A Study On The Value Of CDM Carbon Emission Project Based On The Real Option Framework

Since 2005, the Clean Development Mechanism (CDM) played the role of leverage in the international carbon emission market to develop new energy sources, convert energy types and enhance energy efficiency. Developed countries through this mechanism to invest and transfer the clean technologies to developing countries for their own carbon emission reduction credits required. China, as the most important seller in CDM project market, account for 84% of the certified carbon emission reduction (CERs) trade share. Assessment of the real value of CDM projects, not only to the development of China's CDM project market, but also provides an important reference value for the negotiations of CERs pricing which involved in the CDM project.In the background, this paper first introduced the current international carbon emission market structure and development, analysis of China's situation and the participation in international CDM market, and introduces a variety of traditional evaluation methods for the project evaluation and some other method of dealing with the project uncertainty. As the CDM project unique strategic and uncertainty, the traditional discount cash flow(DCF) method have significant limitation when evaluating the value of CDM projects, which static net present value (NPV) results may lead strategic and growth value be ignored, misled investors to make wrong decisions.Therefore, this article uses the real option framework to discuss the real value of CDM project, analyses the CDM project's uncertainties include a variety of option types, and then create a multi-stage investment real options model.The case in the article through analysis the operating mechanism of CDM and the background of China's CDM wind power project, demonstrates the real options approach used in the evaluation of CDM project value is reasonable, and simulated by a simple example of a multi-stage real options model of wind power in the CDM project application. Finally, the article suggests the current situation, China's CDM projects and investment should be more biased in favor of those options premium and high development potential, technical superiority obvious industry.