Financial Evaluation Of The CDM Project Case Study In Carbon Market

With countries in the world strengthening cooperation to deal with climate change problems,the international carbon trading market continues to be developed,especially the Clean Development Mechanism(CDM).As the connection between developed countries and developing countries in the carbon market,the CDM plays an important role.Because CDM projects are based on emissions trading,they have a number of different characteristics from traditional investment projects,such as the bigger risk of uncertainty.Because of these characteristics,some studies about the project financial evaluation presented that real option method should be used to quantify the uncertainty in the project,but it ignores some theoretical and operation issues of CDM projects.And they don't test the real option method in the real case and there is no evidence to prove the evaluation result is reliable or not.In this paper,two cases about financial evaluation of CDM projects,discovered the overestimated problem with real options method,analyzing the CDM project owners' disadvantages and other restrictions in the carbon market which leads to the fact that uncertainty and volatility in the price of CERs in the CDM project can't bring real value to the business.This is also an important reason for real options method causing CDM project financial evaluation results overvalued.So the conclusion is that real option method is not suitable for CDM projects because of the overvalued problem.Finally,this paper brings up combination of NPV and CERs price discovery method,and tests this method and real option method in the case Gansu Guazhou North Bridge Wind Electric CDM project.This case is to test which method is more reliable for CDM projects in terms of financial evaluation.And the result is that the combination of NPV and CERs price discovery method is more reliable and effective.