Carbon Credits

1. Carbon Credits Does money really grow on trees?

2. Overview • A little background… • What is carbon sequestration anyway? • How is this converted to a carbon credit? • Putting a value on ecosystem services. • Just how big will the check be?

3. So where did all this start? • The United National Framework Convention on Climate Change, commonly known as the Earth Summit, held in Rio de Janeiro in 1992 was where it all started.

4. Climate Change • Article 2 of the convention directly addressed the need to stabilize greenhouse gas emissions “at a level that would prevent dangerous anthropogenic (human caused) interference with the climate system.”

5. Kyoto Protocols??? • As a part of United National Framework Convention on Climate Change the “Kyoto Protocol” was established to create policies and measures to reduce greenhouse gas emissions.

6. Greenhouse Gases • Greenhouse gases, which include water vapor (H2O), ozone (O3), carbon dioxide (CO2), methane (CH4), and nitrous oxide (N20), are able to absorb and re-emit infrared radiation, while not blocking visible light.

7. Back to the Kyoto Protocols • The Kyoto Protocol requires industrialized nations to reduce their greenhouse gas emission to approximately 95 percent of their 1990 levels by 2008-2012.

8. Cap and Trade… • Countries that are unable to achieve this goal through direct reduction of emissions are allowed to “compensate” by buying credits from countries that have under used their emission allowance, by investing in “cleaner” energy technology abroad or by putting money into forestry or soil conservation.

9. Why is America the lone holdout? Under Kyoto, industrialized countries agreed to reduce their collective GHG emissions by 5.2% compared to the year 1990. National limitations range from 8% reductions for the European Union and some others to 7% for the United States, 6% for Japan, and 0% for Russia.

10. Carbon Sequestration • One of the main greenhouse gases of concern is carbon dioxide. • The burning of fossil fuels for energy, heating, and transportation has led to elevated levels of carbon dioxide in the atmosphere.

11. Carbon Sequestration • Through the process of photosynthesis trees remove and use carbon dioxide to create roots, branches, trunks and leaves.

12. Forests Store Carbon • Trees are a potential solution to help slow global climate change by removing carbon dioxide from the atmosphere and storing (sequestering) it as part of the permanent structure of the tree.

13. What does that mean to woodland owners? • Through market mechanisms woodland owners have the opportunity to sell the CO2 that their trees sequester to polluters who need/want to “offset” their CO2 emissions.

14. Who is interested in buying these credits from you? • Over-the-Counter - unmonitored • Sale of carbon credits between two parties • Governor Schwarzenegger • Al Gore • Chicago Climate Exchange - monitored • Green Companies • Regulated companies under “cap and trade” offset policies (future)

15. Carbon Offset Suppliers (over-the-counter) There are many carbon offset suppliers in the voluntary markets. These organizations link consumers seeking to offset their emissions with opportunities provided by different types of project.

16. How Carbon Offset Suppliers Work • Calculate Your Carbon Emissions • Use a carbon calculator to figure out your carbon footprint • Offset your everyday activities • Identify a specific activity which you wish to offset. • Wedding • Trip • Offset Your Carbon Emissions. • Based on your calculation you contribute money to support carbon-reducing projects such as renewable energy, energy efficiency and reforestation projects. • Which one you support is your choice

17. Cap and Trade • Members agree to reduce the amount of greenhouse gases they release into the atmosphere by a percentage. That limit is the cap. • Trading takes place when members release less than their limit. That leaves them with a surplus of emission credits.

18. Lets see how this works • One of the more popular carbon calculators out there can be found at… http://www.carbonify.com/carbon-calculator.htm Investing in projects http://www.carbonfund.org/site/pages/individuals/category/Carbon%20Calculators/

19. Chicago Climate Exchange • The Chicago Climate Exchange is the world’s first voluntary, legally binding, rules-based greenhouse gas emission reduction and trading system. • It is a voluntary system because the United States has not ratified the Kyoto Protocols and is not bound by them. • Therefore, there are no legal requirements that would force industry to reduce their greenhouse gas emissions.

20. Chicago Climate Exchange • The Chicago Climate Exchange is like a stock exchange for pollution. • It provides a market for businesses to trade on the release and capture of carbon dioxide and other greenhouse gases.

