The Pathway to Market for Agricultural Carbon Offsets: Science – Policy - Commodity

1. The Pathway to Market for Agricultural Carbon Offsets: Science – Policy - Commodity Karen Haugen-Kozyra, M.Sc. P.Ag. Principal, KHK Consulting June 10, 2010 Agriculture and Carbon Markets: Making Carbon Count UC Davis

2. It’s All About Carbon….Why? 2 | KHK Consulting | Making Your Carbon Count

3. Alberta US Fed Voluntary Carbon Standard Global Carbon Pricing Policies

4. $126B in 2009* 2 Main Commodities *Point Carbon 2010

5. Western Climate Initiative Regional GHG Initiative Midwestern GHG Reduction Accord AB Specified Gas Emitters Regulation SK Bill 95 Canada’s Regulatory Framework The American Clean Energy Security Act American Power Act Discussion Bill l NB NB North American Climate Change Initiatives

6. Carbon Accounting Frameworks 6 | KHK Consulting | Making Your Carbon Count

7. Two Major International Enablers: • Intergovernmental Panel on Climate Change • Science-based Guidance on GHG quantification • Different Tiers of customization (Tier 1,2,3 – Country level accounting) • Project-Level (Offset) Accounting Standards • WRI GHG Protocol/ISO 14064-2 • Promotes consistency and transparency in GHG quantification, monitoring, reporting and verification • Similarities: • Quantification, assessment, fidelity and truthfulness stressed in both • Principles - completeness, accuracy, consistency, transparency and documentation Quantifying Greenhouse Gases

8. Project Based Accounting Frameworks– The Carbon Market Access Mechanisms 8 | KHK Consulting | Making Your Carbon Count

9. Projects Accounting – Relative Quantification Fundamental Principle: Activities and emission reductions must be above andbeyond Business as Usual practices Project Condition What happens (GHGs) with the improved practice/new technology? Baseline Condition What was happening (GHGs) in the old practice, or common industry practice before the change? Are they comparable (same level of activity, product, service) to base calculation on Evidence – Document it: Quantification and Monitoring Plan Data Management System and Data Controls Amount of Offsets = Baseline - Project. Need to quantify both!

10. Accounting Rigor Standardizing means making policy decisions! AB/CDN Others? CAR VCS CDM WRI GHG Protocol CCX Ease of Use Policy Neutral, Flexible ISO 14064-2 Standards for Protocols are Harmonizing

11. Part 2 of ISO14064 (ie, auditable standard general process requirements) ApplicableGHG Program (eg, additional requirements, criteria, rules and policies) Good PracticeGuidance (eg, IPCC, recognized criteria, methodologies, tools and guidance on how to do it) Stakeholder Consultation (eg, communication with interested parties) National Emissions Inventory Tier 2/3 Quantification Science Relevant Standards (eg, recognized criteria, rules, methodologies, equipment) RelevantLegislation (eg, regulatory requirements) Quantification Protocols: identifying preferred methodologies to quantify GHG reductions/removals Streamlined Life Cycle Assessment Considered Technical Review Within the discipline of the ISO Standard Best Available Science ISO 14064:2 - Standards Development Process

12. Approved Protocols: • Streamlined use • Transparency and consistency • Reduced costs and administration • Scientifically sound (expert/scientific review) • Reduces cost and risk for Project Developers • Provides certainty for investors – GHG tonnes reduced • Done right – can address scale, risk and transaction cost issues. Quantification Protocols

13. We have to Identify All GHGs 13 | KHK Consulting | Making Your Carbon Count

14. Completeness Principle: Knowledge and Scientific Judgment Substitute for direct evidence where lacking Models and conversion factors Estimate uncertainty Conservativeness Principle Applied as a risk-based approach where science is less synthesized, but uncertainties are known Strive to underestimate baseline emissions Use the 80:20 rule; collective decisions through expert peer review (IPCC style) “Serves as a moderator to accuracy” ISO 14064:2 Principles

15. State of Science of GHG-Management Links Commercializable Commodity = Carbon Offset Science – Policy - Commodity

16. Additional/Incremental • beyond business as usual practices (needs a valid and defensible baseline at the project start); surplus to regulations/received incentives) • Measurable, Quantifiable • agreement on best available science and activity data – develop a Protocol. Must stand up to a Review Process; account for all 6 GHGs. • Verifiable • carbon accounting, and tracking process must be clear, defensible, and have good QA/QC procedures; verified by qualified 3rd party. • Permanent • must protect against carbon reversals; account and replace mechanisms • Functionally Equivalent – Consistent Metrics • same level of quantity or service between baseline and project • A common base for calculating emission reductions Criteria are Harmonizing

17. Relative Quantification Example – Land Fill Gas (LFG); Identifying Relevant Emission Sources, Sinks and Reservoirs

18. LFG – ID Project SSRs

19. LFG -ID Baseline SSRs

20. Exclusion of SSRs that are related to the manufacturing of materials Exclusion of SSRs that do not significantly changed from the baseline to the project scenario Exclusion of SSRs that are unchanged between the baseline and project scenarios Exclusion of SSRs that are not within the scope of the protocol Site preparation, installation and commissioning

21. 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 The C Commodity Pathway

22. Farms A Aggregator Buyer Verifier Firm Registry A A ✔ ✔ Verified Tonnes A Potential Tonnes ✔ A Compliance Report Alberta – almost 4 Mt of No Till Offsets (2.5 years)