Document Type Master's Dissertation Author Purohit, Rajesh URN etd-03312010-144554 Document Title A methodology to price certified emission reduction certificates from clean development mechanism projects Degree MBA Department Gordon Institute of Business Science Supervisor
Advisor Name Title Mr T Maxwell Supervisor Keywords
- economic development
Date 2007-04-08 Availability unrestricted Abstract
Certified Emission Reduction certificates (CERs) are created by reducing carbon emissions in a Clean Development Mechanism (CDM) project. Very little CER price information is available to the public, as most of the deals are traded over the counter.
The aim of this research is to model the price of CERs from a CDM project. The research methodology comprised of interviews with CDM experts to determine the risk factors influencing CER price and possible valuation methodologies which can be used in pricing CERs from a CDM project.
It became evident that while the risk factors influencing CER price are well known, little is known about the impact these factors have on the final price of CERs. The final model developed was based on a combination of cash flow discounting and hedging using theoretical call options. Using a private equity hurdle rate to indicate project risk, forward selling CERs as EUAs to generate future cash flows, and using implied CDM risk, yields an equation for the price of CER. The model was extremely useful in linking the publicly quoted four tier price category by Point Carbon to a percentage of risk associated with a CDM project.
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Please cite as follows:
Purohit, R 2006, A methodology to price certified emission reduction certificates from clean development mechanism projects, MBA dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-03312010-144554/ >
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