 My name is Sir Lutken. I'm with the UNEP RISO in Denmark and it's been there for the past couple of years. I must say that I was very happy this morning when FinTAP said that the tradition of the university is that we bring out the controversial issues. Don't be afraid to present subjects that might not be commonly shared by by all. Believe it or not, but what I'm going to tell you this this morning I could have told you in 2005 that was actually it's coming from the results of my research on CDM, my PhD in CDM from from 3 to 5 which at that time was quite controversial. When I was sitting at the embassy in Beijing in 2008 and the result of the research was about to come to reach the bookshelves, my ambassador told me you better not publish this before you have left your position, which I didn't. I also lost a contract with the Ministry of Climate and Energy on the same account. The thing is that what I'm going to tell you is not as controversial now as it was then. That might be a good thing or a bad thing. It depends on how you look at it. Anyway, here we go. Agenda. Recently I published a small paper called Pennywise Pound Foolish and that looks exactly at what Grant was looking at before. Namely, where is the what is the investments going going into to CDM compared to what's actually coming out of it in terms of could call climate capital or climate value. That doesn't look as nice as we would like it to, I'm sure. So the question is, can we fix it? Well, yes we can. But the question is whether we want to. And then finally a few concluding points. So my purpose for this paper was to figure out if CDM actually leads to cost efficiency reduction. And the way I did it was that I looked at the CDM pipeline, which we are operating, many of you might know it already, CDMpipeline.org. That's sort of a signature activity of our center, which includes information on all CDM projects ever developed since the beginning. And with an increasing number of details on the projects, including recently also details on the actual investment in the projects. Of course, we also know what projects produce in terms of carbon credits from the same, from the same Excel sheet. And in that, to the pool of about 8,000 projects now, there would be 10 technologies which have what you wouldn't, if you ask the statistician whether it's statistically significant, it is not. But it's sort of still 25, 30, 35 projects that are issuing CERs. I have thought that that's the best we can do if we want to say anything at all. And then the calculation has been based on the basis of a carbon price of $12 per CER. So you can simply see how many CERs does the project issue of a value of $12 and how much is that compared to the actual investment. So very, very simple calculation and a lot of corners cut, but it still gives you an impression on how does it look. This is how it looks, quite confusing. But this is an illustration of the share of projects in the entire population of projects within the technology that returns a certain amount of revenue compared to the investment. And what you would see, just for an example, the most prevalent type of projects, wind and hydro, 50% of the wind projects here, that's the 50, return between 1 and 2% of the invested capital per year in CER value. For hydro, it's a bit higher. 45% return between 2 and 4, and so forth. You have the technologies down here, and you have the returns here. You cannot see how many of the projects are actually there. These are by far the most prevalent projects. But that doesn't really appear here. You would have the very profitable ones out here. That would be 30% of the industrial gases projects returning more than 1000% per year. So we all know that. So what we don't know maybe is that the manual projects here are also very, very profitable. Now, in terms of numbers, it's easier to look at. Here are the 10 sectors for which we have data. What I thought was significant enough to say something, we have them here. Here are the number of observations. Here are the technologies. And here are the average return on the investment per year in terms of carbon value at $12. The reason why I've used $12 is that that was about the price in 5 to 8 when these projects that I issue in credits right now were contracted with a mission reduction purchase agreement. So that does not reflect the current price level, of course. If you would do the same calculation today with the current price of about $3 per CERs, of course, the return on the investment in carbon value is much, much less. So question. Now, that's actually another point here, because if you look at, and you can do that with the data from the CDM pipeline, how much of the invested capital has gone into projects that are clearly commercially unviable in terms of carbon revenues. That would be the red lines there. That is the share of the projects that are not commercially viable based on a carbon return on the investment. This is not the capital. So you would say that of those 275 win projects, for instance, that have been invested in, the 260 would return so little from the carbon market that it is insignificant. It doesn't really have any influence on the investment. If you then accumulate the investments, not the number of projects, but the actual investments having gone in to these projects, and that is, I have to admit, arbitrarily settled that I say if the project is between, if it's over 20% return on the investment from the carbon market per year, it's clearly driven by the carbon value. If it's below 20%, but above 3%, it would maybe or maybe not. We don't really know whether that is actually the case that is driven by the carbon value. If it's below 3%, it's clearly not driven by the carbon value. If you look at that, if you use those intervals, if you accept that as the case, then only 1% of the capital having gone in to CDM has been driven by the purpose of reducing emissions. So that is not so much. So why are people investing? Are they really so foolish that they throw all their money at projects on emissions reduction that have so little return on the investment in terms of carbon revenues? Of course they're not. As Grant said, 90% of all this capital is coming from the developing countries themselves. Developing countries have not put any money into this. So are developing country investors really so foolish? Of course they're not. There's a number of other investment motivations that are driving these activities. It's only foolish if you insist that these projects have actually been driven by the purpose of reducing emissions. If you accept or you insist that the developers are not foolish, then you have your answer. Can we fix it? Yes we can. It won't change much. But the easy fix here in terms of having the carbon value at least having some sort of impact on the investment is if you make sure that the value of the carbon would be available at the day of investment decision. Right now it goes the other way around. You have to write your PDD and have it early dated and have it registered at some point maybe even after the project has been constructed. Then of course you cannot take that into account in your investment calculation particularly not if the banks don't believe in the system and they don't. So what you do instead is you start with a registration. You have your project, you go to Bonn and you get your approval signed by the UN. You will get this amount of credits if you do this project and you implement it. With that in your hand you can go to the carbon buyer. You say I have this guarantee from the UN. Will you buy my credits? And the buyer will buy it. You take these two documents to the bank. There's a guarantee that you get the credits. Of course discounted significantly compared to what you would expect that