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

1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. Chicago Climate Exchange 10 | Blue Source | A Leading Climate Change Portfolio

11. 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

12. 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

13. 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