Investment Opportunities in the Global

CARBON MARKETS
March 2011

The information that is contained in this document is the property of Validated Carbon Credits. The contents of the document must not be reproduced or disclosed wholly or in part or used for purposes other than that for which it is supplied without the prior written permission of Validated Carbon Credits. The information in this document is only intended for Professional Investors, including regulated financial intermediaries such as banks and securities brokers (and their clients who have signed discretionary asset management agreements), regulated insurance companies, government or public authorities, corporate treasurers and financial advisers. Past performance is not a guide to the future. Market and exchange rate movements may cause the capital value of investments to go down as well as up and the investor may not get back the amount originally invested. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.

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Carbon will be the worlds biggest commodity market, and it could become the worlds biggest market over all
Barclays Capital

Forecast 42% growth by 2012 - Barclays Current market size $127bln expected to reach $2-3trillion by 2020 Ethical investment, helping to reduce climate change Option to invest within a SIPP How do I get involved? Together with our provider we give you access to the global carbon markets. We operate a hassle-free, unique platform that enables you to invest in a range of carbon credits generated from low carbon, energy efficiency and sustainability projects around the world. We are uniquely positioned to manage all of the carbon credit sourcing, purchase, settlement and registration processes and

provide you with a unique login and password that enables you to trace your carbon credits on the public registry. We are also happy to provide market updates to keep you informed and we only offer the highest quality carbon credits. The provider is directly integrated with Markit Environmental Registry, the worlds largest registry for voluntary carbon credits so you can be assured that there is always an end-toend audit trail for all of your carbon credit investments. We are also able to assist you with the sale of your credits at the appointed time with access to multiple international buyers. Invest via a SIPP Carbon credits are a SIPP compliant investment. You now

have the option of investing in carbon credits using a SIPP from some major, widely recognised UK SIPP providers! The minimum SIPP investment is only 5000,
For more information, contact:
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Validated Carbon Credits Tel +44 (0) 203 137 4400 Skype carbon-credits Email: info@validatedcarboncredits.com Web: www.validatedcarboncredits.com

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Carbon could become one of the fastest growing markets ever, with volumes comparable to credit derivatives inside of a decade
Head of Emissions trading at Merrill Lynch

There has never been a better time to invest in sustainable, environmentally and socially responsible assets. A growing international commitment towards a more sustainable world has had a dramatic effect

Climate change has emerged as an important theme for investors in recent years, evidenced by the growing numbers of shareholder resolutions related to climate change, the significant increase in renewable energy investments and the huge growth in the value of the carbon and emissions markets, now estimated to be worth 160 billion per annum. Barclays has forecast 42% growth in the value of carbon credits by 2012. Other market commentators believe the market could be worth $3trillion in the next decade.

- countries and international bodies are passing climate change legislation and applying targets for clean energy, sustainable resources and carbon reduction. Investment banks like Goldman Sachs, Merrill Lynch and Morgan Stanley have rapidly expanded their carbon businesses into one of the main currencies of this emerging sector, carbon emissions reductions.
We believe that carbon credits represent an exciting opportunity to
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become directly involved with highimpact, ethical investments that deliver real, measurable benefits to people and the environment. The value of carbon credits is likely to increase significantly as the markets mature and the international demand for carbon increases.

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The Carbon Credit Market

Large and growing market Carbon markets grew to $127 billion in 2010, nearly doubling from 2007 levels. Rapid growth is also expected over the next ten years. Some industry projections forecast the carbon markets will reach $3 trillion by 2020. Regulation is creating a number of national and international cap and trade schemes.

bodies in the UK. In the United States the US Cap and Trade scheme is expected to be enacted during 2011. The US Environmental Protection Agency (EPA) has also been also tasked with regulating emissions in the US if bills fail. Approximately 50% of the US states have already implemented regulation for mandating GHG reporting. SEC reporting requirement for emissions These regulations expected to extend to SMEs UK : Companies Act changed in Oct 09 to mandate firms with more than 50 employees or 5.6 million in revenue to report emissions reduction plans Similar trends expected in other markets Carbon prices forecasted to rise by 68% annually through 2013 At the same time that corporates are being regulated to reduce emissions or offset to attain carbon neutrality, cost of offsetting expected to increase Compliance costs has potential to adversely impact corporate valuations Corporates will need to centralise carbon management functions

Market Drivers In 2006 The Stern Review on the Economics of Climate Change came up with a calculated cost of $314 per tonne of carbon. Legislation is increasing the greenhouse gas (GHG) reporting requirements for large emitters. The UK is leading the legislative drive with the CRC Energy Efficiency Scheme, a local cap and trade scheme. The scheme became

effective in April 2010 and affects 5,000 businesses and government

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General Background

Parent with subsidiaries in different markets will need to monitor diverse compliance requirements

