1. BACKGROUND
Energy & Carbon Services (ECS) of MITCON provides range of expert professional consultancy services in energy efficiency / conservation, renewable energy environment management & engineering and climate change to local, regional, national and global customers. ECS has successful track record of 20 years.  These services have been acknowledged by number of stakeholders and customers. 
MITCON enjoys an unique position in India where massive work at the micro or unit or project level, as well as key assignments at the macro or policy level have been undertaken, in focus areas for climate change including energy efficiency, renewable energy & environment protection. Further, MITCON has witnessed, participated and activated climate change markets both at the global and national levels.  The micro & macro level experience in focused areas, involvement and actual work in CDM projects, as well as national & global network, MITCON is in the strongest position to successfully shoulder the responsibility of CDM consultancy services.

2. DESCRIPTION OF ORGANIZATION
MITCON is catalyst to domestic and international business and is an escort to investors in India.  MITCON is based in Maharashtra with head office in Pune, a full fledged office in Mumbai and a well organized office in New Delhi. A total core staff of about 50 consultants and over 200 associate experts provide vide range of industrial, technical and management consultancy services.
MITCON is active in climate change activity, for global business. Climate change division provides expert consultancy services to the customers for roping them in climate change movement. A dedicated team of professionals is working and has successfully provided various kinds of services. Typically, these services include project identification, preparation of project information note, project concept note, project design document (existing & new methodology), assistance in securing approval from DNA, assistance in appointing DoE & completion of validation / registration, assistance in CER/ VER commercialization, assistance in signing emission trade agreements, development of monitoring & verification protocols etc.  MITCON also provides hand holding services to the CER / VER buyers.

3. MITCON’s CLIMATE CHANGE TEAM
Team of in-house dedicated professionals undertakes climate change activities like customer interaction & education, training, PIN / PCN / PDD preparation, sourcing of buyers, CER/ VER commercialization, advise on consents, assistance in implementation of MVP, validation, negotiation and legal aspects, etc.

4. EMISSION TRADING
Emission trading is an administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. It is sometimes called cap and trade.
A central authority (usually a Government or international body) sets a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emissions must buy credits from those who pollute less. The transfer of allowances is referred to as a trade. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed.
Carbon trading is sometimes seen as a better approach than a direct carbon tax or direct regulation. By solely aiming at the cap, it avoids the consequences and compromises that often accompany those other methods. It can be cheaper, and politically preferable for existing industries because the initial allocation of allowances is often allocated with a grandfathering provision where rights are issued in proportion to historical emissions. In addition, most of the money in the system is spent on environmental activities, and the investment directed at sustainable projects that earn credits in the developing world can contribute to the Millennium Development Goals (as emissions reduction in developing countries generally cost less than in industrialised countries).

5. KYOTO TRADING SCHEMES
The Kyoto Protocol is a 1997 international treaty,  came into force in 2005, which binds most developed nations to a cap and trade system for the six major greenhouse gases (The United States is the only industrialized nation under Annex I which has not ratified and therefore is not bound by it). Emission quotas were agreed by each participating country, with the intention of reducing their overall emissions by 5.2% of their 1990 levels by the end of 2012. Under the treaty, for the 5-year compliance period from 2008 until 2012, nations that emit less than their quota will be able to sell emissions credits to nations that exceed their quota.
It is also possible for developed countries within the trading scheme to sponsor carbon projects that provide a reduction in greenhouse gas emissions in other countries, as a way of generating tradeable carbon credits (also called emission allowances or trading certificates). The Protocol allows this through Clean Development Mechanism (CDM), between an industrialised and a developing country (wherein an industrialised country transfers technology &/or invests in a project in a developing country) and Joint Implementation (JI), between two industrialised countries, in order to provide flexible mechanisms to aid regulated entities in meeting their compliance with their caps.

