1. An Overview of Emissions Trading and The Status of the Carbon Market Corinne Boone, MD, CantorCO2e U of T Environmental Finance Series Toronto, Ontario, Canada May 11 2007

2. Agenda  About CantorCO2e  What is emissions trading  Carbon market and trading

3. CantorCO2e – Brokerage firm co-owned by two leading global financial houses - Cantor Fitzgerald and Mitsui – Offices in 8 countries over 4 continents with international network of agents and access to over 250 private sector potential buyers for carbon emissions – Long track record - CF EBS formed in 1992; CO2e established in 2000 – CF EBS & CO2e have transacted billions of dollars in environmental transactions – Working relationship with investment banking group, merchant banking group and asset management group

4. Awards and recognition CNBC Europe – Top 50 Low Carbon Pioneer ٠ 2006 Environmental Finance – Best Kyoto Project Credits Broker ٠ 2006 – Best CDM Broker ٠ 2004, 2005 – Best UK ETS Broker; Best NOx Broker ٠ 2003 – Best on-line service – GHG; Best advisory service - GHG ٠ 2002 Energy Risk Magazine – Silver Award – Emissions Markets ٠ 2006 – House of the Year – Emissions Markets ٠ 2005 Energy Business Awards – Silver Award – Excellence in Emerging Energy Markets ٠ 2004 – Gold Award – Excellence in New Markets ٠ 2003

5. Our markets Environment Carbon Markets US Compliance Voluntary Offsets Energy Biofuels Petroleum Fuels Renewables Innovation Finance Technology

6. Agenda  About CantorCO2e  What is emissions trading

7. What is Emissions Trading? 400 300 200 Cap/Allocation level Plant 1 Plant 2 Source: EMA

8. What is Emissions Trading? 400 300 200 Cap/Allocation level Plant 1 Plant 2 Source: EMA

9. What is Emissions Trading? 400 300 200 Short 100 credits And/or allowances Long (excess) 100 credits/ and/or allowances Allocation level Plant 1 Plant 2 Source: EMA

10. What is Emissions Trading? 400 300 200 Allowances/Credits held = emissions Credits/allowances held = emissions Cap/Allocation level Plant 1 Plant 2 Source: EMA

11. Role of the broker  Market expertise - brokers see a range of different transactions. This expertise helps: – suppliers to structure an attractive offers (partial sales, up-to sales, options, right of first refusal, etc..) – buyers to structure a realistic bid – Assists both buyer and seller to manage risk and uncertainties – Get to successful transaction.  In the greenhouse gas market, we guide the counter-parties through the deal process. – Initial contact – Broad terms and conditions – Formal term sheet – Transaction execution  The greenhouse gas market is driven by politics and legislation. Brokers provide a much needed financial perspective in this new market. We begin by understanding regulation and potential regulation and its potential impact…

12. Agenda  About CantorCO2e  What is emissions trading  Carbon market and trading

13. Origin of the Carbon Market 1. United Nations Framework on Climate Change – 1992 2. Kyoto Protocol – 1997  Put limitations on developed countries; average of -5.2% from 1990 levels by 2012 3. Kyoto Protocol entered into force on February 16, 2005  USA and Australia not participating in Kyoto 4. The EU began pre-Kyoto regulated Emissions Trading Scheme in January 1, 2005 5. Voluntary markets have seen significant development  Corporate, governments, individuals “offsetting” their environmental footprint 6. State-level markets in USA and significant recent activity at federal level 7. Uncertainty about how Canada will approach CC but NOT “If”

14. Existing & Developing Emissions Market Instruments  Verified Emission Reductions (VERs) – Voluntary markets (compliance driven plus retail)  Certified Emission Reductions (CERs) – primary market  CERs (secondary market)  Assigned Amount Units (AAUs) – International Emissions trading  European Union Allowances (EUAs) - EUETS  Emission Reduction Units (ERUs) – Joint Implementation  Domestic Emissions Trading Units – still questionable about how this will develop in many countries – Canada (permits and offsets) and provincial programs (ex. Alberta) – United States (RGGI, AB32, Western States Initiative

15. Summary of Marketplace Today  Market driven by: – EU from pre-Kyoto compliance regime and forward contracting for First Phase of Kyoto (2008-2012). – Japanese buyers of CERs (who have blessing of Japanese government to buy) for 2008-2012 period. – Banks and hedge funds (buyers and investors to resell)  Typical Contract structures: – Spot, Forward, Option, Direct project investment, swaps, etc. – Majority Over the Counter (OTC) through brokers, minority on exchanges and some bilateral contracts.  Payment profile:  Upfront (rarely) and Upon delivery (sometimes with cost sharing for transaction costs)  Typical Types of Projects: – LFG (flare and/or to energy), Renewable Energy, Energy Efficiency, Coal Mine Methane, Coal Bed Methane, Animal Waste Management, industrial process changes, etc..