21. Eligible Offset Projects through CCX • Agricultural Methane Emission Offsets • Agricultural Soil Carbon Offsets • Energy Efficiency and Fuel Switching Emission Offsets • Forestry Carbon Emission Offsets • Landfill Methane Emission Offsets • Offsets from Renewable Energy • Coal Mine Methane Emission Offsets • Rangeland Soil Carbon Management Offsets • Ozone Depleting Substance Destruction Emission Offsets

22. Where is the greatest potential? The activities with the highest potential For storing carbon are afforestation, conversion of cropland to perennial grasses, and switching from conventional tillage to conservation tillage (particularly no-till)

23. Basic CCX Specifications for Soil Carbon Management Offset • Conservation Tillage • Minimum five year contractual commitment to continuous no-till or striptill conservation tillage) on enrolled acres. • Tillage practice must leave at least two-thirds of the soil surface undisturbed and at least two-thirds of the residue remaining on the field surface. • CCX CFI contracts are issued for conservation tillage at a rate between 0.2 and 0.6 metric tons CO2 per acre per year. • Carbon sequestration projects must be enrolled through a CCX registered Offset Aggregator. • All projects subject to independent verification.

24. Chicago Climate Exchange • The commodity traded at Chicago Climate Exchange is the Carbon Financial Instrument® (CFI™) contract. • Each contract represents 100 metric tons of CO2 equivalents.

25. Aggregators • Most landowners will not have an individual project large enough to qualify for direct trading on the CCX. • This is where Offset Aggregators come in to play. • Offset aggregators are entities that serve as the administrative representative, on behalf of offset project owners, gathering multiple offset generating projects into a single Carbon Financial Instrument® contract.

26. Aggregators • Offset Aggregators function like a broker. • They act as a bridge between the landowner with a small project and the Chicago Climate Exchange serving the needs of both parties. • Aggregators, as the name implies, work to solicit forestry projects that are not large enough to qualify for a Carbon Financial Instrument on their own and bundle them together with other projects.

27. Aggregators • The offset aggregator is responsible to the Chicago Climate Exchange to • administer the project contract, • verify that the project information is factual and correct, • insure that the project meets Chicago Climate Exchange rules and regulations, • make payments to the landowners, and • coordinate with Chicago Climate Exchange verifiers.

28. The Carbon Credit Market Process • Contract • Worksheets • Supporting documents Enrollment Sale Certification Verification Registration $

29. How is owning forest land converted to a Carbon Credit? • Three types of forest carbon sequestration offset projects. • Tree planting • Sustainable forest management practices. • Long-lived wood products (housing and furniture)

30. Details of Eligible CCX Offsets • Forestry Offsets (XFO’s) • Afforestation: • Planting trees on land previously used for crops or pasture, after January 1, 1990. • Managed Forests: • A stand of trees, several stands, or an entire property that is managed sustainably.

31. Afforestation • Contracts for these types of projects are based on Carbon Accumulation Tables provided by the Chicago Climate Exchange that landowners use to calculate carbon sequestration by their tree planting project.

32. Sustainable Forest Management Projects • You have to show what steps you have taken to increase the growth of your trees (aboveground, woody biomass) achieved through the practice of sustainable forest management that would not have occurred anyway by simply letting nature takes its course.

33. Managed Forestry credits are earned on the annual projected net carbon accumulation CO2 sequestered – harvest + long-lived wood product credit CO2 + - +

34. Long-lived Wood Products • Production of long-lived wood products (flooring, windows, furniture, etc.) • Based on expected percent of the product in use or in landfills at the end of 100 years • Details forthcoming…

35. CCX and Forestry Offset Projects • Afforestation • Trees planted after January 1, 1990 on land formerly (10+ years) not in forest. • Land protected for long-term forest management (conservation easement or contract) • Demonstrate Sustainable Forest Management • FSC, SFI, American Tree Farm System • No harvesting (including thinning). • Plantations that have been thinned must be enrolled as a Forest Management project. • Carbon credits for above- and below-ground biomass Credits available for 2003-2010 • Projects need verification by CCX-approved verifier

36. All types of forest carbon credits require: • Forest land certification • FSC, SFI or Tree Farm

37. Documents Needed for XFO Enrollment • Forestry Offset Contract (XFO contract) • Forestry Offset Enrollment Worksheet(s) • FSA, Forest Service or NRCS maps of enrolled areas • Copies of supporting documents (i.e., Planting records, CRP contracts, forestry management plan, etc.) • Evidence of ownership document (e.g., copy of deed) • Supporting documents for direct measurement calculations (if applicable) • Signed Letter of Intent to maintain forest carbon stock beyond 2010 • A voided check from your checking account so that we can set up electronic transfer of funds

38. Just how big will the check be??? • The following example is based on a 40 acre red pine plantation planted in 1995. • The estimated metric tons (mT) of carbon dioxide sequestered per acre per year are from the Chicago Climate Exchange’s Reforestation Carbon Accumulation Tables for dense plantings (>250 stems per acre) of red pine in the Lake States. • This calculation is based on a contract that is enrolled in 2008 through the Chicago Climate Exchange’s guaranteed contract period ending in 2010.