6. EUROPEAN UNION EMISSION TRADING SCHEME (EU ETS)
The EU scheme used to be a system of climate change policy that was completely independent of International Climate Change Policy such as the United Nations' Framework Convention on Climate Change (UNFCCC, 1992) or the Kyoto Protocol that was subsequently (1997) established under it. When the Kyoto Protocol came into force on 16th February 2005, the EU ETS had already become operational. Only later, the EU decided to accept Kyoto flexible mechanism certificates as compliance tools within the EU ETS. The "Linking Directive" allows operators to use a certain amount of Kyoto certificates from flexible mechanism (CDM or JI) projects in order to cover their emissions.
Under the EU ETS, the Governments of the EU Member States agree national emission caps which have to be approved by the EU commission, allocate allowances to their industrial operators, track and validate the actual emissions in accordance against the relevant assigned amount, and require the allowances to be retired after the end of each year. The operators within the ETS may reassign or trade their allowances by several means:
Privately, moving allowances between operators within a company and across national borders
Over the counter, using a broker to privately match buyers and sellers
Trading on the spot market of one of Europe's climate exchanges (the most liquid being the European Climate Exchange). Like any other financial instrument, trading consists of matching buyers and sellers between members of the exchange and then settling by depositing an allowance in exchange for the agreed financial consideration. Much like a stock market, companies and private individuals can trade through brokers who are listed on the exchange
When each change of ownership of an allowance is proposed, the national registry and the European Commission are informed in order for them to validate the transaction.
Like the Kyoto trading scheme, the EU scheme allows a regulated operator to use carbon credits in the form of Emission Reduction Units (ERU) to comply with its obligations. A Kyoto Certified Emission Reduction unit (CER), produced by a carbon project that has been certified by the UNFCCC's Clean Development Mechanism Executive Board (CDM EB) or the Joint Implementation project's host country, respectively, is accepted by the EU as equivalent.
Thus one EU Allowance Unit of one tonne of CO2, or "EUA", was designed to be identical ("fungible") with the equivalent "Assigned Amount Unit" (AAU) of CO2 defined under Kyoto. Hence, because of the EU's decision to accept Kyoto-CERs as equivalent to EU-EAUs, it has become possible to trade EAUs and UNFCCC-validated CERs on a one-to-one basis within the same system.

7. Emission Allowances / Trading Certificates
Based on various markets & trading schemes, trading certificates are given different names. These are:
Certified Emission Reductions (CERs), Primary and Secondary:
Under the Clean Development Mechanism, CERs are certificates of clean energy and sustainable development projects in developing countries. They may be used – within limits – by European industries to comply with their quota of emission allowances, thus creating extensive investments in CDM projects in countries like China, India, Brazil and others.
The distinction between Primary and Secondary CERs indicates whether the certificates are bought from the CDM project directly (Primary) or indirectly, through a third party (Secondary). While Primary CERs entail more risk, Secondary CERs are expected to play an important role in the European carbon market.

Verified Emission Reductions (VERs):
Since their introduction five years ago, VERs have been a booming market world-wide. As VERs concern voluntary carbon offsets, they are not verified by a UN framework. Instead, a number of standards have been introduced to qualify VERs, such as ISO 14,065, the Voluntary Carbon Standard (VCS 2007), the GHG Protocol, VER+ and the Gold Standard.

Emission Reduction Units (ERUs):
Instituted under the same principle as CERs, ERUs are certificates of clean energy and sustainable development projects in Central and Eastern Europe. ERUs, too, be may used by European industries for compliance – again, within limits.

EU Allowance Units (EUAs):
EUAs are CO2 emission certificates as allocated to European industries by the EU and National Governments. Companies exceeding their allowances may buy extra EUAs, while companies with excess EUAs can sell them.

8. Carbon Revenue
The main financial benefit of emission reduction projects is the carbon credit it generates. For a given year, to calculate how much carbon revenue the project will receive, the following formula is used:Carbon Revenue ($ or € /yr) = Carbon Credits (tonnes/yr) × Carbon Price ($ or € /tonne)

9. Cdm Cycle & The Costs Involved
CDM projects need to complete the CDM cycle before CERs generated by the project are issued. Just as all projects carry with them a series of costs associated with the project’s development (e.g., financial due diligence, legal costs), projects developed under CDM require that project developers fulfill various international criteria related to the effective implementation of the Kyoto Protocol. The costs associated with developing the carbon component of a project in line with the Clean Development Mechanism (CDM) are called Carbon Transaction Costs.
Carbon transaction costs can be divided into two categories – costs associated with the project preparation phase and the costs associated with the project implementation phase. From a financial perspective, it could be said that costs at the project preparation phase represent the risk capital (because it may not be recouped if the project fails), whereas the project implementation phase represents operational costs. The principal activities that result in transaction costs for CDM projects are illustrated in the following diagram.



9.1 Project Preparation Phase
Initial assessment
Before developing a project as a CDM, project developers with competent consultant (like MITCON) should conduct preliminary due diligence to ensure that the project being considered would be eligible under international guidelines and that it meets conventional project development and implementation criteria.

Prepare documentation
Project developers need to develop a Project Design Document (PDD). This generally represents the largest upfront cost item due to the detailed analyses required and the fact that the PDD needs to contain all of the information that will be used to evaluate the project.

Obtain host country approval
Once the PDD is complete, the project proponent will need a letter of approval issued by the relevant host country authority for the transfer of the carbon credits. In the case of the CDM, the Designated National Authority (DNA) or CDM Office will issue the letter of approval.

