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EVI has developed an in-depth understanding of the carbon trading markets, both compliance and voluntary including CDM carbon trading & Climate Change Carbon Trading. We use this expertise to help our clients execute a wide range of carbon asset monetization transactions (CER/VER …etc) in both the spot and forward markets.
A market based mechanism that helps to mitigate the increase of Co2 level in the atmosphere. Carbon trading also provides economic enticement to reduce pollution. Purchasers and traders of carbon credits brought together with the similar rules of trade by developed Carbon trading markets.
Types of Contracts
EVI has completed a number of deals covering various structures in both CERs and VERs. Some different deal structures are given below
- Spot : Credits are sold at issuance or just prior to issuance. These deals are for only one issuance, and payment is typically realized within 5-10 working days of issuance and transfer. Unit Price is usually marked-to-market as on date of signing the ERPA.
- Plain Forward : Credits are sold on a forward basis, with the contract covering all credits generated up to 2012. The Unit Price is fixed on a marked-to-market basis, with a certain discount based on a Due Diligence of the project to evaluate various risks such as Delivery Risk, Counterparty Risk, Market Risk, etc.
- Forward with Advance Payment : This is a Plain Forward deal with the addition of an Advance Payment for a portion of credits generated. Generally upfront payment is made for 30-40% of the expected volume till 2012. The Advance is usually backed by some security provided by the Seller, in the form of a Letter of Credit, Bank Guarantee, Secondary charge over assets, etc. The Unit Price is calculated in a similar manner to the Plain Forward deals, with a small additional discount being built in for the Advance Payment portion.
Pricing Mechanisms
Different pricing options can be worked out, depending upon the requirement of the Buyer and Seller.
- CERs : Prices are usually marked to an exchange such as ECX, or an index such as the Reuters CER Index. A certain discount is incorporated to accommodate cost-of-carry, delivery risk and other related aspects. Prices for forward contracts can be fixed, floating, or a combination fixed-floating structure.
- VERs : With the Voluntary market being more subjective than the Compliance market, pricing depends upon the project type, co-benefits involved, and other sustainability parameters. Prices for VER deals are fixed based upon knowledge of the current Demand-Supply scenario of various project types in the market. EVI encourages voluntary project types with greater sustainable development/community benefits.
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