding the problem and evaluate the enterprise financial management level. At the same time, it can predict the future trend of development. Trade analysis is the contrast ofmain financial indicators between the enterprise and the enterprise or advanced enterprise in the same industry. It can evaluate the enterprise business performance comprehensive. Compared with the industry average index, we can analyze the enterprise locationin the industry; Compared with the advanced enterprise index, it is beneficial to absorb advanced experience and overcome the shortcomings of this enterprise.

2.5 Conclusion

This chapter presents the concept of cleandevelopment mechanism(CDM). Summarize the main ideas of the previous papers. Compared with the existing carbon

trading mechanism, the grown up in the EU emissions trading scheme has implications to the CDM and significance to CDMsustainable development. It is a win-win mechanism of international cooperation andgood for the developing countries and the developed countries. From the economics perspective, the CDM is necessary for development. The formation of the CDM can be explained by the natural endowments theory in the international trade. And make the trade demand between the high element endowment developing countries and the low element endowment developed countries. It also shows the prospect of CDM development and the countermeasure of China: the support of government policy, the fund of China CDM to solve project start-up capital difficult. In previous views, they give certain inspiration for the purpose of this document. There is a frame then to decorate by details. To observe, analyze and study the real benefits of the CDM. The topic of this paper is aimed at this situation. Study the exactly affects of the CDM for individual financial. The next chapter of this article will research the sample in detail.

CHAPTER III EmpiricalCaseDescription

3.1CDMproject and the approvalpolicies andstandards

There are many companies have responded the green economy in domestic, and the most popular is the CDM project . This is a measure of the actual cost of the project that followthe international trend . CDM is a promotional items which can be measured and have practical cost-effective. It can be used to explain the available and necessary of low-carbon, green economy. The empirical case of CDM projects is an evidence that green economy should be promoted through the benefits. This paper is standing on their own perspective of the individual enterprise, and it is more informative which will give more confidence to supporting individuals. Since January 25, 2005 the first CDM projects approved in domestic, the implementation have been done for the promotion of the CDM . According to statistics, Chinese CDM projects set mostly in economically underdeveloped regions, such as:Yunnan , Sichuan, Gansu, Inner Mongolia. The CDM projects for these regions are actually bringing revenue-generating opportunities and great benefit of local economy ( Yue Yifan , 2011 ) . Actually,the CDM need to be examined and approvedby the procedures for domestic and international. In China, the CDM project sponsor shall apply project design and other related materials for the NDRC. The NDRC receivethe application and commit relevant agencies to audit.If the audit passed , the project can be registered . Meanwhile the audited projects need to go through an operating entity of validation to ensure that theprojects conform to some requirements, such as: participators consensual, reasonable of baseline methodology and monitoring plan, additionalityof project ( Yue a Fan , 2011 ) . The CDM projects profit fromgreenhouse gas emission reductions owned by the state and the project implementing agencies of all. Other institutions and individuals may not participate in the transfer transaction reductions. By the Chinese CDM Fund Management Methods directed byChinese CDM Fund Management Center,the CDM projects collected funds from the transfer transaction reductions should support the climate change( Li Lu Yang, Ruan Fenfang , 2011 ) . According to international regulations, there arefour operating modes to run the CDM

project. First, the unilateral mode. As a developing country Parties, the independent functioning of the CDM project emission reductions can choose to sell to developed countries or self- storage. Second, bilateral mode. This is the most common mode in cooperation . Developed and developing countries signed a contract which developed countries provide technical and financial support, but developing countries must be sold the CERsto developed country Parties. Third, multilateral mode. Jointly established the Carbon Fund by a number of developed countries, and signed an agreement with developing countries. The final CERssold to developed countries by the proportion of investment. Fourth, the mixed mode. Combination of these three modes, this cooperative approach is suitable for large scale projects . These four modes are applied in our country, and the choice mainly base on the actual situation of the enterprise own. No matter which model the enterprise choices, they will actually generate the positive impact on economy, society and environment ( Yue Yifan , 2011 ) .

3.2CDMProjectsof Domestic Listed Companies 3.2.1 CDMproject companysample selectioncriteria Now,a large number ofCDMprojects wereapproved to implement in our country. Duringyears of efforts, thereare differentbenefitsembodied, especially economicthe benefits.Actually theproblem to exploreand researchis how theimplementation of this projectreflecton eachcompany's financialstatements, so we collected thelisted companies’CDM projectsdata toanalyze. The purpose ofthis paperis to useas muchtheexperimentalsample data as possible toreflect theaccuracy and objectivity of the analysis. But the business type of CDM projectsis certain,and it isfacilitate to getthe companyfinancial datathat come from the listed companieswhich is the most importantconsiderationobjects.By a lot ofonline search, we determinedthe mostrepresentative21companiesas the experiment sample. The data usedin the sampleare more than three years and valid in financial statementsreflection. Taking the impact into account, the financial statements isthe result ofa combination of factors. According to statistical principles, if the amount of observing datais large enough,other factors(non-green demandfactors) influencecan be seen asboth good and badrandomly distributed, and ultimatelygoodandbadcancel each otherout.Therefore,the financial impact ofthe greenappealwashighlighted.Ultimatelyreflects thecredibility ofthe conclusions ofthis analysis. 3.2.2introducespecific programs of CDM projects

