Climate Change Uncertainties Opportunity for Business Innovation?

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• Climate Change UncertaintiesOpportunity for
  Business Innovation?
• Possibilities of Offsetting Carbon
• March 27, 2008
• George F. Hoguet
• Director of Product Marketing

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NativeEnergy

• Founded in 2000 as carbon offset pioneer
• Today strategic environmental partner
• For-profit w/ socially responsible core
• Key non-profit partnerships, e.g., CA-CP
• Transparent, audited processes projects
• Inventor of forward stream offset model

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Climate change is a real problem. ... If we do
business as usual ... by the year 2030 we will
hit the amount greenhouse gas emissions that
scientists say is the threshold of catastrophic
climate change ... which means we have to get
going now.Ray AndersonFounder Chairman,
Interface, Inc.
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World GHG Emissions Reduction Scenario 60
Reduction from World 1990 Levels by 2050
1990
25.0
37
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Annex I
20.0
1990
Non-Annex I
15.0
-20
1990 Annex I Benchmark
World CO2e Per Capita
-40
10.0
-60
5.0
-80
3.3
0.0
-100
1980
2000
2020
2040
2100
2060
2080
After John Byrne et al (2004)Reclaiming the
atmospheric commons Beyond Kyoto.
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Legislation Is Clearly Needed
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US Market Is Evolving

• Compliance coming as RPS and CO2 cap Utilities.
  Heavy industry later.
• Voluntary green power and carbon offset market
  for consumers and other businesses growing at
  100
• Starting point is a GHG Inventory determining
  Carbon Footprint

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Sources of Carbon Footprint
Mitigations ?Digesters ?Biofuels
?Efficiency Process ?Consolidate ?New
Systems ?Beano ?Go Local ?Solar
Co-Generation ?Biofuels ? Efficiency
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Do Offsets Have A Place?
Offsets are designed to ensure that emissions
do not continue to rise. They do not, however,
decrease emissions, which is essential to
addressing climate change drivers. When offsets
are coupled with corporate efforts to
concurrently decrease total emissions, they can
become an essential part of corporate climate
strategy. Offsetting Emissions A Business
Brief on the Voluntary Carbon Market Business for
Social Responsibility December 2006
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GHG Protocol Scopes of Emissions
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Offsets in Business
Brand Identity (Interface, ClifBar, Ben
Jerrys, Stonyfield, GMCR)
Stakeholder Relations - Employees
(Timberland, Mohawk Paper) - Customers
(Aveda, ClifBar, Stonyfield, GMCR)
Enhance Reduction Project ROI vs Offset Costs
Strategic Value
Gaining Carbon Market Experience
Corporate GHG reduction or Green Power
commitment - GPP, Climate Leaders, CCX, GPMDG
Regulatory Requirement - EU/CA/RPS
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U.S. Is Mostly Voluntary Today
Global Compliance
Global Voluntary
29.9 B (USD)
91 MM (USD)
PRE-COMPLIANCE
CERs CDM Projects ERUs JI Projects EUAs -
Europe RGGI - US AB32 - US NGACs - Australia
Verified Emission Reductions Emission
Reductions Perspective Emission Reductions
VERs ERs PERs
Source State of the Voluntary Carbon Market
Ecosystems Marketplace
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U.S. Is Mostly Voluntary Today
Global Compliance
Global Voluntary Market
29.9 B (USD)
91 MM (USD) 2006
PRE-COMPLIANCE
OTC
CERs CDM Projects ERUs JI Projects EUAs -
Europe RGGI US Northeast AB32 US
California NGACs - Australia
13.4 MtCO2-e
VERs ERs PERs
U.S. 68
CCX
10.3 MtCO2-e
Source State of the Voluntary Carbon Market
Ecosystems Marketplace
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Source State of the Voluntary Carbon Market
Ecosystems Marketplace
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A Renewable Project May Have RECs and GHG
Reductions

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What Is a CO2 Offset?