39. Carbon Accumulation Table • Regional Estimates of Tree Annual Carbon Accumulation in Live trees and Soil Organic Carbon for Afforestation (Metric tons CO2/ acre/ age of tree)

40. Step one… • Calculate how many metric tons of carbon will be sequestered by your plantation each year. • The Chicago Climate Exchange’s Reforestation Carbon Accumulation Tables estimates that 11 to 15 year-old red pine trees planted at a density of at least 250 trees per acre will sequester approximately 2.56 metric tons of CO2 per acre per year. • 40 acres x 2.56 mT/acre = 102.4 mT

41. Step two… • Subtract the total that will go into the reserve pool. • 102.4 mT less 20 percent for the reserve pool = 20.5 mT/year goes to the Reserve Pool • 81.9 mT/year are available for annual payments

42. Reserve Pool??? • The Chicago Climate Exchange reserves 20 percent of carbon sequestration offsets as an insurance policy against unexpected losses of carbon from your property. • a drought, insect or disease outbreaks, or a natural disaster like a fire, flood, or windstorm could damage or destroy your woodlands and release the carbon stored in your trees. • If this should happen then the Exchange deducts credits from the Reserve Pool to compensate for these losses. • If your losses exhaust what you have set aside in the reserve pool then you may not receive any additional payments until your forest grows to the point where the carbon sequestered is equal to that when you enrolled.

43. Step three… • Multiply the total carbon sequestered available by the market rate for carbon credits. Carbon credits were trading for $2.45 per metric ton in January 2008.* • 81.9 mT/year x $2.45/mT = $200.66/year • * (So far this year carbon prices have fluctuated between the current value of $1.20 per metric ton to as high as $7.40 in June)

44. Step four… • Subtract the Chicago Climate Exchange and Aggregator fees. • $200.66 less the Aggregator fee of 10 percent = $180.59/year • $180.59 less the CCX trading fee of $0.20 per metric ton (81.9 mT x $0.20/mT) = $164.21/year • $164.21 is your annual payment.

45. Step five… • Now multiply this by two to calculate your income for the two years of the contract. • $164.21/year for 2 years = $328.43

46. Finally… • At the end of the contract, you are eligible to recover any unused pool credits. • In this example, 2 years of pool credits equals 41 mT x $2.45 = $100.45 • Less fees of $18.25 • Final payment = $82.20

47. What does it all add up to? • The total value of a contract for a 40-acre red pine plantation in the Lake States signed for two years, assuming that nothing changes, would be worth a total of $410.63 or $5.13 per acre per year.

48. CCX and Forestry Offset Projects • Sustainable Forest Management • Needs to be based on CCX-approved forest inventory done the year of project initiation or registration. • Each project must be CCX-verified, at project cost. • Includes entire forest management area. • Forest must be certified sustainable by ATFS group certification, SFI, FSC, or other recognized system. • Owner grants reasonable access for audits, verification, etc. • Protocol for harvested wood products under development. Should be ready soon.

49. What about Sustainable Forest Management Projects… • This is a far more complex process. • First, you will need to hire a consulting forester who understand how to perform a forest inventory and use growth and yield models to estimate forest productivity • Next, you need to have a timber inventory completed for your property. • Finally, the consulting will have to determine the total amount of carbon sequestered through management as opposed to what would have occurred naturally (business as usual) • Once you know this number then the process is the same as described before.

50. AgraGate Forest Service Provider Agreement • Wisconsin land owners who meet the requirements outlined below and who complete enrollment in the AgraGate XFO Sustainably Managed Forest program and sign an XFO contract prior to December 15, 2008 will not be required to pay for their baseline cruise until their first XFO payment.  The cost of the initial baseline cruise will be deducted from their first net proceeds payment. • The land owner will need to have a sustainable management plan certified by a CCX-approved entity (i.e., ATFS, SFI, FSC), have applied for a certified management plan, or be enrolled in the Wisconsin MFL program. • The program will only apply to land in Wisconsin. • Enrolled stands of forest land must be 80 acres or more. • AgraGate will pay the Forest Service Provider (FSP) per sampled plot. • AgraGate will pay the FSP within 30 days of AgraGate receiving all the required documentation for the XFO contract including cruise data, applicant’s completed enrollment forms and signed contract, and all other required documents. AgraGate will not pay for travel costs associated with cruises.