What is a carbon credit? A company can voluntarily balance their carbon emissions by purchasing an equal number of carbon credits. A carbon credit (also known as a carbon offset) is a tradeable commodity measured in tonnes that is generated by internationally verified projects that reduce or remove carbon dioxide from the atmosphere. The Companys technologies provide a range of web based calculators that enable individuals and businesses to calculate their own carbon footprint. By offsetting their business's carbon footprint, the companys management is making a positive, tangible statement to their employees, customers, suppliers and shareholders. They are all affected by climate change and will be more attracted, and loyal to, businesses which are committed to caring for the environment. Many of the most successful companies recognise the marketing advantages arise from being seen to be addressing environmental issues. Over $1billion in volume is traded each year in these types of carbon credits, primarily in the UK and USA, and this volume is expected to rise significantly. Carbon credits are a universal commodity with a global potential customer base. Their adoption is fuelled by three main drivers:

(b) Competitive advantage Green companies are perceived as being better managed, more efficient and more profitable than their rivals. (c) Peer pressure and the desire not to be left behind.

Carbon Credit Markets

Carbon markets exist under both compliance schemes and as voluntary programs. Compliance markets are created and regulated by mandatory national, regional or international carbon reduction regimes. Voluntary markets function outside of compliance markets and enable companies and individuals to purchase carbon offsets on a voluntary basis with no intended use for compliance purposes.

(a) Legislation (such as the UKs

Climate Change Act and Carbon Reduction Commitment, the American Clean Energy & Security Act, Australias Carbon Pollution Reduction Scheme

The Compliance Market The biggest compliance market is created by the Kyoto Protocol. In 1997, the United Nations Kyoto Protocol established legally binding greenhouse gas reduction targets for developed countries (referred to as Annex 1 countries). On average, the Kyoto Protocol asks Annex 1 countries to reduce their emissions 5.2% below their 1990 levels between 2008 and 2012. These are national-level commitments, which most countries will meet in practice by delegating their emissions targets to individual industrial entities, such as utilities and manufacturing companies, and domestically establishing legally
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binding requirements to keep emissions within their targets. The Kyoto Protocol established three Flexible Mechanisms to allow Annex 1 countries to meet their targets by trading carbon credits or emission reduction units. These mechanisms are: Emissions Trading, Joint Implementation, and the Clean Development Mechanism

credits from offset projects in developing nations. CDM is involved in setting standards and verifying projects. Certified Emissions Reductions (CERs) are verified and certified by authorized third parties (Designated Operational Entities.) CDM standards are stringent and robust yet have high transaction costs so that usually only large projects are registered. CDM requires strict additionality for certification of carbon offset projects. Voluntary Standards Voluntary markets can serve as a testing field for new procedures, methodologies and technologies that may later be included in regulatory schemes. Voluntary markets allow for experimentation and innovation because projects can be implemented with fewer transaction costs than CDM or other compliance market projects. Voluntary markets also serve as a niche for micro projects that are too small to warrant the administrative burden of CDM or for projects currently not covered under compliance schemes. Several voluntary offset standards have been developed. Carbon Advice Group works with the following voluntary carbon credit standards:

The Voluntary Carbon Market The voluntary carbon market functions outside of the compliance market. It enables businesses, NGOs, and individuals to offset their emissions by purchasing offsets independent of Kyoto and local regulatory systems.

Carbon Standards

Credit

There are many offset standards that have been developed in the last few years for the voluntary offset market. Standards set criteria by which projects are chosen and evaluated. Such standards may include criteria for: type of project, impact on local communities, additionality and leakage. Offsets that are produced under a voluntary standard are called Verified Emissions Credits (VERs). Offset that are generated under the Clean Development Mechanism are called Certified Emissions Reductions (CERs). Buyers in the voluntary market can choose to buy CERs or VERs. Clean Development Mechanism (CDM) http://cdm.unfccc.int/ The CDM is part of the United Nations Framework Convention on Climate Change (UNFCCC). As the largest regulatory project-based mechanism, the CDM offers the public or private sector in developed nations the opportunity to purchase carbon

Gold Standard Voluntary Carbon Standard (VCS) Climate Community & Biodiversity Standards (CCB)

Gold Standard www.cdmgoldstandard.org The Gold Standard (GS) is a voluntary carbon offset standard for renewable energy and energy efficiency projects. The GS can be applied to voluntary offset projects and to Clean Development Mechanism (CDM) projects. It was developed under the leadership of the World Wildlife Fund (WWF), with a focus on offset
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projects that provide lasting social, economic and environmental benefits. Voluntary Carbon Standard 2007 www.v-c-s.org The Voluntary Carbon Standard 2007 (VCS 2007) is a full-fledged carbon offset standard. It focuses on GHG reduction attributes only and does not require projects to have additional environmental or social benefits. The VCS 2007 is broadly supported by the carbon offset industry (project developers, large offset buyers, verifiers and projects consultants). The VCS version 1 was published jointly in March 2006 by The Climate Group (TCG), the International Emissions Trading Association (IETA) and the World Economic Forum (WEF) Global Greenhouse Register. The VCS 2007 was launched in November 2007 following a 19-member Steering Committee review of comments received on earlier draft versions. The Steering Committee was made up of members from NGOs, DOEs, industry associations, project developers and large offset buyers. The World Business Council for Sustainable Development (WBCSD) joined in 2007 as a founding partner of VCS 2007. The VCS will be updated yearly for the first two years and every two years after that. The Climate, Community & Biodiversity Standards www.climate-standards.org The Climate, Community & Biodiversity Standards (CCB Standards) is a project design standard that offers rules and guidance for project design and development. It is intended to be applied early on during a projects design phase to ensure robust project design and local community and biodiversity benefits. It does not verify quantified carbon offsets nor does it provide a registry. The CCB Standards

