Carbon Credits Program

1. Carbon Credits Program Presented by: Caleb H. Dana, Jr., P.E. Eco-Systems, Inc. At the Air & Waste Management Association’s: 2008 Southern Section A&WMA Annual Meeting & Technical Conference – August 5-8, 2008 Beau Rivage Resort, Biloxi, Mississippi

2. Kyoto Protocol • United Nations Framework Convention on Climate Change (UNFCCC) - 1992 • The United States signed and ratified the UNFCCC in 1992 • The Framework took effect in 1994 • Kyoto Protocol text was adopted unanimously in 1997 • Marrakesh Accords adopted in 2001 • Kyoto Protocol Convention took effect on February 16, 2005 • More information: (http://www.unfccc.int/kyoto_protocol)

3. Kyoto Protocol • The Kyoto Protocol is “An international agreement with mandatory targets on greenhouse-gas emissions (GHG) for the world’s leading economies which accept it. The Kyoto Protocol sets limits on total GHG emissions by the world’s major economies, a prescribed number of “emission units.” However, the Protocol does not set limits on GHG emissions for developing countries.” • The Kyoto Protocol is basically a cap-and-trade system that allows countries that have emission units to spare – emissions permitted them but not “used” – to sell this excess capacity to countries that are over their targets.

4. GHG Emissions related to Climate Change • Six gaseous compounds have been found to be significant relative to their capability to capture thermal radiation in the upper atmosphere: • Carbon Dioxide (CO2) – 60 % of GHG thermal capture • Methane (CH4) • Nitrous Oxide (N2O) • Chloro-, Hydro- , Hydrochloro- (CFCs/HFCs/HCFCs), and Perfluorocarbons (PFCs) • Sulfur Hexafluoride (SF6) • Water Vapor (H2O)

5. Kyoto Protocol GHG Emissions Reduction Targets • The reduction targets for CO2 range from -8% to +10% of the country’s individual 1990 emissions levels “with a view to reducing their overall emissions of such gases by at lease 5% below existing 1990 levels in the commitment period 2008 to 2012. • These limits call for significant reduction in currently projected emissions. • Future emissions mandatory targets are expected to be established for “commitment periods” after 2012 and will be negotiated well in advance of the periods concerned.

6. Kyoto Protocol GHG Emissions Reduction Targets • Marrakesh Accords are rules adopted with instructions regarding how to implement the Kyoto Protocol. These rules specify the Protocol’s emissions-trading system implementation procedures. • Countries actual emissions have to be monitored and guaranteed to be what they are reported to be, and precise records have to be kept of the trades carried out. Accordingly, “registries” – like bank accounts of a nation’s emissions units – are being set up, along with “accounting procedures”, an “international transactions log”, and “expert review teams” to verify compliance.

7. Kyoto Protocol Commitments for GHG Emission Reductions • Commitments under the Protocol vary: • An overall 5% target for developed countries is to be met through cuts (from 1990 levels) • European Union – 8% (member states vary from 28% reduction by Luxembourg to 27% increase by Portugal) • Switzerland – 8% • Most Central and East European states – 8% • Canada – 6% • United States – 7% (US has since withdrawn its support) • Hungray – 6% • Japan – 6% • Poland – 6% • New Zeland, Russia, and Ukraine – stabilize (0%) • Norway – Increase by 1% • Australia – Increase by up to 8% (Australia has since withdrawn its support) • Iceland – Increase by 10%

8. Mechanisms for Carbon Trading under the Kyoto Protocol • Three Mechanisms were established for Carbon Trading under the Kyoto Protocol: • 1. International Emissions Trading (IET) • 2. Clean Development Mechanism (CDM) (credits earned by sponsoring greenhouse-gas-reducing projects in developing countries). • 3. Joint Implementation Projects (JI)

9. Carbon Credits Under the Kyoto Protocol • Under the Kyoto Protocol agreement, countries have flexibility in how they will meet the targets (i.e., they may increase “sinks” such as forests at home or abroad or pay for foreign projects that result in carbon emission reductions or greenhouse gas cuts.) • It is assumed that greenhouse-gas emissions damage the atmosphere equally wherever they occur, and emission cuts help equally wherever they are made.

