Kyoto Protocol to UN Framework Convention on Climate Change (“Kyoto Protocol”) establishes greenhouse gases reduction targets for industrialized countries (see previous section on Market Trends for specific statistics), and provides three market-based mechanisms – known as Emissions Trading, Joint Implementation (“JI”) and the Clean Development Mechanism (“CDM”) to achieve these targets. These flexible mechanisms are used to create incentives for the development of clean and renewable energy production assets, improved energy efficiency, and GHG sequestration techniques. Using a Kyoto-enhanced model for developing and acquiring green energy assets has several key advantages ranging from lower equity financing requirements to improved engineering, procurement, and construction processes, all of which reduce risk and development expenses.

Most Target Countries of LGE are parties to the Kyoto Protocol and may benefit from the financial incentives offered by the Kyoto Protocol. Integration of Kyoto principles in the traditional project finance schemes achieves many benefits which enable faster development, implementation, and greater return on investment by:

• Reducing the equity required for a project;
• Reducing the debt (primary, mezzanine or both) required for a project;
• Increasing the availability of vendor financing;
• Increasing the availability of insurance and other risk mitigation support;
• Introducing strict monitoring and other beneficial controls;
• Introducing enhanced engineering design;
• Speeding up regulatory reviews and approvals.