Here is the introduction of 21specific projects sample data:the specific name ofthe project, content of cooperationand the expected profitsat the beginning of the project. 1) Juhua Co. ( 600160 ) Juhua Co. is a listed companythat lead to implement the CDM projects, in 2007 the first set of CDM projects completed. By the end of the same year, the company invested 27.95 million to construct the 570 tons / year HFC-23 Decomposition Project which is already the second set of CDM projects. According to the methodology approved that the greenhouse gas emission reductions are 4,713,400 tons / year and no less than 9 euros / tonne is expected to increase the annual sales income 152 million yuan. The operation period is seven years. 65% project revenues paid to the state, while 35% owned enterprises. ( Anonymous , 2010 ) . 2).Sanaifu ( 600636 ) ZhongHao Chemical holding 70 % shares.HFC-23 Decomposition Project ( CDM projects ) is successful registered on August 8, 2006, ZhongHao Chemical and World Bank signed a cooperation agreement, the emission reductions will be sold to the World Bank in 2007-2013. Sale price is 6 euros / tonne, and the expected total emissions of carbon dioxide is 10,437,249 tons annually. The project is the largest CDM projects that the United Nations successfully registered currently, and it is expected to increase more than 90 million for the company 's net profit every year. Thenet profit of ZhongHao Chemical is 110 million yuan (an increase of 327.7%). CDM project income 133 million yuan in 2007 ( Anon, 2010 ) . 3) GD ( 600795 ) On September 10, 2007 , GD Power Development Co., Ltd. and British Scottish and Southern Energy Supply Company (SSE Supply Company ) signed carbon emission reductions purchase agreement about three projects, such as: Liutaizi, Xingcheng, Liaoning , Linghainan wind power projects and so on. So far, the the trade volume on carbon emission reductions GD and SSE Supply Company isnearly 2 million tons, and the amount of agreement is over 20 million euros ( Anon, 2010 ) . 4) Qilian Mountains ( 600,720 ) The company signed a cooperation agreement with the Swedish Energy Agency in June 2006. Cement Company of pure low temperature waste heat power plant project in greenhouse emission reductions will be sold to the Swedish Energy Agency in accordance with the purchase agreement which registered as a CDM project about seven years since the first crediting period . While the second and third crediting period can also be sold. The company could obtain an annual transfer revenue about 2million ( Anon, 2010 ) . 5) Tianfu Thermoelectric ( 600509 ) Tianfu Thermoelectric transferred the CDM projects greenhouse gas emission reductions to the Tokyo Electric Power Companyon February 7, 2007, and the transfer period is six years; the transfer price is not less than $ 12 / t; total volume is no more than 950,000 tons of carbon dioxide equivalent. Estimates, the project average annual increase income is 14million and 230 thousand yuan ( Anon, 2010 ) . 6) Conch Cement ( 600585 )

The subsidiary Ningguo Cement put the heat power generation project ( CDM projects )into operation in August 2006. The project has received approval from the NDRC; stable generator output above 9100KW; the international partners is CAMCO International Limited. This project is expected to reduce power consumption 0.07 billion KW, electricity costs more than 2,000 yuan and 55,897 tons of carbon dioxide emissions ( Anon, 2010 ) . 7) Liu Co. ( 600 423 ) The company and the British EcoSecurities International Group signed a letter, which intent to carry out the project emissions tradingin March 2006. The greenhouse gas refers to nitrous oxide, and is belong to CDM category. In January 2007 they signed a CDM project with Japan's Mitsubishi Corporation, and this project was officially registered at the UN on May 9, 2008. The project total emission reductions is about 1 million tons / year ,which N2O can be converted into carbon dioxide. Agreement price is 10.5 U.S. dollars / ton; expectedgeneration is $ 3 million / year; the period is from 2008 to 2012 ( Anon, 2010 ) . 8) Tongli Cement ( 000885 ) The CDM projects of Tongli Cement is a WHR cogeneration projects of itssubsidiary theZhumadian Yulong Tongli Cement Co.. This project was successfully registered in the Executive Board of the UN in June 2007. Its foreign partner companies is Sweden Carbon Asset Management Ltd. ( Anon, 2010 ) . 9) Jinshan shares ( 600,396 ) In July 2006 , the holding subsidiary Liaoning Zhangwu and Liaoning Kangpingsigned a CDM project cooperation agreement with Sweden AB Co., respectively,. The transfer of greenhouse gas emission reductions of two companydoes not exceed 90 million tons; the transfer price is not less than $ 9. Deducted from the cost, electricity sales revenue can increase per kilowatt-hour 0.05-0.06 million ( Anon, 2010 ) . 10) Nanjing Iron & Steel ( 600282 ) In July 2006 , Nanjing Iron & Steel corporate with World Bank that is the custodianof Italian Carbonin CDM projects. This project was approved by NDRC, and Nanjing Iron & Steel is the implementing agencies for the project. Project lasted for 10 years; a total trade is 650 thousand tons; the transfer price is not less than $6.25 / ton; expect to have a $ 4,062,500 total income( Anon, 2010 ) . 11) Jingneng Thermoelectric ( 600578 ) Jingneng Thermoelectric is fundedby Guohua Energy, and there area total of 14 CDM projects approved by the NDRC. Six of these projects successfully registered in the United Nations. According to the agreement, the estimated annual CERs sales price will be more than 10 million yuan. In 2010,the wind power installed capacity is 1500MW, and that can create 0.3 billion / year gains. 12)* ST Tianhong ( 600419 ) 2008 CDM project is the utilization about paper and cotton, black liquor. 13) Sinoma International ( 600970 )

