Future of Greenhouse Gas Future of Greenhouse Gas Offsets and Renewable Energy Offsets and Renewable Energy gy gy Credits Credits Presented To California Wastewater California Wastewater Climate Change Group Climate Change Group Climate Change Group Climate Change Group October 2010 CONFIDENTIAL AND PROPRIETARY CONFIDENTIAL
AGENDA AGENDA Introduction to Element Markets GHG Credits and RECs GHG Update – Federal, EPA, and AB32 REC Markets Wastewater Sector Implications Wastewater Sector Implications 2 CONFIDENTIAL
ELEMENT MARKETS ELEMENT MARKETS ‐ US Emissions House US Emissions House of the Year of the Year ‐ ‐ 2010 2010 Element Markets combines industry ‐ leading expertise in environmental credit marketing and project development to provide solutions to companies across North America • Over $450 million in environment credit transactions since inception O $450 illi i i t dit t ti i i ti • Customer base of more than 700 companies Business Units Business Units Greenhouse Gas and Emissions Services Renewable Energy Services Offset Projects Methane / Solar Projects Credit Marketing Credit Marketing Outsourced Solutions Outsourced Solutions d d l l GHG and Renewable Projects Environmental Credit Marketing • Landfill Methane • Asset Management • Composting, Organic Waste Digestion p g g g • Credit Aggregation gg g • Other Methane (Anaerobic Digestion, Coal Mines) Credit Monetization • Renewable Power – Solar PV • • Structured Financial Products 3 CONFIDENTIAL
GREENHOUSE GAS AND EMISSIONS GROUP GREENHOUSE GAS AND EMISSIONS GROUP GHG and Emissions Marketing GHG and Emissions Marketing Development Projects Development Projects • All North American GHG Markets • Landfill Methane • All Regional and federal emissions markets • Composting and Organic Waste Digestion • Transacted ~20 million GHGs in 2010 • Forestry • Other GHG Mitigation EM Project Pipeline GHG and Emissions Markets Awards and Distinctions Awards and Distinctions • #1 Mandatory GHG Credit Dealer (2009) ‐ Energy Risk • #1 Voluntary GHG Credit Dealer (2008, 2009) – Energy Risk • Runner ‐ Up, Best Trading Company, N.A. Mandatory GHG (2009) – Env. Finance • Top 5 Developer, North American Voluntary Greenhouse Gas Markets (2009) – Point Carbon • #1 SO2 Dealer (2009) – Energy Risk • #1 NOx Dealer (2009) – Energy Risk • Best Trading Company, SO2 Emissions Credits (2008, 2009) – Environmental Finance 4 CONFIDENTIAL
RENEWABLE ENERGY GROUP RENEWABLE ENERGY GROUP Renewable Energy Marketing Renewable Energy Marketing Project Development Project Development • Landfill Methane to Energy • All compliance and voluntary markets • Solar Photovoltaic • All Energy Efficiency markets • Wind • Transacted ~19 million RECs to date EM Project Pipeline State RPS and Goals Awards and Distinctions Awards and Distinctions • #1 US Renewable Energy Credit Dealer (2008, 2009) – Energy Risk • Best Trading Company, North American RECs (2009) – Environmental Finance • # 2 Best Solar Power Investor (2009) ‐ Energy Risk # 2 B t S l P I t (2009) E Ri k • # 3 Best Wind Power Investor (2009) – Energy Risk 5 CONFIDENTIAL
ENVIRONMENTAL CREDITS ENVIRONMENTAL CREDITS GHG Offset = represents one metric tonne of CO2e avoided or removed by a carbon reducing project Renewable Energy Credits: Tradable Renewable Credits P Production of d ti f Renewable Energy Commodity Electricity Energy Efficiency Credits: T d bl Tradable Energy Savings Energy Savings Efficiency Credits Old Energy Usage New Energy Usage New Energy Usage 6 CONFIDENTIAL
STATE GHG LEGISLATION STATE GHG LEGISLATION State ‐ level GHG markets are underway in the Northeast, while a number of Western states are contemplating the start of a regional cap and trade market to start in 2012 State ‐ level GHG Markets Western Climate Initiative Partners (WCI) WCI Observers Regional Greenhouse Gas Initiative 7 CONFIDENTIAL
FEDERAL GHG LEGISLATION FEDERAL GHG LEGISLATION Status of congressional legislation Summer 2009 Fall 2009 Spring 2010 2011? House of Senate EPW committee Bill could be debated in Bill fails to gain traction in Representatives passes releases Kerry ‐ Boxer bill the next Congress, Senate Waxman ‐ Markey bill especially given status of EPA regulations EPA l ti Debbie Stabenow (D ‐ MI) releases “Offsets Amendment” • Some consensus has developed around covered sectors, compliance mechanisms, eligible offset project types, start dates, pre ‐ compliance measures, etc. • With economic downturn and the midterm elections Federal Cap and trade efforts • With economic downturn and the midterm elections, Federal Cap and trade efforts have largely stalled • All eyes are on California and the courts 8 CONFIDENTIAL