Validate project design document
The PDD needs to be reviewed and approved (validated) by an independent third party accredited by the appropriate authorities. For CDM projects, the PDD is validated by a Designated Operational Entity (accredited by the CDM Executive Board) also called as validator.

Registration
For CDM projects, the CDM Executive Board will charge a registration fee which, in its current form, has to be paid when the project is registered and depends on the volume of emission reductions.
Eventually, the registration fee will represent a percentage of the amount of CERs (“share of proceeds”) and will be charged at the moment of issuance of CERs. This share of proceeds is intended to cover administrative expenses related to the work of the EB. The possibility of future national registration fees, levied in host and/or investor countries, cannot be ruled out.

Prepare a carbon credits sales agreement
The development of the Emission Reduction Purchase Agreement (ERPA) involves legal and contractual costs related to drafting of the contract, risk management and negotiations. Following the preparation of the PDD, developing the ERPA is likely to be the largest cost item project developers will incur.

9.2 Project Operation Phase
Monitoring and verification
Monitoring and verification of emission reductions has to be carried out regularly. Verification is generally undertaken by a Designated Operational Entity.

Sale of carbon credits
The sale of carbon credits could be done directly to the buyer or through an intermediary such as a broker or the consultants that helped prepare the project. In the latter case a fee is usually paid and can be based on a certain percentage of the value of the sale.

Adaptation funds
CDM projects in all but the least developed countries are subject to a levy worth 2% of the value of the credits, payable into an adaptation fund to assist countries to adapt to the impacts of climate change.
Project developers will have to calculate the return taking into account both the incremental investment and the additional revenues associated with preparing and implementing climate change projects. In practice, that means offsetting the carbon transaction costs that occur over and above normal project costs against the incremental financial benefits (i.e. the revenue from the sale of the carbon credits) and calculating the internal rate of return of the investment, taking into account the fact that it is anticipated that the additional financing through the CDM will contribute to the overall profitability of the project making it more financially viable.

10. Nature Of Buyers
Carbon credit market is currently characterized by buyers with a range of objectives. The vast majority of the publicly known capital for purchasing emission reductions comes from various funds and multilateral buyers. The major institutional buyers include Government Carbon Fund such as World Bank Prototype Carbon Fund, Japan Bank for International Cooperation, The Netherlands Clean Development Facility, The Italian Carbon Fund, The Spanish Carbon Fund etc and Private Sector Funds such as European Carbon Fund, Standard Bank Carbon Facility etc. Others include Facilitators or Exchanges such as the European Climate Exchange (ECX), Asia Carbon Exchange (ACX), Chicago Climate Exchange (CCX), Multi Commodities Exchange (MCX – India), Brokers & Aggregators.

11. Insights On Pricing
CER prices are derived from the evaluation by both Buyer and Seller, of the various risk factors involved in a project and prevailing market forces. A CER Seller willing and financially able to take on project risk is likely to reap the benefits of an enhanced CER price, whereas a CER Buyer willing to invest in a riskier project will benefit from lower prices. Not all risks may be managed by the either Buyer or Seller, such as Sovereign risk.
Factors affecting CER prices include:
EUA market price - For many Buyers, the value of CERs is benchmarked to the EUA price, the most established trading system for emissions. Volatility in EUA prices is typically reflected in the CER market. It is therefore important to have a strong understanding of the underlying market dynamics of EUAs.
Credit - Due to the typical long-term nature of the CER contract, the financial position of both the Seller and Buyer are important. Given that parties in developing countries best suited to developing CDM projects may not have the requisite credit rating, and that both parties are often reluctant to foot the additional expense of a Letter of Credit (in many cases with good reason), it is not surprising that price negotiations often depend on how this issue is approached and managed. A good credit rating by an recognized agency is often beneficial, as it is perceived as an indication of the effectiveness of the Seller in successfully executing project activities outside of the CDM.
Terms and conditions of the sale - The CER price in a contract is dependent on, for example, delivery guarantees offered by the Seller, volumes likely to be generated, the use of an established methodology, who bears the costs of developing CDM documentation (the PDD), project validation and registration, and any upfront payments which may be required. How much these terms affects the final price very much depends on the give-and-take negotiation conducted on behalf of both the Buyers and Sellers, and the eventual agreement reached.
Sovereign risk – Related to the development of political and legal infrastructure, currency volatility and perceived risk by investors. This also refers to the status of local infrastructure developed to encourage CDM activities, as this will determine how efficiently projects obtain national approval, and whether they are likely to meet the standards required for eventual project registration with the CDM Executive Board. The most pro-active countries such as India, Brazil and China have approved many projects, and have developed a streamlined and effective process for facilitating future projects.
Stage of project development - The more developed a project is, in terms of approvals and documentation as well as physical construction, the more likely the project will generate guaranteed and therefore higher priced CERs.
Quality risk - Value-enhancing standards such as the CDM Gold Standard are gradually being adopted, leading the market in the direction of high-value, high-quality projects. These standards address key issues early on in the project development cycle, highlighting and resolving potential problems which may otherwise have led to e.g. a review at the registration stage, or a failure to register completely due to sustainability or additionality concerns.
Delivery risk – A project can fail to generate the expected volumes of CERs for many reasons, for example the delayed commissioning of the project, lower than expected project efficiency, resulting in an under-delivery of committed volumes.
Access to market - Generally, a wider access to market results in higher bids, due to the competitive nature of Buyers. For this reason, going through a consultant like MITCON might be attractive to both Buyers and Sellers – Buyers for the convenience, quality, range and access to projects, Sellers for the broad network of Buyers available, and expertise in negotiating contracts.

