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Potential Carbon Markets & Utah Agriculture Utah State University October 8, 2009. Developing Offset Projects in a U.S. Pre-Compliance Market: Smart Investment or Unwise Policy Gamble. Regulatory Risks. What are the areas of certainty regarding offsets in a US cap and trade system?

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developing offset projects in a u s pre compliance market smart investment or unwise policy gamble

Potential Carbon Markets & Utah Agriculture

Utah State University

October 8, 2009

Developing Offset Projects in a U.S. Pre-Compliance Market:

Smart Investment or Unwise Policy Gamble

regulatory risks
Regulatory Risks
  • What are the areas of certainty regarding offsets in a US cap and trade system?
  • Offsets will be allowed as part of cap-and-trade system
    • Limitations on offsets vary significantly
      • House of Representatives Bill (Waxman-Markey) -- 1 Billion tonnes domestic during first year
    • Approved project types
      • Significant number of ag-related project types in Senate Bill (Kerry-Boxer) including agricultural, grassland and rangeland sequestration and management practices, manure management and biogas capture
    • US based projects

2 | Blue Source | A Leading Climate Change Portfolio

regulatory risks1
Regulatory Risks
  • What are the areas of uncertainty related to offsets in a US cap-and-trade system?
  • Timing of implementation of cap-and-trade
  • Project Start-Date
    • Kerry – Boxer -- Jan. 1, 2009
  • Early Action
    • Kerry-Boxer -- Jan. 1, 2001 and are registered
  • Registries and Methodologies
    • Chicago Climate Exchange, Climate Action Reserve, Voluntary Carbon Standard, American Carbon Registry

3 Blue Source|A Leading Climate Change Portfolio

agricultural project types
Agricultural Project Types
  • Methane collection, combustion and avoidance projects involving organic waste streams that would have otherwise emitted methane in the atmosphere, including manure management and biogas capture and combustion;
  • Projects involving afforestation or reforestation of acreage not forested as of January 1, 2009
  • Forest management resulting in an increase in forest carbon stores, including harvested wood products
  • Agricultural, grassland, and rangeland sequestration and management practices, including
    • Altered tillage practices, including avoided abandonment of such practices,
    • Winter cover cropping, continuous cropping and other means to increase biomass returned to soil in lieu of planting followed by fallowing;

4 | Blue Source | A Leading Climate Change Portfolio

agricultural project types continued
Agricultural Project Types Continued…
  • reduction of nitrogen fertilizer use or increase in nitrogen use efficiency;
  • reduction in the frequency and duration of flooding of rice paddies;
  • reduction in carbon emissions from organic soils;
  • reduction in greenhouse gas emissions from manure and effluent;
  • reduction in greenhouse gas emissions due to changes in animal management practices, including dietary modifications;
  • planting and cultivation of permanent tree crops;
  • practices to reduce and eliminate soil tillage;
  • reductions in greenhouse gas emissions through restoration of wetlands, forestland, and grassland; and
  • sequestration of greenhouse gases through management of tree crops;

5 | A Leading Climate Change Portfolio

agricultural project types continued1
Agricultural Project Types Continued…
  • Changes in carbon stocks attributed to land use change and forestry activities, including—
    • management of peatland or wetland;
    • conservation of grassland and forested land;
    • improved forest management, including accounting for carbon stored in wood products;
    • reduced deforestation or avoided forest conversion;
    • urban tree-planting and maintenance;
    • agroforestry; and
    • adaptation of plant traits or new technologies that increase sequestration by forests.

6 | Blue Source | A Leading Climate Change Portfolio

protocol developments related to agricultural projects
Protocol Developments related to Agricultural Projects
  • Kyoto – CDM
  • Province of Alberta
  • Voluntary Carbon Standard
  • Chicago Climate Exchange
  • Climate Action Reserve
  • American Carbon Registry

7 | Blue Source | A Leading Climate Change Portfolio

how buyers emitters manage the regulatory risk a portfolio approach
How Buyers/Emitters Manage the Regulatory Risk: A Portfolio Approach
  • Offset a material portion of the risk using a portfolio approach
    • Multiple vintages, projects, types of offsets, project start-dates
  • Execute transfers on recognized registries such as the Climate Action Reserve (CAR), American Carbon Registry (ACR) and Voluntary Carbon Standard (VCS)
  • Purchasing offsets today provides a hedge against increasing prices and uncertainty about the availability of offset supply
  • A secondary voluntary market exists today for offsets that are not eligible for compliance purposes in the future

8 | Blue Source | A Leading Climate Change Portfolio

pre compliance transaction trends
Pre-Compliance Transaction Trends
  • According to New Carbon Finance, Aug-Sep 2008 pricing:
      • $10.75 / tonne for Climate Action Reserve offsets
      • $7.25 / tonne for Voluntary Carbon Standard offsets
      • $4.00+ for “other” offsets
  • Compliance eligibility risk -- offsets with a lower perceived eligibility risk command a premium price (more established offset types with recent start dates)
  • Product specification regarding standard and registry are also fundamental determinants of price
  • Potentially have 1-2 more years of pre-compliance trading with uncertainty relating to offset criteria

9 | Blue Source | A Leading Climate Change Portfolio

chicago climate exchange
Chicago Climate Exchange

10 | Blue Source | A Leading Climate Change Portfolio

blue source s offset portfolio
Blue Source’s Offset Portfolio

Blue Source’s VER portfolio is the largest in North America:

Carbon Capture and Storage (CCS)

Coal mine methane

Wastewater treatment

Landfill gas

Agriculture

Forestry

Industrial Gas Destruction

Blue Source has $500M in capital from Och Ziff Capital Management Group to invest in VER projects and CO2 pipeline infrastructure projects.

11 | Blue Source | A Leading Climate Change Portfolio

blue source s strategic alliance with goldman sachs
Blue Source’s Strategic Alliance with Goldman Sachs
  • Blue Source views a significant pre-compliance market emerging
  • Blue Source expects credit to become more important in transactions
  • Goldman has a significant client base of large emitters and potential pre-compliance purchasers
  • Goldman Sachs has the ability to see the marketplace and create products to meet the need

12 | Blue Source | A Leading Climate Change Portfolio

slide13

Contact Information

Lauren Kimble

Vice President, Marketing

lkimble@bluesource.com

801.438.1534

Salt Lake City, Utah

13 | Blue Source | A Leading Climate Change Portfolio