THE REGULATORY HAMMER THE REGULATORY HAMMER EPA regulation of GHGs was set in motion after the Supreme Court ruled in Massachusetts v. EPA (2007) that CO 2 is subject to regulation as a pollutant under the Clean Air Act September 2009 December 2009 Q1 2010 Q1 2011 EPA makes Final GHG EPA promulgates GHG EPA promulgates Final Stationary Source GHG Mandatory Reporting Endangerment PSD/Title V Tailoring Regulation under the Rule, requiring Finding, allowing it to Rule, raising stationary Clean Air Act will be regulate GHGs under stationary sources over source compliance triggered 25,000 mtCO2e to the Clean Air Act threshold to 100,000 report emissions mtCO2e GHG GHG regulations underway under the Clean Air Act l i d d h Cl Ai A EPA’s PSD Tailoring Rule will go into effect next year, affecting new and modified sources • • EPA is also contemplating New Source Performance Standards (NSPS) for existing stationary sources due to consent decrees; Power plants and nitric acid plants could face GHG emissions limits as a result… ; p p • The battle is just beginning ‐ Legal challenges to EPA have been filed at the DC Circuit Court by a number of states that want to over ‐ turn the endangerment finding Congress has also discussed amendments to delay EPA action (Rockefeller, Murkowski), although these are • largely expected to face a Presidential veto largely expected to face a Presidential veto • The barrage of EPA regulations could spur action in the next Congress 9 CONFIDENTIAL
CLIMATE ACTION RESERVE (CAR) CLIMATE ACTION RESERVE (CAR) • Credits Issued: Over 7.4 million credits issued so far • • Project Categories: • Project Categories: • Finalized: Ag. Methane, Landfill Methane, Forestry, Organic Waste Digestion, Coal Mine Methane, N2O Destruction at Nitric Acid Plants, ODS Destruction, Composting • In Development: Soil Sequestration I D l S il S i • Prices: Project Types Listed Registered Total • $2.50 ‐ $6.00 Landfill Methane 91 42 133 Livestock Methane 35 14 49 Forest Management 30 4 34 Avoided Conversion Avoided Conversion 6 6 0 0 6 6 Reforestation 5 0 5 Organic Waste 3 0 3 Coal Mine 1 1 2 Nitric Acid N2O 3 0 3 ODS 2 3 5 Total 176 64 240 10 CONFIDENTIAL
OTHER VOLUNTARY MARKETS OTHER VOLUNTARY MARKETS • Other standards that are recognized in the voluntary market include the Voluntary Carbon Standard (VCS) and the American Carbon Registry (ACR) • Prices: • Prices: • Slight discount to CAR prices • Prices are based on perceived integrity of the standards and on the credits’ potential for use in a federal GHG program i l f i f d l GHG VCS – Domestic ACR # of Projects # of Projects Project Type Project Type Landfill Methane 12 Landfill Methane 9 Livestock Methane 2 Livestock Methane 1 2 5 Coal Mine Methane EOR Organic Waste Methane 4 Other 6 Total Total 20 20 Total Total 21 21 11 CONFIDENTIAL
AB32 GHG MARKET FRAMEWORK AB32 GHG MARKET FRAMEWORK It is important to note that, withstanding political risks, California’s AB32’s cap and trade program will begin in 2012 Covered Entities Covered Entities • Sources that emit over 25,000 tons CO2e (CO2, N2O, CH4, SF6, HFCs, PFCs, NF3) Allowances • Unlimited banking, no borrowing • In January 2010, the committee responsible for this issue recommended 100% auction of allowances in a draft of their report Pricing Allowance prices are expected to be between $20 ‐ 60, depending on final program design • (allowance vs. auction, banking, offsets) Two ‐ Phase Implementation • Covers electricity deliverers and industrial sources beginning in 2012, while transportation fuel deliverers are covered beginning in 2015 (2 nd compliance period) • Covered entities are the “facility operators” 12 CONFIDENTIAL
TREATMENT OF OFFSETS IN AB32 TREATMENT OF OFFSETS IN AB32 Offset Limit • Offset usage is limited to 4% of an entity’s surrender obligation – based on ARB projections, this will amount to 122 million offsets from 2012 to 2020 p j , Offset Types • ARB is deciding whether to allow offset project types that reduce GHGs that are not specifically mentioned in AB32, such as ODS destruction specifically mentioned in AB32, such as ODS destruction ARB so far has approved project protocols for Manure Management Digesters and Urban • Forests Online Date Online Date • Proposed offset project online date is post Dec. 31, 2006 for ARB ‐ issued and external credits Crediting Period Crediting Period • Crediting periods between 5 ‐ 10 years for any project types other than GHG sequestration and 10 ‐ 30 years for GHG sequestration 13 CONFIDENTIAL
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