12. Future Of Carbon Credits
The demand for carbon credits is expected to grow for the following reasons:
Because of projected shortfalls and higher relative carbon abatement costs, it is anticipated that a number of OECD countries (richest nations) will need to purchase Carbon Credits to meet their Kyoto target by 2012. The higher relative emissions abatement costs in these countries mean that they will find it attractive to buy carbon credits generated elsewhere.
Private companies in industrialized countries will increasingly be subject to 'cap and trade' mechanisms, such as the EU Emission Trading Scheme which started on 1st January 2005 (although this will initially cover only 50% of emissions). The EU scheme is separate from the Kyoto Protocol but the 'Linking Directive' of 2004 allows a European company to buy Kyoto Protocol Carbon Credits to comply with their obligations under the EU Emission Trading Scheme.
Governments will also have to buy Carbon Credits because the 'cap and trade' mechanisms will initially only apply to a fraction of each state's economy and Governments are responsible under the Kyoto Protocol for meeting their country targets. OECD Governments and European companies subject to the EU Emission Trading Scheme will therefore be the main buyers of Carbon Credits.
Carbon credits from other standards such as ISO 14, 065, VCS 2007, VER + & GS are beyond Kyoto Protocol and do not have cap up to 2012.  These carbon credits are anyway can be traded beyond 2012.

13. WHO GOT THE FUNDS THROUGH OUR CONSULTANCY SERVICES?

14. REGISTERED PROJECTS
14.1 CER Projects

14.2 VER Projects

15. CDM RELATED EXPERIENCE & SKILLS
15.1 MITCON has provided / is providing emission trade consultancy services to following projects as per applicable methodologies published by UNFCCC, engaging in-house technical skills and after undertaking CDM feasibility studies for these projects.
• Work through CER & VER route, as per the size & status of the project
• Bagasse based cogen projects – 16 nos.
• Industrial waste / municipal waste / biomass based IPPs – 11 nos.
• Wind power projects – 100 nos.
• Energy efficiency / conservation projects –11 nos.
• Mini / small hydro electric projects – 8 nos.
• Waste heat recovery power projects – 3 nos.
• Solar projects – 2 nos.
• Biomass gassifers for thermal use – 1 no.
• Energy efficient cooking stove project – 1 no.
• Methane recovery project – 1 no.
• Natural gas to power project (combined cycle) – 1 no.
• Fuel switch project – 1 no.

15.2 MITCON has also successfully organized & participated in following business meets, training programs for stakeholders and industries. MITCON is quite aware about carbon buyer and seller market as consultancy services are already being provided to the customers.
• Participation & presentation in UNFCCC session in Bonn in June, 1999
• Participation & presentation in Expert Group Meeting of UNIDO at Vienna
• Participation & presentation in 1st International CHP Symposium held in Washington DC
• Participation & presentation in CoP 6 at Hague, The Netherlands
• Participation in EC – TERI OPET mission to Italy
• Participation & presentation in 2nd International CHP Symposium held in The Netherlands
• Co-organiser of 3rd International CHP/DE Symposium held parallel to COP 8 at New Delhi
• Co-organiser of buyer seller meet for emission trading held at New Delhi
• Participation & presentation in 3rd International CHP Symposium held in Brazil
• International CDM conference – Jointly organized by Cogen India (MITCON is a patron member) and GTZ, at New Delhi.
• Participation & presentation in 9th International CHP Symposium held in New York 

15.3 MITCON has also developed monitoring & verification protocol for 4 cogeneration projects located in Tamilnadu State, India for Winrock International Inc.

16. TIE UPS
MITCON has tie ups with reputed international level financial institutions, banks, buyers and environmental brokerage companies in Annex 1 countries for commercialization of CERs / VERs. Some of them are –

• Industrial Development Bank of India Limited
• State Bank of India
• ICICI Bank Limited
• HDFC Bank
• Punjab National Bank
• Kfw, Germany