This presenation outlines a CO2 trading framework to that tries to address issues with the current Cap and Trade and emissions taxing solutions. This is acheived by initiating a carbon reserve that is funded by a tax on carbon credits traded, rather than carbon emissions. The carbon reserve acts as a powerful tool to drive desired policy outcomes.

1. Outlines a CO2 trading framework to address issues with Cap and Trade and
emissions taxing solutions.
This is achieved by initiating a carbon reserve that is funded by a tax on carbon
credits traded, rather than carbon emissions.
The carbon reserve acts as a powerful tool to drive desired policy outcomes and
drive innovation

2. CO2 Market - Background
Although the UNFCCC failed to arrive at binding agreements,
existing mechanisms can be modified to serve as a basis for
implementing a possible accord
Imperative to have as much infrastructure, processes,
agreements and technology in place to minimize additional
delays
The solution should be refocused to include developing
nations as a key driver for long-term, sustainable CO2
reduction
©2013 Mauro Forcolin2

3. Issues with Current Approaches
©2013 Mauro Forcolin3
1
• Current Cap and Trade mechanism results in high price volatility for CO2
• Makes large investments required for CO2 reduction unviable
2
• Taxing CO2 emissions removes instability, but does not guarantee
reductions amounts
3
• No single mechanism or institution to incentivize and guide the process
• Industry needs consistent regulation and policies in place
• Reassurance of long-term stability

4. Goals of Proposed Approach
©2013 Mauro Forcolin4
1
• Minimize the extent that CO2 is traded in other currencies
• Avoid excessive price fluctuations, hedging and rent-seekers
2
• Create a single market platform where CO2 is traded
• Transparent to all members
3
• Create a International Carbon Reserve to stimulate positive outcomes
• Reserve uses CO2 obtained through tax on trading not on emissions
4
• Incentivize the development of efficient industry in developing countries
• Rather than remaining underdeveloped CO2 trading pools

5. CO2 Credit Trading Model
CO2 Reserve
Platform for effecting policies
CO2 Credit Trading
CO2 Credit Payment
CO2 efficient Tech. & Services
Traditional Payment
Not part of model
©2013 Mauro Forcolin5

6. Int’l CO2 Credit Reserve
Primary tool to drive global strategy and
policies on CO2 reduction
©2013 Mauro Forcolin6
• Unlike a fiat currency, Reserve cannot create more CO2 to drive initiatives
• Must obtain reserve from trading of CO2 by market members
Works by stabilizing market and push desired outcomes
• Does not interfere sovereign taxation policies
• Discourages hedging and rent-seekers
Deals only in CO2 credits, not currencies
• Make-up of the Reserve members
• Extent of powers
• Accountability
To succeed, all members of the CO2 market must agree on:

7. • No currencies
• Traded among members
• Paid to CO2 Reserve as a tax on trades
CO2 market only deals with CO2 credits
• Any member can obtain CO2 credits from another member
All members are present along with known CO2 quotas
• Incentivize member to reduce via innovation rather than playing the market
The receiver must give a percentage to the Reserve
• Considered a service used once received rather than a product that can be traded
onwards
• Member cannot trade away more than their quota minus what they use
CO2 credits can only be traded once to prevent hedging
CO2 Market - Trades
©2013 Mauro Forcolin7

8. • Credits collected via premiums paid on purchasing unused CO2 credits from
developing countries
• Rebates awarded for paying for CO2 credits in carbon-friendly currencies
Credits collected by reserve are redistributed through rebates.
• Drive progress in a given industry/geography
• Compensate struggling members adversely affected by Reserve policies
Rebates act as a tool for Reserve to:
©2013 Mauro Forcolin8
CO2 Market - Payments

9. Innovation
Cycle ①
Set Policy
②
Establish
Quotas
③ Carbon
Trading/Leakage
④ Fill Carbon
Reserve
⑤ Innovative
Projects

10. Failure occurs when:
•CO2 is too expensive to obtain
•Not enough credits are available to foster innovation
Policy should balance:
•Driving innovation (distribute credits)
•Maintain trading cycle (obtaining credits)
Credits obtained from:
• Purchasing unused carbon quotas from other
countries (Carbon Leakage)
Credits distributed for initiatives resulting in:
• CO2-reducing technologies and services
• Introducing CO2-efficient industries in
riskier/underdeveloped locations
• Compensate industries/locations adversely
affected by policy
©2013 Mauro Forcolin10
Carbon Reserve Balance