10. Carbon Credits Under the Kyoto Protocol • Countries will get credit for reducing greenhouse–gas totals by planting or expanding forests (“removal units”); for carrying out “joint implementation projects” with other developed countries, usually countries with “transition economies”; and for projects under the Protocol’s Clean Development Mechanism, which involves funding activities to reduce emission by developing nations. Credits earned this way may be bought and sold in the emissions market or “banked” for future use.

11. International Emissions Trading (IET) • Article 17 of the Kyoto Protocol • Countries with commitments under the Kyoto Protocol can acquire emission units from other countries with commitments under the Protocol and use them towards meeting a part of their targets. • An international transaction log, a software-based accounting system, ensures secure transfer of emission reduction units between countries.

12. Clean Development Mechanism (CDM) • Article 12 of the Kyoto Protocol • Because the atmosphere is equally damaged by greenhouse-gas emissions wherever they occur and equally helped by emissions cuts wherever they are made, the Protocol includes an arrangement for reductions to be “sponsored” in countries not bound by emissions targets. • Emission-reduction (or emission removal) projects in developing countries are allowed to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2. • These CERs can be traded and sold, and used by industrialized countries to meet a part of their emission reduction targets under the Kyoto Protocol.

13. Clean Development Mechanism (CDM) • Projects must qualify through a rigorous public registration and issuance process designed to ensure real, measurable and verifiable emission reductions that are additional towhat would have occurred without the project. To be certified by the Clean Development Mechanism Executive Board, a project must be approved by all involved parties, demonstrate a measurable and long-term ability to reduce emissions, and provide reductions that would be additional to any that would otherwise occur. • Options to the program are also being considered. Less red tape, for example, may be required for small-scale projects, such as small renewable energy facilities. Another proposal is to allow afforestation and reforestation projects to be included.

14. Joint Implementation (JI) • Article 6 of the Kyoto Protocol • A country with an emission-reduction limitation commitment under the Kyoto Protocol may take part in an emission reduction (or emission removal) projects in any other country with a commitment under the Protocol, and count the resulting emission units towards meeting its Kyoto target. It allows industrialized countries to meet part of their required cuts in greenhouse-gas emissions by paying for projects that reduce emissions in other industrialized countries.

15. Joint Implementation (JI) • JI projects earn emission reduction units (ERUs), each equivalent to one tonne of CO2, • As with CDM, all emission reductions must be real, measurable, verifiable, and additional to what would have occurred without the project. To be approved for a joint implementation project, industrialized countries must meet requirements under the Protocol for accurate inventories of greenhouse-gas emissions and for detailed registries of emissions “units” and “credits”. Projects may start and receive credits during 2008. Sponsoring governments will receive credits that may be applied to their emissions targets’ the recipient nations will gain foreign investment and advanced technology (but not credit toward meeting their own emissions caps; they have to do that themselves).

16. Joint Implementation (JI) • Under the JI there are two “tracks” by which projects can apply for approval: 1) third-party verification and 2) international independent body verification. • National Approval • Before a project will be recognized as a CDM or JI project, the project participants must receive a letter of approval from the host country. Likewise, project participants require a letter of authorization. A list of designated national authorities under the CDM is available at: (http://cdm.unfccc.int/DNA/index.html)

17. Third Party Oversight Required by the Kyoto Protocol • Third-party oversight is required by the Kyoto Protocol • Independent, third-party validation or determination of project design documents and verification and certification of GHG emission reductions is a key feature of the CDM and JI. • A list of accredited designated operational entities under the CDM is available at: (http://cdm.unfccc.int/DOE/list/index.html)

18. Scientific Assessment of Climate Change • Global Change Research Act of 1990 • U.S. Climate Change Science Program (CCSP) • Intergovernmental Panel on Climate Change (IPCC) • Section 515 of the Treasury and General Government Appropriations Act for Fiscal Year 2001 and the Information Quality Act guidelines issued by the Department of Commerce and NOAA • Scientific Assessment of the Effects of Global Change on the United States, May 2008, prepared by the Committee on Environment and Natural Resources National Science and Technology Council • More information : (http://www.climatescience.gov/ Library/scientific-assessment/)