Sinoma International CDM projects is equipment, waste disposal of cement production line . In July 2007 cement plant using low-temperature waste heat to generate power, turning waste into treasure. Per tonne of cement clinker energy generate 30kwh power. Electricity cost is relatively low , and it’s cheaperto buy electricity then the power line . 14) TEDA shares ( 000652 ) Transportation and energy waste incineration utilization project . After completion this project , the average amount of annual waste disposal is 1,277,500 tons; the annual grid electricity is 37,778 million kwh; annual income is 292 million yuan; total profit is 115 million yuan; gross margin is 39.38% . 15)Jinan Iron & Steel (600022) CDM projects is steam combined cycle power generation. Introduced the core technology from developed country, and the first CERS transactions carried out in 2007. It took more than 1.48 million euro in revenue . 16) Shaoneng Shares ( 000601 ) Big swim Tan power plant is the company CDM projects , this project is jointly construct by Shaoneng Shares and Huaihua Power Group Co., Ltd.. Experts predict that big swim Tan station reduce hundreds of tons of CO2 emission. Treating as 5 Euros / ton, saving five years , you can get considerable sales revenue from it ( Yudi Feng , 2006 ) . 17) Guoyang New Energy ( 600348 ) methane recovery and using power projects, this project CER revenue is at least 35 million yuan . Generating first project formally put into production in June 2007 , the annual amount of methane destruction is 140 million cubic meters, to achieve emissions by 80 million tons / year . Abatement revenue is 64 million yuan. 18) Datang Power Generation ( 601991 ) The China Water Power CDM office supplies company developed Datang Gansu Kirin Temple 111 MW hydropower CDM projects is the Group successfully issued the first CDM projects . Project monitoring period is from December 6, 2009 to January 29, 2011, and issued 287,216 tons of carbon dioxide emission reductions totally. 19) Inner Mongolia Power ( 600863 ) The new energy and renewable energy projects.The first 100MW wind power turbine hoisting successful produce transfer emission reductions 25.3218 million tons. 20) Baotou Steel shares ( 600010 ) Energy conservation and energy efficiency CDM projects is supporting CDQ coke transformation in 2007. 21) Chongqing Iron & Steel ( 601005 ) Energy conservation and energy efficiency CDM projects try to use emissions and pressures utilization to generate electricity in October 2005

3.3Introduction ofCDM ProjectsRelated FinancialDataof Listed

Companies

3.3.1The selection of indicatorsaccountingstatement analysis

This paper willreflect theability of profitability,solvency,market performance and growthfourfinancial indicatorsfor analysis.According to the analysisrequired, the paper collectedROE, asset-liability ratio, price-earnings ratioand the main businessrevenue from fouraspectsdata. For thecompanythat introducethe project, compared the performance offinancial databefore and afterintroduction the project. Andthe growth rateis mainlyrelated datato analyzetrends that green appeals(CDM projects)affected on the companyfinancial. 3.3.2 Thestudy on sampledata The observation group datais comparedbythe time,a few yearsbefore and afterthe implementation ofCDM projects, so the starting yearof different companiesis not the same. For comparison, theyear ofthe sampleintroducedCDM projectswill bethe first yearfor the event, denoted by 0years.The first yearafter the introductionis one year(+), andthe year beforethe introduction ofrecordis one year(-).As asequence of eventsthat willorganizelarge amounts of datatopresent in the form The followingTable 3-1is the financial data of21listed companies(the introduction of CDM projects).Compliance withfinancial statement analysisideas,to analyze a company financial performance in four aspects:profitability,solvency,market performance andgrowth ability. This paper edit theenterprises databefore and afterthe introduction ofthe CDM(return on the assets, asset-liability ratio, p/e ratio, business profit ratio), so that we can find the regulations ofthe development evolution.Whetherthe introduction ofthe CDM could bring the financial statementswonderful, ornotsignificantly affected.Specific analyticalwork will beelaboratedin the next chaptercontent. Table 3-1the company'sfinancial data

Source:Reuters Key

3.4Chapter Summary This chapteris based onCDM projectsas the representativeto explain theeconomic benefits ofgreen economyinthe individual enterpriseinthe role. In thebeginning of this chapter, defining the concept ofCDM projects, fourintroduced CDMcooperation model andeachmode is suitable fordifferent companies.As well as nationalsupport policiesforCDM projectsand the creationof theCDMFundto financethe objectselection criteria. In this paper,21listed companiesare the mainstudying object, andthese21companies CDMprojects werebrief introduced, including economic gainon the sale ofCERforecast.Fromthe obtained and forecast data, the amountarea considerable

income. Thelarge amount of datain thethird quarter listed the financial analysis of collected data. And represent the enterprise financial performance from four indicators(profitability, solvency, market performance and ability to grow ) by four kinds of data(ROE, asset-liability ratio, earnings and sales profit).Fromthe perspective offinancial statement analysis, these four aspectscan alreadyintegratedthe operationsof the company, and it is appropriateobject to analyze. In the nextchapter, this article will conducta detailed analysisto study thesefinancial datawhether theyreflectthe economic benefits ofCDM projects or not.

Chapter IVCase Analysis

4.1 Implementation of CDM Project of the CompanyFinancial

Analysis

4.4.1 Financial profitability indicators Profitability is refers to the company ability to make profits in a certain period, and the company profitability analysis is the further analysis of the corporate profit margins. Return on net assets is one of the profitability index, which is the ratio of average net income and net assets of the enterprise in a certain period, which reflects the enterprise income level. It is generally believed that the higher the return on net assets, the stronger the enterprise earn profits by own capital ability, the better the operating efficiency. According to the preceding chapter, we can calculate the changes about net assets rate before and after each company in implementation CDM project. Data in the below table embody the influence on the growth rate of net assets return to the company implementation CDM before and after the project. Table 4-1 return on net assets before and after the introduction of the project

Before

introduction After

Introduction Juhua Co. 0.11 0.91 Sanaifu 0.11 0.84

GD 0.03 1.97 Qilian Mountains (0.43) 2.95

Tianfu Thermoelectric (0.19) 0.42 Conch Cement 0.68 0.08

Liu Co. 0.04 0.26 Tongli Cement (1.82) (0.01) Jinshan Shares 0.13 1.54

Nanjing Iron&Steel 0.01 0.42 Jingneng Thermoelectric (0.03) 0.02

*ST Tianhong (1.12) (2.25) Sinoma International 1.14 0.04

TEDA Shares 0.25 (0.13)

Jinnan Iron&Steel (0.04) (0.37) Shaoneng Shares (0.12) (0.25)

Guoyang New Energy 0.13 (0.06) Datang Power Generation (0.04) (0.01)

