Real Options Application In Chinese CDM Project Value Analysis

Since the 《Kyoto Protocol》go into effect on2005, global greenhouse gas emissionreduction has officially started. Changes in international environment has entered a newmilepost, resulting in clean development mechanism. As a result of the clean developmentmechanism, developed countries through the development of Chinese national investment inemission reduction projects, to obtain their own desired CERs. Developing countries also wonthe project additional CDM incomes, making a lot of emission reduction projects become afinancial feasibility, to achieve a win-win results.China is the main provider of CDM projects. According to《China low carbon economyannual report (2011)》, as of April in2011, the United Nations Executive Council weresuccessfully registered2947CDM projects. China accounted for43.98%, achieve1296, andreached55.28%CERs. In addition, new energy and renewable energy projects accounted forthe largest proportions (79.85%), mainly hydropower projects and wind power projects.Therefore, to analysis CDM project values has become particularly important, having asignificant impact on to our country how to invest in CDM project, and how the developedcountries and the negotiations in order to gain advantage are important.Against this background, this paper first introduced on the international carbon emissionstrading situations, and some our Countries’ CDM projects, and then introduced on thetraditional analysis methods on CDM project values. However, CDM project is a big risk,long-term investment project. The traditional methods do not take into account on theuncertainty of the CDM project and management flexibilities, thus this paper introduces realoption method, and compared with the conventional methods, put forward that the real optionmethod is more suitable for CDM project value analysis.Thus, this paper established a real option in CDM application framework, introducedCDM project in the general options, and with an example to illustrate the framework using.After the actual, this paper analyzed options in the CDM projects. According to theimportance principle this paper pointed out CDM project implied stage investment options,and establish a multi stage compound option model. Finally, this paper take the GuazhouNorth Bridge first wind farm project as a case, the traditional NPV method and real optionsmethod are applied, and finally founded that if considering real option in the case, the projecthas become a financial feasibility. Finally, this paper gave the prospect on the development ofChinese CDM projects. Chinese CDM projects’ construction should be considered realoptions in the projects, and should invest in the development potential of large industry.