16. Carbon Emissions Trading Schemes Chicago Climate Exchange (CCX)  VERs (CCX and other markets) European Union Emission Trading Scheme (EU ETS)  EUAs Kyoto CERs, ERUs, IET

17. CDM & Market Statistics Registered projects: 631 & 72 requesting registration (>1,600 in the CDM project pipeline) (as of 18 April 2007, www.unfcc.int/CDM) Issued CERs: 44,750,470 (as of 18 April 2007, www.unfcc.int/CDM) Expected CERs: > 870,000,000 (from registered projects & projects requesting registration until the end of 2012, as of 18 April 2007) Global carbon market transactions worth $21.5 bn for quarters 1 to 3 in 2006  74% EU ETS and 21% CDM, as of September 30, 2006 (State and Trends of the Carbon Markets, World Bank, November 2006) CDM buy side dominated by private sector & carbon funds

18. Carbon Market Statistics (State and Trends of the Carbon Markets, World Bank, November 2006) Q1-3’06Value$/tCO2 EU ETS88%24.66 NSW0.9%11.37 CCX0.1%3.29 UK-ETS0.0%4.10 CDM11%10.55 JI0.4%7.92 Other0.3%7.58 Total100%21.00

19. To develop an Offset Project and sell into Carbon Market if you are a Seller  Identify emission reduction project, including project overview  Develop project specifics –type of seller, project location specifics, information of all parties involved on project development side  Outline how it meets regulatory requirements (provincially and/or federally), establish baseline and develop project documentation  Develop financial pro-formas, models, etc.  Develop proposed offer in a Commercial Term Sheet – with a broker  Go through the any associated regulatory approval processes  Obtain legal, insurance, and financial advice as required  Negotiate contract (warranties, payment and delivery structure, M&V plan, etc.  Execute Transaction, deliver offsets, obtain payment…  Develop new projects

20. To develop Purchase strategy if you are a Buyer  Understand your regulatory requirements and potential options: – Internal – Other mechanisms (technology funds, etc) – Offset procurement and/or permit trading…  Understand your cost of compliance  Develop corporate criteria for procurement  Contact companies direct and/or work with broker – Develop commercial terms with broker  Select preferred projects and/or corporate sectors, etc.  Develop starting commercial position for negotiation (issue bid to buy, etc.)  Obtain legal, insurance, and financial advice as required  Negotiate contract (warranties, payment and delivery structure, M&V plan, etc.  Execute Transaction, payment structure and …

21. Conclusion  The GHG market is developing rapidly – based on early EUETS and CDM..  There is some uncertainty about what the global system will look like post 2012 – but there is no uncertainty about whether there will be a GHG constrained future.  There is a significant role for technology in this arena – energy efficiency, process change, etc.  Private Sector participation will only INCREASE over time as markets begin to move – use of private sector vehicles (ie., through investment, through brokers and if direct, through traders, exchanges, etc.)  Canada needs to make its’ position known and actually implement a policy – Skip Willis to elaborate on this  on what markets it will provide access to … in order to meet its clean air targets targets…Today’s release is a step towards making position clearer … next months should help.

22. Contact Information www.CantorCO2e.com Europe London Head Office India Japan Asia Head office Tokyo Americas Americas Head office Toronto Steve Drummond, CEO +44 20 7894 8333 Corinne Boone +1 416 350 2177 Ubaldo Inclan +52 55 5202 3967 (Mexico) Divaldo Rezende +55 11 5083 3252 (Brazil) Sergio Vives +56 3 223 3323 (Chile) German Cripovich +1 416 350 2177 (Central America) Ram Babu and Jay Mariyappan c/o +44 207 894 8333 Matt Inamuro +81 3 3285 2705