19. Scientific Assessment of the Effects of Climate Change on the United States • The IPCC concluded that it is unequivocal that the average temperature of the Earth’s surface has warmed recently and it is very likely (greater than 90% probability) that most of this global warming is due to increase concentrations of human-generated greenhouse gases. • The IPCC determined that the globally averaged temperature rise over the last 100 years (1906-2005) is 1.33 + 0.32 F when estimated by linear trend. • The rate of global warming over the last 50 years (0.23 + 0.05 F per decade) is almost double that for the 100 years (0.13 + 0.04 F per decade). • Greenhouse Gases (GHGs) are at their highest levels in at least 400,000 years.

20. Scientific Assessment of Climate Change • “Are Humans Responsible for Global Warming, A Review of the Facts”, Environmental Defense, April 2007(http://www.edf.org/documents/5279_GlobalwarmingAttributuion.pdf) • “Nature, Not Human Activity, Rules the Climate, Nongovernmental International Panel on Climate Change”, April 2008 U.S.(http://www.heartland.org/pdf/22835.pdf)

21. Costs for Addressing Climate Change • “The United States can enjoy robust economic growth over the next several decades while making ambitious reduction in greenhouse-gas emissions. If we put a cap-and–trade policy in place soon, we can achieve substantial cuts in greenhouse-gas emissions without significant adverse consequences to the economy. And in the long run, the coming low-carbon economy can provide the foundation for sustained American economic growth and prosperity.” … What Will it Cost to Protect Ourselves from Global Warming?”, Environmental Defense Fund (http://www.edf.org/climatecosts)

22. Costs for Addressing Climate Change … • A national policy to cut carbon emissions by as much as 40 percent over the next 20 years could still result in increased economic growth, according to an interactive Web site that reviews 25 of the leading economic models used to predict the economic impacts of reducing emissions. Robert Repetto, professor in the practice of economics and sustainable development at the Yale School of Forestry & Environmental Studies created the interactive web site. Growth rates of the U.S. GDP have been 3% historically. According to the Web site’s predictions, “With emissions reduced by 40 % of business-as-usual, even under the most pessimistic assumptions, the GDP would grow 2.4 % a year, reaching $23 trillion by 2030, and rising above 3% under favorable assumptions.” (http://www.climate.yale.edu/seeforyourself)

23. U.S. Greenhouse Gas Inventory Reports • In 1992 the U.S. signed and ratified the UNFCC which required that ratifying parties “shall develop, periodically update, publish and make available…national inventories of anthropogenic emissions by sources and removals by sinks of all greenhouse gases not controlled by the Montreal Protocol using comparable methodologies…” • Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2006, USEPA #430-R-08-005, (April 2008) • More information: (http://www.epa.gov/climatechange/ emissions/usinventoryreport.htm)

24. GHG Emissions – EPA Inventory Source: EPA

25. GHG Emissions – EPA Inventory

26. GHG Emissions – EPA Inventory

27. GHG Emissions – EPA Inventory

28. A Business Guide to U.S. EPA Climate Partnership Programs • A Business Guide to U.S. EPA Climate Partnership Programs, EPA-100-B-08-001, June 2008 • More than 13,000 firms and other organizations participating in climate-related EPA Partnership Programs • The EPA Climate Leaders Program allows companies to create a lasting record of its GHGs emissions reductions activities and accomplishments • More information: (http://www.epa.gov/partners)

29. A Business Guide to U.S. EPA Climate Partnership Programs • Addressing climate change issues and CO2 emissions represents business opportunities and advantages for becoming a Climate Leader such as: • Substantial energy cost savings • Improved bottom line • Improved operating efficiencies • Improved risk management • Improved insurability • Expanded market opportunities • Improved job satisfaction and worker productivity • Enhance brand and corporate reputation

30. Climate Change Legislative Initiatives • Energy Policy Act of 1992 • Required reporting of GHG emissions • Climate Stewardship and Innovation Act of 2007 • Requires a declining cap-and-trade system • Electric Utility Cap-and-Trade Act • Establishes a cap-and-trade system for electric utilities only • Global Warming Pollution Reduction Act of 2007 • Establishes emission and energy efficiency standards • Global Warming Reduction Act of 2007 • Establishes economy-wide emissions cap-and-trade program • Low Carbon Economy Act of 2007 • Establishes a GHG credit and allowance trading system • America’s Climate Security Act of 2007 • Establishes a GHG registry and trading program

31. Regional Climate Agreements • Regional Climate Agreements have been pursued in the absence of Federal Initiatives • (http://www.pewclimate.org)

32. Historically Traded Volume on the US Voluntary Carbon Market Source: State of the Voluntary Carbon Markets 2007, Ecosystems Marketplace/New Carbon Finance, July 2007.

