M-AGG Phase 2 Report: Agriculture Sector Greenhouse Gas Quantification Protocol Benchmarking

1. M-AGG Phase 2 Report:Agriculture Sector Greenhouse Gas Quantification Protocol Benchmarking Davis, California Keith Driver, V.P. Operations Blue Source Canada ULC June 2010

2. Outline • About Blue Source • M-AGG Phase 2 Objectives • Activities and Deliverables • Protocol Basics • Applicable Programs and Markets • Protocol Listing • Criteria for Benchmarking • Protocol Evaluation 2 | Blue Source | A Leading Climate Change Portfolio

3. About Blue Source 3 | Blue Source | A Leading Climate Change Portfolio

4. About Blue Source • Two primary businesses • Carbon Credit Portfolio • 100-200M tonne portfolio • Over 20 project types in 48 states and Canada • Federal and state carbon advocacy leadership • Developed the first protocols in numerous carbon categories • Carbon Infrastructure Investment • $500 million of dollars project equity (additional $500 million callable) • Management team has developed, owned and/or operated all of the anthropogenic CO2 pipelines in North America • Blended engineering, finance and transactional skills Blue Source has built the largest portfolio of North American emission reduction credits and projects. ‹#› | Blue Source | A Leading Climate Change Portfolio C

5. About Blue Source In addition we have a staff of North America’s foremost experts on carbon reduction and sequestration project 5 | Blue Source | A Leading Climate Change Portfolio

6. M-AGG Phase 2 Objectives Activities and Deliverables 6 | Blue Source | A Leading Climate Change Portfolio

7. M-AGG Phase 2 Objectives • Build on recognition of agriculture sector role in carbon markets • Acknowledge that protocols are key market access infrastructure • Drive early action and market development • Benchmarking exercise to take stock of current protocols • Draw attention to the breadth and depth of current works • Share learnings from historic protocol development efforts • Highlight key issues for agriculture sector protocol development • Provide some guidance for what is market-ready This is not designed to be critical review. Pioneers get the arrows. Settlers get the land. 7 | Blue Source | A Leading Climate Change Portfolio

8. Activities and Deliverables • Develop criteria for benchmarking • C-AGG Principles and others (Offset Quality Initiative) • Regulatory and programmatic guidance • Review each of the protocols from M-AGG phase 1 • Limited to work in the public domain • Compilation into benchmarking matrix • Communicate results and follow discussion • M-AGG Workshops • Upcoming communication events • Revisions to draft report prior to final publication 8 | Blue Source | A Leading Climate Change Portfolio

9. Protocol Basics 9 | Blue Source | A Leading Climate Change Portfolio

10. Making Carbon a Commodity Project Documentation Validation and Registration Monitoring and Verification Offset Issuance • Project / Baseline Description • Monitoring Plan and Methodology • GHG emission calculation • Review • Approve • Registration • Implement • Monitor • Verify • Issuance of tradable units Quantification Protocols 3rd Party Verification Monitoring Requirements Driven by Reporting Guidance Transparency Market Oversight Tradable Commodity 10 | Blue Source | A Leading Climate Change Portfolio

11. Protocol Essential Elements • Protocol Standards and Approaches • Move toward ISO 14064 pt II • Streamlined life cycle assessment (project/baseline) • Evaluation of all potential baseline scenarios • Identification of controlled, related and affected GHG emissions • Deciding which GHG sources and sinks are material • Scientific Rigour • Grounding in peer-reviewed literature • Building on national / international best practice guidance • Particular challenge for areas of emerging science 11 | Blue Source | A Leading Climate Change Portfolio

