CHP & Carbon Credits May 2, 2007 By Dave Sjoding

1. CHP & Carbon Credits May 2, 2007 By Dave Sjoding

2. CARBON CREDITS A Potential New CHP Revenue Source What’s a carbon credit? • A new financial commodity • Representing certified reductions • Of greenhouse gas (GHG) emissions • Tradable on the Chicago Climate Exchange • A unit of GHG currency • After January 1, 1999 • One ton of CO2e Combined Heat and Power for Alaska • Idaho • Montana • Oregon • Washington

3. THREE TYPES OF CHP CARBON CREDITS Clarity of type wards off confusion 1) Methane avoidance – Vander Haak Dairy; 2) Thermal offset or reduction of fossil fuel – Urban wood waste for heat process; and 3) Electricity with contract specifying carbon credit ownership Combined Heat and Power for Alaska • Idaho • Montana • Oregon • Washington

4. CHICAGO CLIMATE EXCHANGE (CCX) North America’s first GHG reduction trading system • Voluntary to join • Legally binding rules • Protocols, auditing, verification • Market based prices • It is not the only way to sell – The Climate Trust, Seattle City Light – Carries local and Combined Heat and Power for Alaska • Idaho • Montana • Oregon • Washington

5. PROJECT DEVELOPMENT CARBON REDUCTION An alternative approach Directly pays for the carbon reduction • Examples: • The Climate Trust • Seattle City Light • May carry a local or regional preference • Focus on analysis of CO2e reduction from a baseline • Competitive solicitations are normal • Other goals such as economic development may be included Combined Heat and Power for Alaska • Idaho • Montana • Oregon • Washington

6. BROKERS/AGGREGATORS • CHP projects need them for the Climate Exchange • Expertise • Market access • Aggregation (bundling of projects for market) • Often a 50/50 arrangement for small projects – Larger projects carry a better split • Example – Environmental Credit Corp at www.envcc.com/ Combined Heat and Power for Alaska • Idaho • Montana • Oregon • Washington

7. SOME OBSERVATIONS • Selling CHP carbon credits has unexplored territory – Analysis is needed • It is a new but not wealthy revenue stream at this stage • The science responding to global warming is maturing, but relatively young • The intensity of GHG mitigation efforts is increasing over time • The price is rising and will get interesting – Cap & Trade is coming Combined Heat and Power for Alaska • Idaho • Montana • Oregon • Washington

8. INITIAL STEPS FOR INDUSTRIAL PLANTS • Explore the topic to build understanding • Document your carbon footprint – Where do you produce greenhouse gases? • Establish your baseline (totals and per production unit) – Preferably back to January 1, 1999 • Develop a reduction plan with an eye to the market pathway • Develop third party verification Combined Heat and Power for Alaska • Idaho • Montana • Oregon • Washington

9. AN UNRESOLVED ISSUE Can you sell both carbon credits and green tags? • Power production - “All the environmental attributes” ? • Or, Is it severable for methane avoidance and thermal offsets? • Western Renewable Energy Generation Information System (WREGIS) www.westgov.org/wieb/wregis/ • Regional Greenhouse Gas Initiative www.rggi.org/ • WA: I-937 Rulemaking at CTED & UTC Combined Heat and Power for Alaska • Idaho • Montana • Oregon • Washington

10. CONCLUSION CHP and carbon credits will be a focus of the Northwest CHP Application Center for this year For follow-up and questions contact Dave Sjoding, WSU Extension Energy Program at (360) 956-2004 or sjodingd@energy.wsu.edu Combined Heat and Power for Alaska • Idaho • Montana • Oregon • Washington