Inner Mongalia Power 0.2 (1.42) Baotou Steel Shares 0.04 (0.96)

Chongqing Iron&Steel (0.28) (0.37) From: Hexun Net From the data in table 4-1, there is a great increasing in return on net asset with 11 companies, and the other 10 companies data shows different degrees of negative growth, but the positive growth is larger than the extent of negative growth. To analyzethecompanies that have slight negative growth it is not hard to find these enterprises are large enterprises. This means that this type of enterprise investment project diversification, so the revenue and costs are not confined to a CDM project, which the implementation of CDM project will not bring obvious change on the financial statements. The positive growth enterprises are smaller, and less diversified in investment projects, so the financial statements embody the effects of CDM projects. It can be concluded that in fact the implementation of CDM projects is a positive impact on the company's financial. It raised the level of profitability, especially obvious in small and medium-sized companies. 4.1.2 Financial indicators of solvency Financial solvency refers to a firm ability to repay debt and interest. Asset-liability ratio is the ratio of total debt to total assets of the company. As for the asset-liability ratio, different people have different opinions. Standing in the position of creditors, this ratio is the smaller the better. While standing in the position of shareholders exist leverage, the ratio is better on the high side. For operators, moderate asset-liability ratio is more conducive to the companybusiness. No matter what kind of point of view, the industry difference existed in the asset-liability ratio, so it should pay attention to the comparison with the industry average. But this paper is to study the green appeals (the CDM project), we only concern about the influence on the company financial statement and pay attention to the change range, thus we do not judge the ratio in any position.

The following table shows the calculated asset-liability ratio of the average growth rate according to the data provided in the previous chapter. Table 4-2 average asset-liability ratio before and after the introduction of project

Before

introduction After

Introduction Juhua Co. 0.51 0.44 Sanaifu 0.51 0.58

GD 0.68 0.73 Qilian Mountains 0.55 0.59

Tianfu Thermoelectric 0.70 0.71 Conch Cement 0.58 0.48

Liu Co. 0.49 0.62 Tongli Cement 0.71 0.64 Jinshan Shares 0.49 0.78

Nanjing Iron&Steel 0.54 0.65 Jingneng Thermoelectric 0.33 0.49

*ST Tianhong 0.66 0.64 Sinoma International 0.84 0.85

TEDA Shares 0.64 0.64 Jinnan Iron&Steel 0.70 0.74 Shaoneng Shares 0.54 0.61

Guoyang New Energy 0.51 0.53 Datang Power Generation 0.78 0.81

Inner Mongalia Power 0.52 0.73 Baotou Steel Shares 0.54 0.68

Chongqing Iron&Steel 0.50 0.63 From: Hexun Net According to table 4-2, Juhua Co., conch cement, Sinoma cement and * ST Tianhong have a little decrease in the assets-liabilities rate. In addition to the Teda shares remain unchanged, the rest of the 16 companies have a definite range of growth. And the growing rate of the asset-liability ratio is larger than relatively decreasing rate. According to CDM project features: large prophase operation cost, long revenue cycle, the early stage of the company's investment is bigger, so most of the rate of assets-liabilities of the company will have a certain range of ascension. But they all in the moderate range, they will not be bad impact on company's solvency. 4.1.3Financial indicator of market performance Market performance is measured the shareholders reap benefits ability and stock market performance of listed companies. The p/e ratio refers to the proportion of

stock price and earnings per sharein the period (usually 12 months). P/e ratio basically reflected the investors’ confidence in the company stock. A company has a very high p/e ratio, that means investors generally believe that the company eps will be rapid growth in the future. And the trend of p/e ratio reflects the investors confidence in the operation of the company project. Then analyze the data on the municipal surplus in the previous chapter. From the change trend of p/e ratio to observe the impact on performance in the market of the company that implementthe CDM projects. Table 4-3: p/e ratio of the average growth rate before and after the introduction of project

Before

introduction After

introduction Juhua Co. 0.06 0.09 Sanaifu (0.03) (0.02)

GD 0.04 (0.07) Qilian Mountains 0.04 0.00

Tianfu Thermoelectric (0.03) (0.03) Conch Cement 0.12 0.01

Liu Co. 0.01 (0.03) Tongli Cement (0.23) (0.05) Jinshan Shares (0.07) (0.04)

Nanjing Iron&Steel (0.05) 0.00 Jingneng Thermoelectric (0.07) 0.01

*ST Tianhong 0.09 0.03 Sinoma International 0.12 (0.07)

TEDA Shares (0.03) (0.01) Jinnan Iron&Steel 0.12 (0.12) Shaoneng Shares 0.01 (0.04)

Guoyang New Energy 0.08 0.14 Datang Power Generation (0.07) (0.07)

Inner Mongalia Power (0.05) (0.02) Baotou Steel Shares 0.01 (0.11)

From: Hexun Net From the data in table 4-3, there are nine companies have a modest increasing in the p/e ratio after the CDM project implementation. The other 11 companies have a modest decreasing p/e ratio. But no drastically growth or decline changes, which shows the introduction of CDM project is not too attractive to investors and the market performance keep the same situation before introduction. 4.1.4Financial indicators of growth ability

Enterprise growth ability refers to the assets, profitability, the continually growth of market shares, these indicators reflect the prospects for the enterprise future development. Enterprise growth ability of financial indicators included the main business growth rate, growth rate of main business profit and net profit growth rate, etc. Based on the change of main business profit, the growth of the CDM projects have impact on the company growth ability. Main business profit growth, which is the number between the current main business profits minus the previous main profit then divided by the ratio of main business profit to the previous period. The main profits grow stably can basically determine the positive influence brought by the CDM project, especially for small and medium-sized enterprises. The following table 4-4 is the average growth rate of main business profit of the company calculated in the third chapter. Table 4-4: the average growth rate of main business profit before and after the project introduction