11. Expectations
©2013 Mauro Forcolin11
1
•Large transfer of
credits to
developed
countries thereby
increasing the
carbon reserve
2
•Reserve policy
helps drive
innovation in
developing
countries who
begin to use their
own credits rather
than trade away
3
•Optimization of
developed carbon
industry as
available credits
from developing
world become
scarce
4
•Harmonized
carbon usage
Accelerated global carbon reduction with
industrialization of the developing world
CO2Emmissions
Time
Emissions - Global
Emissions - Developed World
Emissions - Developing World
Quota - Developed World
Quota - Devloping World

12. Challenges
©2013 Mauro Forcolin12
1
• Carbon Leakage
• CO2 Reserve uses Carbon Leakage as a key driver
• Encourage investment in CO2 efficient technologies abroad in return
for entering the CO2 Trading scheme
2
• Monitoring & Transparency
• Technological advances needed to viably implement monitoring
• Willingness of participants to be monitored
3
• Conversion to another currency is still required to evaluate costs/returns
& calculate MACs (Marginal Abatement Costs)
• Price volatility persists despite efforts of CO2 Reserve, but incentives to
innovate rather than trade will minimize the effect.

13. In Comparison – 1/3
©2013 Mauro Forcolin13
Alberta Carbon Offset System Carbon Reserve Concept
Only in Alberta Worldwide
Between 2 companies Between 2+ countries
Uses offsets based on emission reductions
from non-regulated activity (i.e. farmers
adopting no-till)
Not part of model;
Unused carbon “quota” traded on a national
level
 Perhaps its a misnomer to refer to “credits”
Each country given a quota of carbon to use
or trade away
 How this is calculated is key and may
change over time as developed countries
become more industrialized
Offset carbon usage through reductions in
other areas (protocols)
Offset inefficient carbon usage in developed
world with increased, more efficient usage in
developed world
Buy time for big polluters through easier
reductions in other sectors
 Get credit for carbon that would have been
used in previous practices
Buy time for big polluters by
transferring/developing operations in the
developing world
 Promote developing world to “burn” their
way into a global solution
Carbon leakage a concern Marketizing & regulating carbon leakage is the
key aspect to the system

14. In Comparison – 2/3
©2013 Mauro Forcolin14
Alberta Carbon Offset System Carbon Reserve Concept
Fund credits
 Target to improve “emissions intensity”
(emissions per unit of production, such as
per barrel of oil) by 12 per cent relative to
the baseline, or typical emissions
performance, for specific facilities.
 Companies that can’t meet reduction
targets by improving performance in
their operations can pay into a technology
fund instead, at a rate of $15 a tonne.
o funds used to develop or invest in
Alberta based technologies,
programs, and other priority areas
 The “40/40” approach would increase the target to 40
per cent and raise the technology fund price to $40 a
tonne
Carbon Reserve
 Portion of carbon purchased by a country
goes into the Carbon Reserve (assets +
Policy driving body).
 Carbon Reserve used to incentivize carbon-
efficient projects in the developed
world or subsidize as necessary.
 Penalties yet to be defined for countries
exceeding quotas
 Portion of carbon deferred to the Carbon
Reserve could be variable based types of
projects (i.e. riskier, leading edge,
regional instability, etc.)
o May over-complicate things since this is
already compensated by Carbon Reserve
actions
 Quota reduction based on Int’l agreed targets

15. In Comparison – 3/3
©2013 Mauro Forcolin15
Alberta Carbon Offset System Carbon Reserve Concept
Fundamental Principle:
Activities and emission reductions must be above and
beyond Business as Usual practices
Fundamental Principle:
Companies & countries’ targets & motivation may not
align with global necessity.
Concept helps bridge this difference by incentivizing
participants to act for global benefit while still meeting
local requirements
Protocols and processes clearly defined
Verification still a technical challenge
Details and operating mode still to be developed
Verification an even greater challenge
Consider transfer vs. transaction tax as a means to prop
up the reserve. The latter is:
 Easier to manage
 Aligns with the idea of carbon credits being real
assets