12. Part 2 of ISO14064 (ie, auditable standard general process requirements) ApplicableGHG Program (eg, additional requirements, criteria, rules and policies) Good PracticeGuidance (eg, recognized criteria, methodologies, tools and guidance on how to do it) Considered Technical Review Within the context of the ISO Standard Stakeholder Consultation (eg, communication with interested parties) National Emissions Inventory Tier II Quantification Science Relevant Standards (eg, recognized criteria, rules, methodologies, equipment) RelevantLegislation (eg, regulatory requirements) Markets for GHG Units Protocol Development Requires….. Quantification Protocols: identifying preferred methodologies to quantify GHG reductions/removals

13. Protocol Essential Elements • Scoping and Applicability • Acknowledge variety of scales of Ag sector projects • Standardization of quantification approaches • Define baseline condition • Project specific • Performance standard • Functional equivalence of project and baseline conditions • Quantification Element Requirements • Address inherent variability across landscapes • Manage the measurement vs. modeling balance • Ensure rigour of emission reduction assessment • False positives/false negatives and accuracy/precision 13 | Blue Source | A Leading Climate Change Portfolio

14. Protocol Essential Elements • Regulatory and Programmatic Guidance • Scope of the review/system • Regulatory coverage • Additionality criteria • Permanence rules • Leakage assessments • Guidance for Validation and Verification • Streamline and de-risk these processes • Protocol Development and Review Processes • Program specific with little overlap • Stakeholder engagement key (technical and constituency) 14 | Blue Source | A Leading Climate Change Portfolio

15. Applicable Programs and Markets 15 | Blue Source | A Leading Climate Change Portfolio

16. Key North American Climate Change Initiatives Western Climate Initiative Regional GHG Initiative Midwestern GHG Reduction Accord AB Specified Gas Emitters Regulation SK Bill 126 Canada’s Regulatory Framework Senate Bill (American Power Act) NB NB 16 | Blue Source | A Leading Climate Change Portfolio

17. Available Protocol Review and Approval Programs • Some programs are industry-led • Some programs are regulatory-based • Cross-pollination and acceptance is possible • Differences in approval processes • Differences in scope • Diversity in scope, coverage, timeline, cost and outcome. 17 | Blue Source | A Leading Climate Change Portfolio

18. Protocol Listing 18 | Blue Source | A Leading Climate Change Portfolio

19. Reviewed Protocols • Climate Action Reserve • Greenhouse Gas Services • Regional Greenhouse Gas Initiative Forest Project Protocol Livestock Project Protocol Livestock Manure Afforestation Manure Management 19 | Blue Source | A Leading Climate Change Portfolio

20. Reviewed Protocols • Chicago Climate Exchange • Voluntary Carbon Standard • Clean Development Mechanism Forestry Carbon Agricultural Methane Tillage and Grassland Rangeland Soil Carbon Afforestation/ Reforestation Sustainable Agriculture Land Mgmt Manure Management Offset Fertilizer with Legumes 20 | Blue Source | A Leading Climate Change Portfolio

21. Reviewed Protocols • Alberta Offset System Days on Feed for Beef Dairy Operations Edible Oils for Beef Pork Feed and Manure Management Beef Lifecycle Biogas Tillage Management Nitrogen Emission Reduction* Energy Efficiency 21 | Blue Source | A Leading Climate Change Portfolio

22. Criteria for Benchmarking (Building from Phase 1) 22 | Blue Source | A Leading Climate Change Portfolio

23. Protocol Review Criteria 23 | Blue Source | A Leading Climate Change Portfolio

24. Protocol Review Criteria 24 | Blue Source | A Leading Climate Change Portfolio

25. Protocol Review Criteria 25 | Blue Source | A Leading Climate Change Portfolio

26. Protocol Review Criteria 26 | Blue Source | A Leading Climate Change Portfolio

27. Results of Benchmarking 27 | Blue Source | A Leading Climate Change Portfolio

28. Results of Benchmarking - CAR • Science Based • Quantifiable • Additionality • Performance-based approach • Permanence • Mandated approach • GHG Accounting • De-minimus exclusion of GHG in livestock • Scalability • Limited disclosure on SSR interrelationships • Engagement and Review • Transparency of process • Broad vs. technical stakeholder coverage • CARB oversight or otherwise Forest Project Protocol Livestock Project Protocol 28 | Blue Source | A Leading Climate Change Portfolio