33. Voluntary GHG Markets • Increasing interest in voluntary Verified Emissions Reductions (VERs) • Verification protocols critical • Great diversity of projects and structures • Growing sophistication of both bids and offers • Project values dependent on buyer preferences: • Technology • Vintage • Location • Social side-benefits Source: State of the Voluntary Carbon Markets 2007, Ecosystems Marketplace/New Carbon Finance, July 2007.

34. Carbon Trading Exchanges in the U.S. • Chicago Carbon Exchange (CCX) • Voluntary Carbon Offsets Program • (http://www.chicagoclimatex.com) • New York Merchantile Exchange (NYMEX) • New “Green Exchange” opened March 2008 • Carbon derivatives, NOx, SO2 trading • (http://www.greenfutures.com)

35. Chicago Climate Exchange • Integrated GHG reduction and trading system • CCX issues tradable Carbon Financial Instrument (CFI) contracts • Types of projects: • Agricultural methane • Coal mine methane • Landfill methane • Agricultural soil carbon • Rangeland soil carbon management • Forestry • Renewable Energy • Ozone depleting substance reduction • Third party verification and final check by Financial Industry Regulatory Authority (FINRA, formerly NASD)

36. CCX Carbon Credits Program Achieved via qualifying GHGemission reduction projects Greenhouse Gas Emission Reductions • Carbon Credit Program • Eligibility Assessment • Protocol Development • Monitoring • Reporting • Verification • Registration Chicago Climate Exchange protocols Carbon Credits (certified, tradable, $$) Sell on CCX through an aggregator

37. Mechanics of CCX Trading • CCX Registry • CCX Trading Floor

38. CCX Carbon Offsets Program

39. CCX Offsets and Early Action Credits

40. The Green Exchange • Globally integrated marketplace for trading environmental products • Began trading March 2008 • Trading Platform with financial products, expertise, and clearinghouse by NYMEX with environmental markets leadership of Evolution Markets • Types of trades: • Carbon – Futures, Options, Swaps • U.S. Emissions (SO2 and NOx) – Futures, Options, Swaps • Coming soon – Renewable Energy, Voluntary Carbon Credits, CER Options, RGGI Allowances – Futures, Options, Swaps

41. Carbon Registries • Department of Energy (DOE) Registry – National Voluntary Reporting of Greenhouse Gases Program under section 1605(b) of the Energy Policy Act of 1992 • California Climate Action Registry (CCAR) • Chicago Climate Exchange Registry (CCX) • Regional Greenhouse Gas Initiative Registry (RGGI) • Western Climate Initiative • Midwestern Greenhouse Gas Reduction Accord • The Carbon Trading Exchange and The Green Exchange (recently formed)

42. US Commitments to Carbon Reductions • Two States: New Mexico and Illinois • 284 U.S. Cities: Chicago, Boulder, … • 542 Universities and Colleges: Colby, … • 27 States have Renewable Energy Portfolio Standards - Renewable Energy Certificates (CERs) • Commitments for carbon emission reductions are being made voluntarily through the CCX and various Registries • Through the CCX trading platform, states, counties, cities, municipalities are committing to 6% reductions in GHG emissions by 2010 • U.S. registries include CCX, DOE, CCAR, and RGGI