focuses exclusively on land-based biosequestration and mitigation projects and requires social and environmental benefits from such projects. The CCB Standards was developed by the Climate, Community and Biodiversity Alliance (CCBA) with feedback and suggestions from independent experts. CCBA is a partnership of nongovernmental organizations, corporations and research institutes such as Conservation International, The Nature Conservancy, CARE, Sustainable Forestry Management,BP and CATIE. The first edition was released in May 2005.

Carbon criteria

Credit

quality

Offsets Should Be Real Offsets should come from real projects that have actually been implemented or will be implemented.

Offsets Should Be Additional Because offsets are used to compensate for emission that the buyer produces, it is vital that the offsets come from a project that would not have happened otherwise. Such a project is called 'additional,' as in additional to business-as-usual. Determining additionality is an essential but difficult. There are many different approaches to testing for additionality. Offsets Should Be Based on a Realistic Baseline The baseline estimates what the emission would have been, if the offset project was not implemented. it is therefore a hypothetical calculation and has to be done carefully and conservatively so that the achieved emission reductions are not overestimated.
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Offsets Should Be Quantified & Monitored Emission reductions from offset projects need to be accurately quantified. This requires experts from the fields (e.g. engineers who are familiar with measuring and quantifying methane emission from landfills). Each offset project should use an established standard to develop its baseline and monitoring plan. Offsets Should Be Independently Verified All GHG reductions should be verified by an independent, qualified, thirdparty verifier according to approved methodologies and regulations. Verifiers should be entities whose compensation is not in any way dependent on the outcomes of their decisions. Offsets Should Be Unambiguously Owned and Listed in a Registry Clear and uncontested title to offset credits should be established by contractual assignment and/or government recognition of ownership rights. Once sold, the original seller of the carbon credit (and the project owner) must cede all rights to claim future credit for the same reductions in order to avoid double counting. Offsets must be serialized and accounted for in a registry or other approved tracking system. Offsets Should Address Permanence There is a risk that emission reductions generated by biosequestration projects can be reversed, and thus are not permanent (e.g. forest destruction through illegal logging or fire or pests). These risks have to be addresses through buffer zones or temporary credits. Offsets Should Do No Net Harm and Strive to Lead to Co-Benefits Offset projects should not cause or contribute to adverse effects on

human health or the environment, but should instead seek to provide health and environmental co-benefits whenever possible.

Important Information
The information contained in this document should not be considered as an offer, or solicitation, to deal in any of the investments or funds mentioned herein, by anyone in any jurisdiction in which such offer or solicitation would be unlawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. Funds mentioned in this document are not registered under the United States Securities Act of 1933, nor the United States Investment Company Act of 1940 and therefore may not directly or indirectly be offered or sold in the United States of America or any of its states, territories, possessions or other areas subject to its jurisdiction or to or for the benefit of a United States Person. Past performance is not a guide to the future. Market and exchange rate movements may cause the capital value of investments to go down as well as up and the investor may not get back the amount originally invested. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. You should obtain specific professional advice before making any investment decision. Shares in funds that may be described here are not available for sale in any jurisdiction in which such a sale would be prohibited. Accordingly the information on this website is not available for distribution in any jurisdiction where such fund has not been approved for sale. Please note that access to third party websites provided by hyperlinks to the sites issued by Validated Carbon Credits (Baron Traders Ltd) accepts no responsibility for the accuracy, completeness and legality of the contents of such third party websites or for any offers, services and products contained therein. You will be entering and accessing any third party website at your own risk.'

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Baron Traders Ltd (BT) does not warrant the accuracy, adequacy or completeness of the information and materials contained on this website and expressly disclaims liability for errors or omissions in such information and materials. Any research or analysis used in the preparation of the information has been procured by BT for its own use and may have been acted on for its own purpose. Some of the information on this website may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies. These statements are only predictions, opinions or estimates made on a general basis and actual events or results may differ materially. No information on this site constitutes investment, tax, legal or any other advice.

Neither BT nor any of its servants or agents have given any consideration to nor have they or any of them made any investigation of the investment objectives, financial situation or particular need of the reader, any specific person or group of persons. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the reader, any person or group of persons acting on any information, opinion or estimate contained on this website. BT reserves the right to make changes and corrections to its opinions expressed on this website at any time, without notice. The value of investments and the income from them may fall as well as rise and investors may get back less than the amount invested.

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