29. Results of Benchmarking - GHGs • Science Based • Quantifiable • Exclusion of N2O • Additionality • Permanence • GHG Accounting • De-minimus exclusion of GHG • Scalability • Engagement and Review • Private protocol • Only final version of protocol is available Livestock Manure 29 | Blue Source | A Leading Climate Change Portfolio

30. Results of Benchmarking - RGGI • Science Based • Limited transparency as short-form • Quantifiable • Limit guidance provided • Additionality • Limited transparency on performance standard • Permanence • Partial for afforestation – conservation easement • GHG Accounting • Limited detail and transparency given short-form • Scalability • Limited disclosure of SSRs and inter-linkages • Engagement and Review • Only final version published • Standard is codified as part of program Afforestation Manure Management 30 | Blue Source | A Leading Climate Change Portfolio

31. Results of Benchmarking - CCX Forestry Carbon • Science Based • Uncertain – lack of transparency • Quantifiable • Limited coverage of GHGs • Additionality • Tillage / Rangeland can be continuation of practice • Permanence • Limited term to liability – where applicable • GHG Accounting • Limited guidance and transparency at times • Scalability • Limited disclosure of SSRs and inter-linkages • Engagement and Review • Voluntary program • Only final version available • Limited transparency to review process Agricultural Methane Tillage and Grassland Rangeland Soil Carbon 31 | Blue Source | A Leading Climate Change Portfolio

32. Results of Benchmarking - VCS • Science Based • Quantifiable • Additionality • Permanence • Programmatic guidance • GHG Accounting • Reliance on models to address in SALM • Scalability • Limited disclosure of SSRs and inter-linkages • Engagement and Review • Only final version published / under review • Double validation process - limited pool of experts • CDM / CAR approval possible Afforestation/ Reforestation Sustainable Agriculture Land Mgmt 32 | Blue Source | A Leading Climate Change Portfolio

33. Results of Benchmarking - CDM • Science Based • Quantifiable • Additionality • Permanence • GHG Accounting • Scalability • Limited disclosure of SSRs and inter-linkages • Engagement and Review • Only final version published Manure Management Offset Fertilizer with Legumes 33 | Blue Source | A Leading Climate Change Portfolio

34. Results of Benchmarking - AOS • Science Based • Quantifiable • EE Protocol provides limited guidance • Additionality • Permanence • GHG Accounting • Leakage not always documented • Scalability • Emission factors and baselines need adjustment for regional factors • Engagement and Review • NERP still undergoing review (with others) Days on Feed for Beef Dairy Operations Pork Feed and Manure Management Beef Lifecycle Tillage Management Nitrogen Emission Reduction* Edible Oils for Beef Biogas Energy Efficiency 34 | Blue Source | A Leading Climate Change Portfolio

35. Conclusions and Next Steps • Protocol benchmarking process • ‘Lessons-learned’ from all programs / systems • Gaps across the range of agriculture operations and activities • Significant opportunities for coalescing efforts • Need to integrate science • Seeking input on criteria, review results, documentation • Revise documentation to incorporate stakeholder views • Further stakeholder engagement • Highlight opportunities for further protocol development • Bring together groups working on similar project types • Encourage follow-on work in the public domain 35 | Blue Source | A Leading Climate Change Portfolio

36. Moving to Three Streams of Activity P-AGG? C-AGG Path to Carbon Market Informing Policy Development M-AGG T-AGG 36 | Blue Source | A Leading Climate Change Portfolio

37. Contact Information Keith Driver, M.Sc., P.Eng., MBA VP, Operations Blue Source Canada ULC KeithD@BlueSourceCan.com www.BlueSourceCan.com 403.262.3026 37 | Blue Source | A Leading Climate Change Portfolio