Limited versus Unlimited Flexibility
Edited by Johan Albrecht
Chapter 10: Risk management of joint implementation and clean development mechanism projects through carbon investment funds
10. Risk management of joint implementation and clean development mechanism projects through carbon investment funds Josef Janssen 1. INTRODUCTION The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC), adopted in December 1997 by more than 150 countries, has established global markets for greenhouse gas (GHG) emission reductions and permits. This emerging global market, the value of which is estimated to amount to probably several ten billion US dollars annually,1 will offer challenging opportunities to a wide variety of different players in industry and business. By means of the market-based Kyoto mechanisms joint implementation (JI), clean development mechanism (CDMs) and international emissions trading (IET), it will be possible to trade emission permits globally. JI and IET enable international transactions of emission permits among countries with emission reduction or limitation targets. This is the group of so-called Annex I countries, which comprises industrialized countries and countries with economies in transition. The CDM allows developing countries, that is non-Annex I countries, to deliver emission permits to Annex I countries. Demand will be driven by the emission reduction commitments of Annex I countries. This group has committed itself to reduce its overall emissions of carbon dioxide, methane and other four GHGs by at least 5 per cent as compared to 1990 emission levels. This should be achieved by the ﬁrst commitment period 2008–12. Emission permits of JI and CDM projects need to be generated before their international transfer, and thus require investments in abatement activities. As with all...
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