type of project could produce. But still you have some at least contribution to the actual investment which you can lend against basically in the bank. If you want to have all the credits that you might be able to generate you would then go back to the PDD writing, the validation, another registration, monitoring, verification and issuance. To get all the emissions reduction that this project is capable of delivering. At the risk of course at the registration here that you lose whatever you got up front if you were found not to be additional. So that might, that would be the conservative CE Aga and she as I present here. I shall skip the loan scheme. I think time is running out. But we actually had a launch of the loan scheme three months back so CDM is not dead if you think. We have a lot of activity going on out there. But it's shifting from what we've seen earlier to LDCs. A lot of activity in LDCs. More than half of the projects we see now are LDC projects. Now do we want to fix it? Do we really want to fix this system? There's one billion CEAs excess in the market. So first of all we need, do we need to worry? The EP worries. They had discussions at length at the last EP meeting. What do we do for the price? Well we established a market so somehow we'll have to live with it. It's supply and demand. If there's no demand the price will fall. That's just how it is. Fortunately as the investors are not foolish and because they invested for other reasons they don't care that much. With some exceptions. I was working for the carbon trader just three years back. We started looking at Chilean projects, landfill gas projects, one revenue stream, only carbon credits. And we wanted to buy their post-20 third credits. And they didn't really want to sell. I left there. My colleagues continued to come there and the next time the prices had fallen they were hoping that they would grow again. So next year again they came and the prices had pressed completely. These guys, unfortunate guys in Chile with one revenue stream, landfill gas projects, have lost millions of dollars. That's unfortunate. Of course there are those cases. So otherwise generally it's not a big loss for the developers. So the other option of course if you really want to solve the problem you can try to increase the demand just to offset it with excess credits. In that case you can just as well send the money. There's no reason to go through the carbon market. And as I said before there are plenty of investment drivers around without the carbon market so these things are actually going to go on anyway. So why do you really want to put this carbon value which is not really very much on top of the projects, is it worth it? There's Glacier, Environmental Funds, Michael, Mitchell, FireSign who said the same thing. CDM has long been overshadowed by other drivers in the market. We don't need this thing anymore. And investors are not leaving the market. They continue and if they continue investing would you really want them to generate credits? The whole thing was about decisionality in the beginning. So if they invest anyway they should not generate any credits. Which leads us to the credited NAMAS. Sorry I know I'm late. Some of you might have seen this figure before. This is the idea of NAMAS in the future carbon market. And would we need the CDM like structure out here? Well one thing that they got wrong first of all is it shouldn't be out there because this was supposed to be cost efficient. And out here would be the most expensive one. So at least you would have to move it there. Where you have the government funding here or the government promoted activities here which would be the supported NAMAS. And the 100 billion prospective green fund finance that we are all hoping for. So now let's take it out there and now we don't have any crediting, no trading mechanism. Where would the money come from? Where would we get these 100 billion from? Now one thing is what we have is a lot of words first of all. The last I saw here in a German tender was public, private and innovative sources. I really wonder what the innovative sources are if they're not public and not private. You might tell me. We also have, well the question is are we talking creative leveraging or creative labelling of funding here? What is it? 257 billion for renewables in 2011, that is record investment. It's more than the IEA said in 2010. We need annually to invest in renewable energy. It's 20% more than they feel is necessary to meet the 2 degree target. Is this climate finance? What kind of finance is this? We can call it finance if you want, climate finance. But maybe it's just finance. So if we want to promote this one, as I mentioned before the CER guaranteed for the CDM, it would not change the 90% domestic finance in CDM projects. That would be used for local banks to finance the local projects. It doesn't change anything. What we need is much broader guarantee schemes and what you might notice is in most of the developing countries, most of these countries we talk about, don't even have a credit rating for the export credit agencies to work on. They are sort of beyond scope. They don't have any guarantee option. So we don't have any option or possibility to actually secure foreign direct investment in those kind of projects. So what we are talking here, maybe I should also skip these, but this is sort of just a few fundamentals that I want to conclude with, which is somebody has to pay and all these technologies are, many of them at least, not the energy efficiency ones, but otherwise most of these renewable energy technologies are not viable options and somebody has to pay for it. And you can cut the cake in many different ways, but there is a bill somewhere that needs to be paid. Much of it is based on regulation. It is actually practically all of it based on regulation as long as it is not commercially viable on its own. So you have to regulate your way into these investment levels that we are seeing. And then remember that one size doesn't fit all. That's what we are trying to do in the CDM. In this global carbon market, we try to squeeze everybody into the same box and they don't fit in there. Now we have energy access as well as being a purpose put into the CDM. That's actually increasing emissions and we still get credit for it. It's nice. It's sustainable development. No doubt about it, but it's not emissions reduction. Now CDM methodology is great and we have the instruments that we will use in the future under the numbers to demonstrate the emissions reduction that we are actually achieving through the activities that we do, but we don't need to use that to generate credits to a global carbon market. We can maybe do it for a local carbon market and we may be able, if we all develop this under the CDM methodological spirit, we may be able to link those in the future if we want. I'm not sure that we will win anything with that. And then there's limits to the number of purposes we can serve with the same instrument as Grant was presenting before. We have sustainable development. We have technology transfer. We have emissions reduction and what not. We are trying to serve with the same instrument. If we have different investment drivers in different sectors, we should maybe just try to focus on those and promote those instead and look at what each sector on its own instead of trying to hit them all with the same thing. The last one is just what we have seen with the CDM. We're trying to micromanage everything. We're trying to count ton by ton. At least what we get out of the idea with the CER guarantee is that we will simply have to accept that it's ballpark figures and we will have to operate on those ballpark figures and it doesn't really matter as long as we get it grossly right.