• An offset represents an action,
• beyond business as usual, that
• causes a reduction or the sequestration of CO2
• usually via funding of some type of project
• Offsets are Direct or Indirect
• Direct means that the reductions occur within
  the project boundary
• Indirect means that the reductions occur
  outside the project boundary

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Farm Digesters Produce Methane Gas from Manure
Engine-generator burns methane biogas from the
digester, and runs round-the-clock. Most systems
provide 2x farm needs.
Manure is digested in a closed tank that captures
methane gas. Digestion stabilizes the manure,
eliminates odor and facilitates spreading for
better absorption by crops.
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Schrack Farm - Loganton

• 650 Milkers, 150 heifers will fuel a 165 kW
  system producing - 1000 MWh/yr
• RECs CO2 reduction 640 tons/yr
• Fuel CO2 reduction 105 tons/yr
• Avoided Lagoon methane 2237 tons CO2e/yr of GHG
  offsets

Assuming all paid as 20-year, up-front 15 of
project cost
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What Does the Voluntary Market Value?

• Type of renewable source
• Consumer and business preference for wind and
  solar.
• Where the source is located
• Even for global warming offsets, a project
  closer to home is more attractive
• Who owns the source, and are there social
  benefits
• Extra value for non-utility projects, with local
  economic benefits such as not-for-profit, farmer
  and tribal-owned

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Offsetting Emissions A Business Brief on the
Voluntary Carbon Market Business for Social
Responsibility December 2006
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Important Quality - Additionality

• Are the REC/offset project revenues needed?
• Is the project beyond business as usual what
  is the baseline?
• Is the long-term sale of RECs/offsets helpful or
  critical to proceeding with construction?
• Does my purchase of the RECs/offsets make a
  difference?

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Forward Stream 101
Total Volume Retirement in Current Year
Discounted Average / Year x
number years
Upfront Payment Provides Critical Support to
Renewable Energy Project
Forward Stream Production Accounting
gtgt

Discounted Forward Stream Production Volume
Expected Annual Production of Proposed Renewable
Energy Project
Energy Production - MWh
Average
Discounted Average
number years
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Those Who Helped Build the Little Alex
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Project-Specific Additionality

• Four tests
• Is the return on project investment (ROI) too
  low without the offset revenues?
• If the ROI is adequate, does the project owner
  lack access to the capital to make the
  investment? 
• If the ROI is adequate and capital available
  without offset revenues, are there other
  technical barriers to implementation?
• If ROI is adequate, capital is available, and
  there are no technical barriers, is the project
  the first or substantially the first of its kind
  in the particular market, region or application? 
  

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REC Quality Price
Existing Pre 1997 Non-additional REC
gravy Existing New 1997 New proxy
for indirect additionality REC often
helpful New Planned - Expected Direct
additionality REC expected, but has
tolerance for short-term sales New Planned -
Needed Direct additionality REC
critically needed, has no tolerance for
short-term sales
PRICE
Planned - needed RECs sales
Planned - expected RECs sales
New 1997
Pre-1997
QUALITY/VALUE
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Quality RSVPE - Real Surplus Verifiable
Permanent Enforceable
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Ensuring The Offsets Are Real
800 Cows In family since 1776
800 cows In family since 1936
Schrack Family Farm Loganton, PA
Penn England Farm Williamsburg, PA
2982 tons/yr
2950 tons/yr
350 Cows In family since 1900
700 Cows In family since 1840
Dovan Farm Berlin, PA
Wanners Pride N Joy Narvon, PA
1430 tons/yr
2725 tons/yr
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Monitoring REC Performance
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Certification of RECs and Offsets

• A buyer values third-party certification of their
  purchase or knowledge of meeting third-party
  standards
• A certified REC does not equate to certified CO2
  offset changing with Green-e Climate standard
• Certification costs can become material with
  some buyers preferring to put their dollars into
  more RECs or offsets

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Offsetting Emissions A Business Brief on the
Voluntary Carbon Market Business for Social
Responsibility December 2006
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ARSO or OSCARS?

• A.R.S.O. Avoid/Reduce/Substitute then Offset
  what remains. Vision of Forum for the Future ,
  UK NGO
• We suggest action to prime the pump
• O.S.C.A.R.S Offset/Start Conversations about
  how to Avoid/Reduce/Substitute

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For more information contact NativeEnergy
at [phone] Or visit us on the web
at www.nativeenergy.com