Presentation for the Argus California Carbon and LCFS Summit. For the Fuel Markets session.

1. Dick Kempka
VP Business Development
Argus California Carbon and LCFS Summit
Session: Fuel Markets- Understanding Compliance and Market Options for
Transportation Fuels
Napa Valley, California - Oct 1 , 2014

2. Outline
• Background on TCT
• Defining Offsets
• Project types
• Supply

3. Mission: To provide expertise and financing,
to accelerate innovative climate solutions
• Non-profit Organization – 1997
• Managed over $27M of carbon funding
• Land based Offsets – forestry,
agriculture, livestock
• 1.7M tons GHG reduced
• Compliance program examples
– OR, WA, MT, MA, CA
• Voluntary program examples
– NW Natural Smart Energy
– Colorado Carbon Fund
• Conservation NGO’s The Nature
Conservancy, Ducks Unlimited

4. • Carbon Management
– Expand investment in project types
anticipated in policies
– Pilot new methodologies
– Effectively aggregate projects
– Remove upfront financing and other
barriers
– Develop compliance portfolios for utilities
• Climate Services
– Design, finance and implement forestry
and livestock projects
– Assist project developers to finance
business models and developer pro forma’s
• Policies & Standards
– Share tangible
lessons learned and
experience to help
improve policies,
rules and standards
Carbon
Management
Policies &
Standards
Climate
Services
What We Do

5. California Cap & Trade
• Statewide limit on GHG
emission for covered
sources
• Setup compliance
Instruments that can be
traded
• Potential to link to other
Cap & Trade Programs

6. Compliance Instruments
(1) Allowances
• Tradable permits that give one-time
permission to emit a metric ton of GHG.
• Issued by state of CA, Quarterly Auctions.
(2) Offsets
• A credit for a verified emission reduction from a source
outside the C&T program.
• Used by covered entities to meet C&T obligations instead of
allowances or reducing on-site emissions.
• Limited to only 8% of a covered entities compliance
obligation.

7. Role of Offsets in Cap &Trade
• Cost Control – reduce compliance cost for
covered entities.
• Uncapped Sectors - Promote emissions
reductions in sectors not covered by the C & T
program.
• Low carbon tech - Encourage the spread of clean,
low carbon technologies outside California
• Co-benefits – provide environmental, social and
economic benefits.

8. How Offset Projects Work
• ARB defines allowable project types.
• Developer creates a project that fits under
the ARB protocol definition.
• Developer submits project for approval
including amount of carbon emissions
reduction achieved.
• Third party verifies this as accurate.
• ARB issues an offset credit (e.g. ARBOC)
• ARBOC can be sold (e.g. covered entity)

9. http://www.arb.ca.gov/cc/capandtrade/offsets/issuance/issuance.htm

10. ARB Approved Offset Types
• Ozone Depleting Substances (ODS)
– Destruction of refrigerants.
• Livestock Methane – manure
digesters.
• U.S. Forestry
 Improve Forest Management
 Avoid Conversion
• Urban Forestry

11. ARB Offset Credits Issued
Source: Argus Media, Sept 2014
Project Type Volume
Ozone Depleting Substance 5,406,692
U.S. Forest 5,997,317
Livestock 594,019
Urban Forestry 0
TOTAL 11,998,028

12. Top Offset Credit Volume Projects
Company Project Type ARBOCs
EOS Climate Inc. ODS 2,490,833
Heartwood Forestland
Fund IV Limited
Partnership U.S. Forest 2,163,951
Environmental Credit
Corp. U.S. Forest 1,219,152
Coastal Ridges LLC U.S. Forest 1,128,277
The Yurok Tribe U.S. Forest 836,619
National Audubon
Society U.S. Forest 570,049
Reclamation
Technologies U.S. Forest 528,118
The Conservation Fund U.S. Forest 398,476
Camco International
Group, Inc. Livestock 375,776
Pure Chem Separation
LP ODS 356,623
Source: Argus Media, Sept 2014

13. Offset Supply Shortage?
Source: Stevenson, Sam et al. American Carbon Registry. Compliance Offset Supply Forecast. September 2012
• Over the California market's three compliance periods, total cumulative
offset demand could reach just over 200 million tonnes.
• 29% short in its 2013- 2014 pilot phase
• Could be 67% of 134M short by third CP 2018-2020

14. Source: Four Twenty Seven/Thomson Reuters Point Carbon, July 2013
• Aggregated offset use for the entire AB32 C&T
regulation equals about 208MT cumulative through
2013-20
• Current projections for offset supply through 2020
range from 64 to 102 Mt cumulative for approved
protocols (50-70% short).
• Adding rice cultivation, mine methane and nitrogen
management – potential supply of offset credits
increases to an estimated 109 to 147 Mt cumulative by
2020 (30-50% short).
Offset Supply Projections

15. New Project Types
• Mine Methane Capture - Adopted 4/25/14 protocol
estimated to generate 30-60 million offsets starting 2015
• Rice Cultivation – Anticipated this fall season
• Being researched for viability or with promise
– Nitrogen Management
– International Avoided Deforestation (REDD)
– Avoided Grassland Conversion (ACOGS)
– Wetlands Restoration
• ARB closing monitoring concerns over invalidation
– Overstating, double counting, out of legal compliance with EHS
laws

16. Compliance Instruments
(Ordered by Value)
• California Carbon Allowances (CCA) - Most valuable
because not revocable.
• Golden CCO (GCCO) - ARBOCs backed by CCAs or
guaranteed replacement (e.g. cash).
• ARBOCs (aka CCO8s) - ARB issued offsets with 8 year
liability, subject to invalidation.
• CCO3s - 3 year liability - CCO8 with a second verification to
reduce the invalidation period to 3 years.

17. Project Stage & Value
Source: Climate Action Reserve & Parhelion

18. Compliance Pricing
Jan 13 Feb 13Mar 13Apr 13May 13Jun 13 Jul 13 Aug 13Sep 13Oct 13 Nov 13Dec 13 Jan 14 Feb 14Mar 14Apr 14May 14Jun 14 Jul 14 Aug 14Sep 14
$5
$6
$7
$8
$9
$10
$11
$12
$13
$14
$15
$16
$17
$18
$19
$20
$21
$22
Golden CCO
CCO (8 year buyer liability)
Current CCA (auction)
ODS CRT & Livestock CRT & Forestry CRT

19. Thank you.
Dick Kempka
rkempka@climatetrust.org
The Climate Trust
901-755-8705