Carbon credits as an asset class: Global Structured Finance and Investments (GSFI) Group, DSP Merrill Lynch, Mumbai

Abstract

Emissions trading is very much a reality today. According to the seventh annual World Bank carbon market intelligence study, the global carbon market tripled in 2006-toUS$30 billion from US$10 billion in 2005. The market was dominated by the sale and resale of European Union Allowances (EUAs) at a value of nearly US$25 billion. The projects-based market in developing countries and in countries with economies in transition grew sharply to US$5 billion in 2006, more than doubling over the previous year. With reduction in the uncertainty over the future of Kyoto beyond 2012 and the reinforcement of the concerns over global warming and the Schemes like Kyoto's flexible mechanisms and EU ETS to control the emissions, the outlook on "cap and trade" emissions market seems bullish. This report is a banker's guide to the carbon credits, with a special emphasis on the possibilities of investment in CDM projects in India. It begins with basic insights describing the science behind the phenomenon of global warming. It then describes in detail the schemes like Kyoto, EU ETS and the voluntary market, the mechanisms like JI and CDM, and the various forms of emission credits that exist. Next it contains a comprehensive outlook for year 2007 on the CDM world market by lETA. It then describes the CDM market in India, highlighting the large projects that have taken place and links to a database of projects that are in various stages of approval. It also scopes: sector-wise analysis of the market the various parties involved in the implementation of a successful CDM project the players on either side of the table in the CER's trading in India comprehensive database of viable CDM investments opportunities (CONFIDENTIAL) case for investing in certain specific projects in India. (CONFIDENTIAL) possible deal structures. (CONFIDENTIAL) risks and mitigation. (CONFIDENTIAL)