Before

introduction After

introduction Juhua Co. (0.10) 2.85 Sanaifu (0.12) 1.43

GD (0.02) 1.94 Qilian Mountains (0.32) 2.81

Tianfu Thermoelectric 0.10 0.10 Conch Cement 0.34 0.22

Liu Co. 0.10 (0.15) Tongli Cement (1.56) 0.09 Jinshan Shares 0.28 (0.07)

Nanjing Iron&Steel (0.02) 0.48 Jingneng Thermoelectric 0.13 0.00

*ST Tianhong (1.09) (2.42) Sinoma International 0.02 0.23

TEDA Shares 0.19 (0.40) Jinnan Iron&Steel (0.05) (0.72) Shaoneng Shares (0.19) (0.44)

Guoyang New Energy 0.01 (0.10) Datang Power Generation 0.07 0.00

Inner Mongalia Power (0.09) (1.03) Baotou Steel Shares 0.04 (1.22)

Juhua Co. (0.37) (0.35)

From table 4-4, there are 9 companies have a small increase in profit growth after the introduction of CDM projects, but it is not obvious. In addition, there are 11 companies decline in a certain extent after the CDM projects. There are two speculated reason cause this phenomenon. It is affected by the company size, small and medium-sized enterprises have single project and they are more likely to reflect the benefits of the CDM project itself, less influenced by other businesses. For larger enterprises, many main business influence the profit, so actually these projectalso affect the profit. Second, if the CDM projects are relatively large, it is difficult to have big gains in the short term, and large upfront costs will affect the growth of profit.

4.2 Financial Analysis of Non-implementationCDM Projects

Company

The principle to select the control sample: first, the listed company; second,similar industry to the observation group, similar industrialcharacteristics to introduce the CDM industry; third, similar enterprise scale and the observation group was similar, thus two groups of observation data are comparable. Using these principle, this article selected the standard other 21 companies as a control group for empirical research. At the same time, research content is fimiliar to the experimental group involved in front. From the basis of the four indicators of financial statements reflect the 21 companies profitability, solvency, market performance and growth ability. 4.2.1Financial indicators of profitability Table 4-5 return on net assets of two kinds of sample companies

The average growth

rate After introduction

Shanxi Coking (0.06) Juhua Co. 0.91 Chang Aluminum

Co. 0.45 Sanaifu 0.84

Panjiang Shares 0.34 GD 1.97

Sichuan Nitrocell

Co. (0.10) Qilian Mountains 2.95

Xichang power (15.65) Tianfu

Thermoelectric 0.42

Leshan electric power

0.38 Conch Cement 0.08

Guizhou Power Source (0.01) Liu Co. 0.26

Star power (1.31) Tongli Cement (0.01)

Jidong Cement 0.16 Jinshan Shares 1.54

Xingye Mining (0.63) Nanjing Iron&Steel 0.42

Dayou Energy 1.29 Jingneng

Thermoelectric 0.02

Hengyi petrochemical

5.11 *ST Tianhong (2.25)

Salt Lake Shares 0.20 Sinoma International 0.04

ST Shengda (3.76) TEDA Shares (0.13) Baotai Shares (0.01) Jinnan Iron&Steel (0.37) Mountain coal international

2.33 Shaoneng Shares (0.25)

Kadi Power 0.44 Guoyang New

Energy (0.06)

Ningbo Thermoelectric

0.02 Datang Power

Generation (0.01)

Fuling Power (0.32) Inner Mongalia

Power (1.42)

Red Sun Power (1.50) Baotou Steel Shares (0.96) Longest River

Power 0.15 Juhua Co. (0.37)

From: Hexun Net The left column of table 4-5 is the data of return on net assets,the company in the same industry as the research object, but not introduce the CDM projects of listed companies from 2002 to 2011. It can be seen that the introduction of CDM projects did not have much impact on a company's growth, and the development of the company are relatively stable. On the other hand, the growth rate is the average growth rate in 10 years, and to the introduction of the CDM project company data in recent years isnot relativedifferently. But try to longer the CDM projects, the project is more mature and effective, it will increase with a larger acceleration in return, and more stable and more optimistic outlook than the growth rate of 10 companies. 4.2.2Financial indicators of solvency Table 4-6 asset-liability ratio of two kinds of sample companies

The average growth


Shanxi Coking 0.05 Juhua Co. 0.44 Chang Aluminum

Co. (0.02) Sanaifu 0.58


Sichuan Nitrocell

Co.

0.13 Qilian Mountains 0.59

Xichang power 0.01 Tianfu

Thermoelectric 0.71



Guizhou Power Source (0.01) Liu Co. 0.62

Star power 0.08 Tongli Cement 0.64

Jidong Cement 0.04 Jinshan Shares 0.78



Thermoelectric 0.49


0.05 *ST Tianhong 0.64

Salt Lake Shares 0.14 Sinoma

International 0.85

ST Shengda 0.03 TEDA Shares 0.64 Baotai Shares 0.02 Jinnan Iron&Steel 0.74 Mountain coal international

0.03 Shaoneng Shares 0.61


Energy 0.53


0.01 Datang Power

Generation 0.81

Fuling Power 0.13 Inner Mongalia

Power 0.73

Red Sun Power (0.06) Baotou Steel Shares 0.68 Longest River

Power 0.24 Juhua Co. 0.63

From: Hexun Net The left column of table 4-6is the sample rate of assets-liabilities of the company from 2002 to 2011, there is only a slight variation in the growth rate data of 10 years, which show the company solvency has been maintaining a stable level in 10 years. While the right column data shows a significant growth of the asset-liabilities ratio. Even so, combining the analysis of the table 4-2 it can't come to the conclusion that the introduction of CDM project will increase the asset-liability ratio. Two tables comparative analysis can be concluded that the implementation of the CDM project will not affect the rate of asset-liabilities of the company, namely the solvency will not be affected.

