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market. A wide range of buyers have entered the CDM market. Most of these are banks and speculators that do not need CERs to comply with their obligations to regulators, but instead seek to trade them on the secondary market. One estimate is that in at least one-third of all the project-based transactions concluded between January 2005 and April 2006, the buyer had the intention of selling some of the resulting CERs on the secondary market.9 There was a 5.8-fold increase in one year from 2004 to 2005. The volumes being traded on this carbon market represent about 6 per cent of the total GHG emissions by parties to the Kyoto Protocol, or roughly the annual CO2 emissions of France and Spain combined. This rapid growth was triggered by the EU ETS described in the next chapter, and the entry into force of the Kyoto Protocol, both of which happened in 2005.

Another indication of the rapid growth of the CDM market is the capitalisation of carbon funds worldwide which surged from $275 million in January 2004 to an estimated $4.6 billion in April 2006 and to an estimated $6.4 billion in September 2006. It is also the case that the market took off more quickly than many had anticipated, and the bodies set up to manage the process struggled to cope. The EB lacked the funding and capacity to process the volume of applications that were received, leading to a backlog of projects and demands for a permanent staff to be able to clear it. It is still struggling to keep up, but DNAs have now been set up in 112 countries, of which 91 are Southern countries, which should make project approval easier.

how to make money in the cdm

Businesses have adopted a range of different strategies for making money through CDM activities. Some invest in projects early on, taking on the risk that the project will not be approved by the CDM EB or that it will not secure funding for example. Some gain their profits from having invested early and sold the CERs at their most profitable -that is to say at the end of the process. Others take on less risk, investing later when it is already more expensive, but knowing already that the project is likely to be approved and go ahead. Others wait until the end, just buying up the CERs in the secondary market. This is expensive but very safe - the CERs already exist. Of course many are making

Committee (Washington DC: World Bank, 2008). Available at http://siteresources.

worldbank.org/EXTCC/Resources/FullFrameworkDocument1212008Book.pdf.

9 F. Lecoq and P. Ambrosi, 'The Clean Development Mechanism', pp. 134-51.

their money as intermediaries - consultants on the PDDs, those trading the CERs in the secondary market, lawyers, auditors and so on. A few companies are worth a closer look to see how they make their money.

EcoSecurities operates by providing two sorts of services to project developers (typically companies in the South). First, it provides technical services - helping with the preparation of a PDD, enabling companies to decide on whether to go for the CDM market or the voluntary market and so on. Second, it signs an 'Emissions Reduction Purchase Agreement' through which it guarantees to purchase the credits from the developer at a fixed price once the credits have been issued. Thus, instead of providing finance upfront, it agrees to reduce the risk to the developer that there will not be a market for the credits. EcoSecurities itself takes on a certain amount of risk in terms of the fluctuation in prices for CERs, while offloading the greater part of the risk that the credits will not be issued onto the project developer.

EcoSecurities has become one of the largest companies working in the market, building on the experience of prototype carbon markets acquired during the 1990s.10 It has registered more than 110 CDM projects and has more than 400 underway in 34 countries with a portfolio of projects totalling more than 122 million CERs by 2012. With offices in the UK, USA, Indonesia and India, it is one of the key global players. When it was floated on the London Stock Exchange it raised 680 million ($113.9 million), and in 2007 raised a further 6100 million ($142.4 million), with Credit Suisse acquiring almost 10 per cent of the shares.11

By contrast, companies such as CantorCo2e or IceCap operate simply as brokers. One part of their operations is in what financiers call the 'fully commodified' carbon market. This refers to those parts where you have a range of products (CERs, EUAs, etc - our acronym alphabet soup described above), easily identified by price differences, fully comparable with each other. In this part of the market you buy and sell on behalf of those who need allowances or credits for their obligations (at the moment, this means companies regulated under

10 H. Lovell, 'Conceptualizing climate governance beyond the international regime: the case of carbon offset organisations', Tyndall Programme one Workshop, Oxford, 19-20 May 2008.

11 EcoSecurities company history: http://www.ecosecurities.com/Home/EcoSecu

rities_the_carbon_market/Company_history/default.aspx. Accessed 16 February

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