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Risk management in the primary CDM market
KTH, School of Industrial Engineering and Management (ITM), Energy Technology, Energy and Climate Studies, ECS.
2009 (English)Independent thesis Advanced level (degree of Master (Two Years)), 30 credits / 45 HE creditsStudent thesis
Abstract [en]

The most popular carbon credit used as the offset is the Certified Emission Reductions (CERs) which is the carbon credit generated from the Clean Development Mechanism (CDM) project activity. This thesis examines how to manage risk in the CDM market. Three categories of risks were found; 1) compliance risk, 2) non-creation risk, 3) volumerisk. The top-down approach was applied to assess the risks by using the global CDM pipeline data as an input. In the end, the statistically analysis provides the result of assessment from each type of risk.

The results show that project type and location have high correlation to the risks. For the regulatory risk, the energy efficiency project faces higher risk than other types of projectas it has the highest failure rate in the CDM registration process in the past. It is also found that most projects faced a longer registration delay than expected for about 3 months. The median time required for registering a CDM project takes around 13-14 months after the PDD is finished and entered into the pipeline. Regarding to the project performance, the landfill gas project has the highest volatility of the yield compared to others, meaning the highest risk as it is difficult to forecast. On average, most project shave the volatility of the performance around 25%-40%. To manage risk efficiently, an investor should apply risk factors to discount the expected number of CERs to reflect an individual risk profile of the project. Buying an option or insurance could also help to mitigate and hedge an unforeseen incident to the project.

Place, publisher, year, edition, pages
National Category
Energy Systems
URN: urn:nbn:se:kth:diva-47795OAI: diva2:456433
Subject / course
Energy and Climate Studies
Available from: 2011-11-14 Created: 2011-11-14 Last updated: 2011-11-14Bibliographically approved

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ReferencesLink to record
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