4.2.3 Financial indicator of performance market Table 4-7 p/e ratio of two kinds of sample companies

The average growth


Shanxi Coking 0.12 Juhua Co. 0.09 Chang Aluminum

Co. 0.53 Sanaifu (0.02)

Panjiang Shares 0.05 GD (0.07)

Sichuan Nitrocell Co.

0.24 Qilian Mountains 0.00


Thermoelectric (0.03)

Leshan electric power (0.10) Conch Cement 0.01

Guizhou Power Source 0.07 Liu Co. (0.03)

Star power 0.10 Tongli Cement (0.05)

Jidong Cement 0.02 Jinshan Shares (0.04)

Xingye Mining 0.16 Nanjing Iron&Steel 0.00


Thermoelectric 0.01


0.84 *ST Tianhong 0.03

Salt Lake Shares 0.06 Sinoma International (0.07) ST Shengda 2.01 TEDA Shares (0.01)

Baotai Shares 0.55 Jinnan Iron&Steel (0.12) Mountain coal international

0.66 Shaoneng Shares (0.04)


Energy 0.14


0.02 Datang Power

Generation (0.07)

Fuling Power 0.08 Inner Mongalia

Power (0.02)

Red Sun Power (0.04) Baotou Steel Shares (0.11) Longest River Power (0.04) Juhua Co.

From: Hexun Net The left column of table 4-7 is the non-introduction CDM projects company's average p/e ratio. The growth rate of two types of company's data are not too big, the introduction of CDM projects is not attack the investor extra attention to the company.

But the stable market performancecan explain investors confidence in the company, andthe company's operation is good. That also indirectly shows that although the CDM project cost is higher, but it still bring better benefits for the company. 4.2.4 Financial indicator of growth ability The left column of Table 4-8 is the main business profitability of thenon-implementation CDM projects 21 listed companies. One of the seven companies present a modest positive growth in profit margin, and 14 of the company present negative growth in profit ratio. Right column of the implementation of CDM projects in 21 listed companies 10 company has a small negative growth, and 11 companies show positive growth. But positive growth is higher than the left column company growth. It can infer that the company introduce the CDM projects actual business is increased, and has brought the company more good growth ability. Table 4-8 the p/e ratio of main business of two kinds sample companies

The average growth


Shanxi Coking (0.18) Juhua Co. 2.85

Chang Aluminum Co.

(0.08) Sanaifu 1.43


Sichuan Nitrocell

Co. (0.15) Qilian Mountains 2.81


Thermoelectric 0.10



Guizhou Power Source (0.44) Liu Co. (0.15)

Star power (0.65) Tongli Cement 0.09

Jidong Cement 0.05 Jinshan Shares (0.07)



Thermoelectric 0.00


(0.01) *ST Tianhong (2.42)

Salt Lake Shares 0.13 Sinoma International 0.23

ST Shengda (4.53) TEDA Shares (0.40)

Baotai Shares (0.19) Jinnan Iron&Steel (0.72)

Mountain coal international

(0.33) Shaoneng Shares (0.44)


Energy (0.10)


0.01 Datang Power

Generation 0.00

Fuling Power (1.93) Inner Mongalia

Power (1.03)

Red Sun Power (3.75) Baotou Steel Shares (1.22)

Longest River Power 0.03 Juhua Co. (0.35)

From: Hexun Net

4.3 Limitations of Financial Statement Analysis

4.3.1 limitations of financial statement Firstly, the information is not completely reflected by the statements, and it reflects not all enterprise resources that is only a part of the economic resources. Secondly, the report data is the historical data. For the factors such as inflation or commodity prices cannot reflect in time. So the analysis can’t be completely effective obtained results,and it will discount the policy maker supporting function. Finally, the financial data will also be influenced by estimating and accounting policy choice, which will easily cause the lack of comparability between different companies report data. Besidesit must consider the exist differences which practitioners may have, and they also causes the limitations of financial statement analysis itself. 4.3.2 limitations of financial analysis indexes (1) the denominator calculation about return on net asset is the average of the final and initial net assets, but the actual enterprise net asset is changing in a certain period. And the final net asset is already minus the Stockholders surplus dividends, which will be affected by the dividend policy of different companies. (2) the discretion of the asset-liability ratio is completely determined by the nature of industry. Different industries have different standard, and it can't fully explain increasingdata is bad or decreasingdata is good.

(3) p/e ratio calculation use the earnings per share. And the molecule in earnings per share is the net profit, which belong to the period of indicators. While the denominator is the total number of ordinary shares at the end of year, whichis actually a point indicator anddifferent calculating diameter calculated value. Shares about the amount of each economic real net assets and the market price are different due to different companies, which is actually limit the transverse comparison of different companies. (4) main business profit margins reflect the ability of the sustainable development of a company, but this article sampled the company mostly have a number of business, and they are different in quantity and size. Sothe conclusion of index does not necessarily reflect the effects of the CDM projectsitself. In addition to the defects ofindex itself, the limit of analysts can cause lack of the validity of the analysis results. Thus make a deeper analysis of the failed to reflect and see more information from data.

4.4 summary

From the third chapter of valid data it carried on the comparative analysis. Start with four aspects that the company's own profit ability, debt paying ability, market performance and growth ability of the longitudinal comparison. Sort out the comparison of sample data with the transverse comparison. By the longitudinal comparison, concluded that the company is actually has a positive effect by introduce the CDM project, and it has markedly improved net profit margins. Whilethe effect on the asset-liability ratio is not obvious, there are signs of improving, and analysis should be longer due to income, the upfront costs more. But the pros and cons depends on nature of industry and the position of policy makers. Market performance is not particularly evident, in addition to outside investors may not focus too much on a single project implementation, on the other hand the company financial data information is lack of transparency, and the investor itself did not get useful information.Analysis of the influence on the main business profitability is not obvious, because there are many influence factors, we can’t determine the profit just by a increasing factor. Through the analysis research, it also can infer that the CDM project impact on small and medium-sized enterprise financial is larger than large enterprises. From horizontal comparison, the introduction of the CDM projects companieshas more growth potential in terms of growth ability. Whereas other data did not show excellent advantages. By studying the growth trend of sample data, it has a more optimistic prospect than the stable development comparison sample.