43. Carbon Trading and Forestry • The IPCC reported in its third assessment that 10-30% of human-induced global GHG emissions are due to Land Use, Land Use Change, and Forestry (LULUCF). The IPCC concluded that globally, changes in forest management could induce future carbon sequestration adequate to offset an additional 15-20% of CO2emissions. Within the U.S., LULUCF activities in 2004 resulted in a net carbon sequestration of 780.1 million tons CO2 equivalent. This represented an offset of approximately 13 percent of total US CO2 emissions, or 11 percent of total GHG emissions in 2004 (EPA, 2006). Source: Forest Carbon Trading and Marketing in the United States, Ruddell, Walsh, and Kanakasabai, Oct., 2006. (http://www.fs.fed.us/ecosystemservices/pdf/forest-carbon-trading.pdf)

44. Carbon Trading and Forestry • Non-governmental organizations involved with developing voluntary carbon markets in forestry in the U.S.: • CarbonFund • The Climate Trust • National Carbon Offset Coalition • Powertree • Pacific Forest Trust • AgraGate Climate Credits Corp • These organizations work with established registries and buyers to market forestry offset credits for carbon emission reductions

45. Carbon Trading and Forestry • The Kyoto Protocol authorized only afforestation and reforestation activities and excludes soil carbon storage, sustainable forest management, and avoided deforestations. • The CCX is the only exchange platform for trading forestry offset credits in the U.S. The Registries that are currently active in the U.S. include the CCX, the DOE’s 1605(b) program, and the CCAR. However, these are all in the development phase and lack direction due to the absence of mandatory emissions reduction requirements and an established price of carbon emission reductions. • Forestry credit issues: baseline setting, additionality, leakage, and permanence • “Carbon Credits: A possible source of new income for Missisippi forest landowners”, Randy Rousseau, Tree Talk - Winter 2008

46. American College and University President’s Climate Commitment (ACUPCC) • Agreement with signatures from 542 colleges and universities as of May 7, 2008 • Objective is to pursue “Carbon Neutrality” • Agreement calls for: • Institutional body to monitor and guide the process • Conduct annual emissions inventory • Formulate a carbon neutrality action plan • Develop a financing program to implement the plan • Incorporate “sustainability” into school’s academic experience • First signatory to achieve carbon neutrality was the College of the Atlantic in December of 2007 • Colby College, Maine, joined the commitment in May 2008

47. American Colleges and Universities Rolein Reducing Carbon Emissions - Thesis paper by Jamie O’Connell, 2008 • Colleges and universities play a unique role in society as centers of research and progressive thought. These institutions have a responsibility of educating and preparing the next generation of leaders in every aspect of society. • The United Nations International Panel on Climate Change (IPCC) has stated that emissions must be reduced by 50 to 85 percent below 2000 levels by 2050, with peak CO2 occurring before 2015, to hold temperature increase to within 2.0 to 2.4 degrees Celsius of the pre-industrial era (Dautremont-Smith et al. 2007a, IPCC 2007)

48. American Colleges and Universities Role… • Colleges and universities comprise a $317 trillion industry that spends billions on energy consumption and fossil fuel products (Dautremont-Smith et al. 2007b) • Given the role of higher education in preparing students to find solutions to climate change, the potential impact on markets for clean energy and sustainable products, and the importance of tanking immediate climate action, Colby College embarked on a study of the feasibility to achieve “carbon neutrality” and the timeframe over which it could be reached.

49. What is Carbon Neutrality? • Carbon Neutral is a term used to describe any organization, entity, or process that has a net greenhouse gas (GHG) emissions level of zero (Dautremont-Smith et al. 2007a) • Net emissions are equivalent to the gross emissions minus any carbon offsets • A carbon offset is any activity that reduces carbon emissions so as to exactly compensate for a carbon emitting activity elsewhere (Dautremont-Smith et al. 2007a) • Thus organizations may reduce or eliminate emissions where possible and offset carbon emissions where reduction or elimination of emission is not an option, or when it costs less to purchase offsets than to reduce emissions

50. Process Steps to Evaluate the Feasibility of Carbon Neutrality • Conduct and create a greenhouse gas emissions inventory and establishment of an emissions baseline • Identify, investigate, and evaluate options for reducing or eliminating emissions from individual sources • Conduct modeling to predict and evaluation future emissions under different reduction scenarios • Develop timeframe and costing models for emission reductions for each source and for selected reduction scenarios • Evaluate the role of offsets in achieving emissions and develop offsetting options • Prepare an implementation plan and costs for the selected approach