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Climate Change, Carbon Market and the Corporate Sector International Conference on S&T Capacity Building for Climate Change October 21 2002 ©2001 PricewaterhouseCoopers. PricewaterhouseCoopers refers to the individual member firms of the world-wide PricewaterhouseCoopers organisation. All rights reserved.

In the next few minutes… Climate change – challenge and global action Monetising carbon – market, buyers, price drivers Corporate Sector – opportunity, preparedness, implications PricewaterhouseCoopers

The Challenge Economic slowdown, crisis of trust and cross-border terrorism overshadowed a big challenge facing the world : Climate Change Climate change is as much a business issue as it is an issue for the Government and civil society Corporations world-wide control more than half of the means of anthropogenic GHG emissions Twin challenge of Decoupling GHG emissions from growth Mitigation of impact of climate change

Global action The Kyoto Protocol sets binding targets for GHG reductions in a majority of developed countries (Annex B) The Protocol provides opportunities to reduce global emissions by utilising cheapest abatement options Three flexibility mechanisms Emission Trading Joint Implementation Clean Development Mechanism

Abatement options Abatement curves significantly different for different Corporations Corporations with commitments (or obligation) to reduce GHG emissions can implement GHG emission abatement in its own operations buy credits from other Corporations sell surplus credits to other Corporations For Corporations, this provides an opportunity to participate in the carbon market

The Opportunity The opportunity is for corporations in developing countries as well as developed countries Developing countries can move rapidly to clean development technology with financial assistance from developed countries Developed countries can meet their obligations by the cheapest route PwC’s review of CDM projects in India indicates that carbon finance can provide up to 15% of new project costs at current valuation expectations Make marginal projects investment grade Leverage carbon financing for better project financing terms Carbon transactions provide possibilities of strategic alliances, access to new markets and financing sources

Carbon transactions so far Internationally since 1996 A total of over 100 trades reported corresponding to 200 MtCO2e have been executed Deals have been VER’s approved by third-party accountants ER deal reported by an Indian steel major Dutch government Selected 6 projects from India under first CERUPT Prototype Carbon Fund investments in CDM projects Investment in a waste-to-energy project

The buyers EU-countries led CDM initiatives: ERUPT/ CERUPT by HOLLAND already underway AUSTRIA to dedicate $36 million, starting Jan 03 DENMARK has committed $17 million SWEDEN has budgeted $22 million The NORDIC COUNTRIES are setting up a $10 million fund JAPAN recently bought an annual flow of 62,000 tonnes of CO2e from Kazakhstan Active participation by Annex B countries is likely to Increase companies’ sense of security of investing in CDM Increase transparency in all stages of project development

Buyers’ requirements: CDM Clear CDM rules Host country endorsement rules Investment rules Robust and large CDM projects robust carbon, robust project Developed by large Corporations Ability to stand by performance obligations Portfolio of credits Projects having high sustainability criteria Stakeholders’ perspective

Price vis-a-vis quality of credit In our view it is likely that there will be a strong demand for various types of credits – leading to a segregation of the carbon markets according to credit type Price Volume PREMIUM COMPLIANCE PRE - COMPLIANCE RETAIL

Price vis-a-vis quality of credit

Harnessing the opportunity In order to harness this opportunity, we need Corporate commitment and preparedness Policy and regulatory framework Capacity building in systems

Level of preparedness Based on 60 contacts with the largest Indian Corporations in energy and emission intensive industries Climate change is not perceived as a strategic value driver and as such is wholly absent from Board Agendas. Carbon is not an identified factor in investment criteria There is general awareness of CDM However, CDM is seen as “opportunity in future” and prefer to adopt “wait-and-watch” attitude Environment departments not yet fully focussed on carbon

Level of preparedness Based on 60 contacts with the largest Indian Corporations in energy and emission intensive industries Energy efficiency is largely a plant/unit level initiative. Energy efficiency initiatives as a Corporate priority is present in about 25% of the Corporations contacted Less than 10% of the Corporations contacted have conducted exercises to create an inventory of all direct GHG emissions in their operations Less than 5% of the Corporations have initiated an exercise to identify all possible emission reduction opportunities, cost-benefit analysis No instances of capturing indirect emissions No instances of GHG emission abatement curves

Capacity building in Corporations Human, organizational and information assessment capacity Include carbon as a strategic value driver Incorporate carbon as a key investment criteria Provide incentives to employees to think carbon: incorporate carbon as a key employee performance evaluation criteria Set up internal systems across organization to promote carbon investments, disseminate best practices information, monitor performance

Capacity building through policy and regulatory framework Clear policy framework integrating Environmental: clear approval criteria for CDM projects including criteria for measuring non-carbon environmental/ social benefits Energy: promotion of clean energy generation and efficient energy usage Investment: approval criteria for FDI in CDM projects Taxation and reporting: clarity in taxation structure of carbon revenues/financing; fiscal incentives to promote clean development; valuing and reporting carbon assets Property rights: clarity in ownership of carbon credits, facilitation of aggregation

Capacity building in systems Information assessment and dissemination Financing for clean technology development Systems to qualify, register, review, monitor, verify and report emission reductions National level emission inventory program National emission registry and associated systems

Implications for Corporations Carbon market is inevitable – with or without Kyoto through various national and international initiatives Window of opportunity for Kyoto is short – next 3-4 years Corporate India currently not prepared to harness the potential First, carbon should be viewed as a strategic opportunity Second, capacity building should be initiated to facilitate monetising of carbon Third, lobby for the right policy and regulatory framework

Benefits for Corporations Early mover benefits and greater scope to influence policy Additional benefit from and support for core business strategy Improve market perception Financial benefits from implementing CDM projects Cost savings from efficiency gains Expansion into new businesses Public relations gain

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