Of course is also given some limitation of the research method adopted. Due to the defects of financial statement and the shortcomings of some financial index, the reflect on actual situation will have a certain deviation, so the results of the analysis can’t reflect all consistent with the fact. Above all, it is easy to find the CDM project itself is good for the development of the enterprise, in addition to economic benefits directly from selling CERs and some comprehensive beneficial aspects of this company. The hot mechanisms can refract green appeal have a very good effect on the company. The support of big policy environment at home and abroad can obtain a good reputation in the society, bya good performance on financial statements, investors are more confident on the green economy. Promoting green appeals make the company itself promote technological innovation and conducive to the sustainable development of the company. "Low carbon" in Chinese society is in advocate, so green economy is the trend anda good measure to set up a positive image for the company.

Chapter V Conclusion and Revelation

With the development of human civilization, it has caused a lot of the earth's energy consumption, and green appeals have become an urgent problem that need to be paid attention and solved. The low carbon economy has become the trend of global economic development. The developed countries have duty to reduce the emissions, because their development speed is faster than developing countries. But from another perspective, the developed countries guide the developing countries into the plan by the formulation of the United Nations framework convention on climate change, which theywant to control the new economic. This is a political and economic significance. But from the perspective of developing countries, the development of low carbon economy is good. In addition to win the public widespread high praise, it also obtain the foreign developed countries development fund and the mature technology by promote representative of CDM projects.They are both helpful for the technical progress of developing countries. From the view of environment, the main characteristics of low carbon economy are low energy consumption low emissions and low pollution. Promotion of the low carbon economy is actually a protection to the environment. Global climate change is disorder; greenhouse gases are one of the largest environmental pollution problems, and low carbon economy is implemented by a series of projects. The industrial civilization country will develop into ecological country, andthe low carbon technology will keep global ecology and development balance. The implementation of any new system must have corresponding constraint rules to maintain sustainable development. It’s the time to implement the related law about the low-carbon economy. In addition to the government's policy support, corresponding laws and regulations can help and protect the practice of environmental projects, which is the long-lasting development support of low carbon economy. In this paper, from one point reflect the social impact of low carbon economy. This represents point is the clean development mechanism (CDM), and the carrier of the project is the individual enterprise. The performance of the individual enterprise it is only way to test the effect of the projects implementation. The promotion and implementation of CDM project is not only benefit humanbeings on the environment, but also benefit the individual company development in economy. At the same time, the project promotion will drive the local employment, which is fully staffed. To advocate and encourage the development of CDM projects, and it’s better to reflect the project actual benefits by the company financial statements rather than the corresponding social responsibility reports. So the aim of the full text is through the analysis of financial statements toshow the CDM project practical benefits to the company.

Financial statement is anaccess to judge the company operationconsequence, through itwe can see the CDM actual operation of a variety of effects in the process. This paper based on the principle of financial statement analysis, comprehensive analyze the data collection and sorting out. Longitudinal comparison on company own research object and compared with the other comparison sample companies to find the problem. In this paper, taking the financial metrics into compared, such as return on equity, asset-liability ratio, p/e ratio and profit rate of main business, respectively analysis from the profit ability, debt paying ability, market performance and growth ability, etc, to analyze the economic impact of the company CDM projects. Through a large amount of data sorting and studying, found that so far the company financial does not reflect any big changes, and the CDM to promote the role of the company is not really reflected. From the perspective of the financial statements data, besidesthere is good performance on profitability, the solvency effects are not obvious, the market was not warm as expected, and the signs of growth don’t realize the broken type of leap. Considering the long period of project construction, the earnings need longer time to reflect, and in fact the whole project development in China is not mature although it is very popular. Thus most investors have a wait-and-see attitude. In addition, the limitations of financial statements and financial index will influence the analysis results and the anastomotic with the fact. As a result, it leads to deep thinking. How to effectively reflect the information in financial statements and disclosure its real value? First of all, it is particularly urgent to use legislation to force the low carbon economy disclosure and necessity effectiveness of the financial statements. Green development needs the joint efforts of every aspect. Enterprises as the mainstay of market economy should play its important role in development. As the leader of listed companies, they should take initiative to assume their social responsibility. They should strengthen todisclosure the necessity of information concept of the CDM projects (Huang Shengna, 2010). Suggested that to add the CDM projects cost details in financial statement or in the appendix, which have special subsidiary column to reflect its operations. For the listed company, the situation of production and operation will be different, so there are different required expenses and responsibility. Start-up capital is actually quite a sum of money, and different operating conditions of company will produce different effects. Recommended to disclose the data according to the own situation. By quantifying costs is far better than the slogans advocating. And the quantitative data is more objective and intuitive, which can give people the most effective reference value to read the report with.

In short, if you want to give full disclosure and reflect of specific project to the financial statements, you must establish a complete set of CDM project information disclosure mechanism which suit the disclosure standards of the listed companies in China to ensure the reliability financial sources. Above all, low-carbon economy is a new mode of economic development, particularly as an developing countries china need to develop the new economy mode. Take this opportunity to adjust industrial structure, and nip in the bud. Take on the responsibility of world powers; keep up with the world trend; reduce the pressure of world opinion. Look for the trend and get the opportunity to create China's own low carbon economy development mode.In the near future, innovate the advanced technology is the right thing to do.

