Bangkok on May 29, 2008

Potential and Opportunities of Renewables and Carbon Market Projects in Asia

Dr. Armin Sandhövel, CEO Allianz Climate Solutions GmbH

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Structuring and arrangement of tailor-made solutions via green products and services

For Allianz, climate change and renewable energy investment are a top priority on a global scale

In August 2007 Allianz Climate Solutions (ACS) was founded in Munich, Germany

ACS focuses on the growing market for renewable energies, clean technologies and carbon related services

ACS acts as a source for investment opportunities related to renewable energies and as a think tank for future investment trends of the Allianz Group

Renewable energies and the carbon market are the core of these future investments

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The carbon market is being redefined in climate talks until 2009

Climate talks in Bali laid the foundation for a negotiation process leading to a post-2012 climate regime

“Bali Roadmap” brings together developing and developed countries Developing countries shall not receive emission targets BUT take “measurable,

reportable and verifiable” mitigation actions

Industrialized country signatories of Kyoto Protocol will agree on new commitments to replace 2008 – 2012 commitments

Key markets for fostering CO2 reduction or renewable energy technologies and the emissions trading scheme

Goal to reach a new climate regime in 2009 considered as “ambitious”.Key questions to be addressed

Targets for climate change mitigation

Help for developing countries in adapting to climate change

Low carbon technology transfer to developing countries

Financial flows to facilitate the above mentioned

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Renewable energy plays a vital role in meeting the EU’s long-term emission targets

Global investment in clean energy reached 117,2 billion USD in 2007 (+ 44 % over 2006)

In order to raise the EU’s share of renewable energies to 20% by 2020, investments of EUR 443 billion are expected (2001 – 2020)

The highest investments and growth rates will occur in wind and solar energy, while growth in biomass and geothermal power will be notable

Market development are facilitated by comprehensive financial solutions including insurance, financing, equity, asset management

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Wind Solar-heat Biomass Photo-voltaics

Hydropow er Geo-thermal

Projected investment in RE in Europe(2001 – 2020)

Bill

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EU

R

= 443 Billion

*

Sources: EREC, IEA * including tidal and wave power

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The European emissions trading system was worth around 28 billion EUR equaling1,6 billion tons of carbon traded in 2007(+ 55 % over 2006)

In 2007 the primary CDM market amounted to around 12 billion EUR or 950 million tons of carbon (+ 200 % over 2006)

The voluntary carbon market was only worth about 100 million USD in the year 2006

The EU Emissions Trading Scheme has become the major market for emission reductions

Source: New Energy Finance, IMF, SEFI, UNFCCC, World Bank

Demand for carbon projects is set to size significantly with new trading systems becoming operational in the next years

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The CO2 trading system will soon reach a global scale

Global CDM- und JI-Projects

Japan voluntary emissions trading

scheme(since 2005)

New South Wales emissions reduction model

(since 2003)

EU emissions trading scheme(2008- 2012)

Chicago Climate Exchange*

Regional Green-house Gas Initiative (starting 2009)

Western Regional Climate Action Initiative

Canadian Domestic Emissions Trading System ?

California ?

Australia(starting 2012)

USA ?

*) USA, Canada, Mexico, BrasiSource: Nasa, Visible Earth, http://veimages.gsfc.nasa.gov//1438/earth_lights_lrg.jpg

New Zealand(starting 2008)

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In Europe several factors have created a positive investment climate for RE and the carbon market

Stable regulatory environment with clear emission targets

Transparent market mechanisms

Feed-in tariffs/ subsidies for RE

Know how regarding technology, inherent risks and future trends

High energy prices resulting in improved competitiveness of RE and energy efficiency technologies

Efficient market mechanisms, regulatory stability, and clear emissions targets promote renewable energy and carbon developments.

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How can Asia benefit from global carbon markets?

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India and China make up the lion’s share of CDM projects in South East Asia

By May 2008, 1060 CDM projects have been registered with the UNFCCC of which 64% are located in Asia, lead by China, India and Malaysia

The ten CDM projects registered in Thailand are all biomass or biogas projects

Chile2,1%

Malaysia2,6%

Others20,5%

India32,0%

Mexico9,9%

Brazil12,7%

China20,2%

CDM host countries in South East AsiaMajor CDM host countries

Number of registered CDM projects per country

India 339

China 214

Malaysia 28

Philippines 17

Indonesia 14

Thailand 10

Sri Lanka 4

Bangladesh 2

Vietnam 2

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Renewable Energy provides long-term opportunities for CDM projects

The total number of CERs generated until 2012 is predicted to amount to 2,3 Gt CO2.

Renewable energy projects currently account for 17 % of all registered projects, while their share will increase to 26 % by the end of the Kyoto period

This trend is due to various factors:

- Negotiations tend to strengthen the sustainability of CDM projects

- “Quick wins” with large industrial projects (HFC and N2O) which have a large global warming potential have already been realized

- Technology transfer for high quality renewable energy projects is set to increase

Industrial processes

18,0%

Other5,6%

HFC22,1%

Methane18,2%

Renewable Energy25,7%

N2O10,4%

Predicted CDM projects by technology

Source: UNFCCC and UNEP Riso Centre

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Where will global carbon markets move?

Global carbon markets are set to change towards sustainability, equality and transparency

The CDM needs to be reformed to enable it to move from a project to a sector-based approach, for example, allowing developing countries to earn credits if their industries beat global emission benchmarks

The European Union is opting for the CDM to become more sustainable, promoting real technology transfer

The EU is also demanding the creation of a global emissions trading system

Sources: Sir Nicholas Stern, European Commission quoted in Energy Finance

A global carbon market can effectively support the ambitious renewable energy goals of Asian nations

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Success factors of the Asian Carbon Market

Diversification of activities into various technologies with a focus on renewable energy (biomass, wind, solar etc.)

Spreading of activities for different markets to counteract over-dependency on one factor (i.e. electricity generation, energy efficiency measures, bio-fuel production)

Consideration of reputational issues related to ecological or social aspects

Provision of transparent and long-term local regulation which matched investment horizons

What are the success factors for sustained Asian participation in global carbon markets?

Source: UNEPFI CEO Briefing “Carbon Crunch: Meeting the Cost, Allianz is Chairing the Climate Change Working Group and presented its newest CEO Briefing in Bali

Renewable energy investments will enable businesses to realize a carbon component and be prepared for a future climate regime

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Thank you for your attention!

Dr. Armin Sandhövel

Allianz Climate Solutions GmbH

Theresienstrasse 1-5

80333 Munich, Germany

Tel. +49.89.3800 12203

Email: armin.sandhoevel@allianz.com