Reference

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Appendix

The following tables are the initial financial index data of the 21 sample enterprises, they are the return of net assets, asset-liability, p/e ratio and return on sales before and after introduction, respectively. When we choose the p/e ratio, we should consider to get more research data to observe the changing trend correctly. Thus p/e ratio=the shares of last quarter/return on pre stock. And the p/e ratio of every quarter are showed in tables.

Table 1 the annual return on net assets table of Juhua Co. return on net assets

After introduction

2007 2008 2009 2010 2011 0.11 0.04 0.05 0.24 0.29

Before introduction

2003 2004 2005 2006 2007 0.08 0.10 0.12 0.09 0.11

From: Hexun Net

Table 2 the annual asset-liability table of Juhua Co. asset-liability After

introduction 2007 2008 2009 2010 2011 0.52 0.52 0.50 0.45 0.21

Before introduction

2003 2004 2005 2006 2007 0.48 0.51 0.51 0.52 0.52

From: Hexun Net

Table 3 the annual p/e ratio table of Juhua Co. After

introduction 2007 2008

Quarter 1 2 3 4 1 2 3 4 p/e ratio 26.72 31.79 42.21 44.97 30.41 18.27 12.38 10.51

2009 2010 2011 1 2 3 4 1 2 3 4 1 2 3 4

41.31 46.25 46.06 58.50 67.76 52.59 43.35 133.41 26.07 33.81 21.83 20.89 Before


Quarter 1 2 3 4 1 2 3 4 p/e ratio 34.26 33.83 29.52 30.78 26.55 21.94 24.90 13.55

2005 2006 2007 1 2 3 4 1 2 3 4 1 2 3 4

15.31 12.42 18.27 19.88 12.94 17.65 15.00 15.21 26.72 31.79 42.21 44.97 From: Hexun Net

Table 4 the annual return on sales table of Juhua Co. Return on sales

After introduction

2007 2008 2009 2010 2011 0.05 0.02 0.01 0.12 0.30

Before introduction

2003 2004 2005 2006 2007 0.08 0.07 0.07 0.05 0.05

From: Hexun Net

Table 5 the annual return on net assets table of Sanaifu Co. return on net assets

After introduction

2006 2007 2008 2009 2010 2011 0.15 0.11 (0.10) 0.03 0.06 0.46

Before introduction

2001 2002 2003 2004 2005 2006 0.18 0.10 0.07 0.17 0.17 0.15

From: Hexun Net

Table 6 the annual asset-liability table of Sanaifu Co. Asset

liability After introduction 2006 2007 2008 2009 2010 2011

0.56 0.59 0.66 0.60 0.65 0.44 Before introduction 2001 2002 2003 2004 2005 2006

0.48 0.43 0.48 0.58 0.55 0.56

From: Hexun Net

Table 7 the annual p/e ratio table of Sanaifu Co. After


Quarter 1 2 3 4 1 2 3 4 p/e ratio 32.29 30.57 33.26 30.00 35.26 34.78 21.26 14.04

2009 2010 1 2 3 4 1 2 3 4

(37.55) (38.00) (34.50) (48.00) 198.60 139.00 206.00 293.40 2011

1 2 3 4 189.62 273.31 196.77 157.23

Before introduction

2002 2003

Quarter 1 2 3 4 1 2 3 4 p/e ratio 38.10 33.57 33.98 25.88 44.79 40.50 33.54 32.79

2004 2005 1 2 3 4 1 2 3 4

52.11 36.22 41.17 45.33 19.03 20.79 28.00 27.08 2006

1 2 3 4 22.00 17.30 16.81 17.45

From: Hexun Net

Table 8 the annual return on sales table of Sanaifu Co. Return

on sales

After introduction

2006 2007 2008 2009 2010 2011 0.06 0.04 (0.02) 0.01 0.02 0.21

Before introduction

2001 2002 2003 2004 2005 2006 0.13 0.09 0.07 0.09 0.08 0.06

From: Hexun Net The other 19 enterprises have the similar information. Deal to the mass data and the long passage, it will not show these tables. The following tables are the comparative sample data. It comes from the 21 enterprises, and the observed indicators are the familiar, thus it has more meanings.

Table 9 the annual return on sales table of Shanxi Mining

Return on sales

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0.08 0.12 0.11 0.05 0.02 0.03 -0.06 -0.22 0.01 0.01

From: Hexun Net

Table 10 the annual return on net asset table of Shanxi Mining

return on net asset

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 0.06 0.12 0.21 0.1 0.03 0.04 -0.13 -0.67 0.05 0.04

From: Hexun Net

Table 11 the annual asset-liability table of Shanxi Mining.

asset-liability 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 0.64 0.62 0.61 0.64 0.67 0.48 0.67 0.81 0.83 0.85

From: Hexun Net

Table 12 the annual p/e ratio table of Shanxi Mining 2002 2003 2004

p/e ratio 32.09 29.76 27.42 22.82 36.70 41.91 40.13 63.52 32.45 21.40 28.38 28.47 Return on pre stock

0.33 0.23 0.47

Stock price

10.59 9.82 9.05 7.53 8.44 9.64 9.23 14.61 15.25 10.06 13.34 13.38

2005 2006 2007 12.05 8.44 7.49 6.56 13.69 16.10 13.65 16.29 67.71 102.65 143.24 125.53

0.97 0.51 0.17

11.69 8.19 7.27 6.36 6.98 8.21 6.96 8.31 11.51 17.45 24.35 21.34 2008 2009 2010

39.27 33.15 22.21 13.24 -15.05 -19.12 -17.69 -22.31 -6.12 -3.66 -5.61 -6.39 0.33 -0.42 -1.32

12.96 10.94 7.33 4.37 6.32 8.03 7.43 9.37 8.08 4.83 7.40 8.44 2011

103.09 148.55 108.55 81.82 0.11

11.34 16.34 11.94 9.00

From: Hexun Net

The other 20 enterprises have the similar information. Deal to the mass data and the long passage, it will not show these tables.

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