Future of Greenhouse Gas Future of Greenhouse Gas Offsets and - - PowerPoint PPT Presentation

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

October 2010

Climate Change Group Climate Change Group

CONFIDENTIAL CONFIDENTIAL AND PROPRIETARY

AGENDA AGENDA

Introduction to Element Markets GHG Credits and RECs GHG Update – Federal, EPA, and AB32 REC Markets Wastewater Sector Implications Wastewater Sector Implications

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ELEMENT MARKETS ELEMENT MARKETS‐ US Emissions House US Emissions House

• f the Year
• f 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 O $450 illi i i t dit t ti i i ti

Business Units Business Units

• Over $450 million in environment credit transactions since inception
• Customer base of more than 700 companies

Greenhouse Gas and Emissions Services Renewable Energy Services

Credit Marketing Methane / Solar Projects Credit Marketing Offset Projects

d l d l Environmental Credit Marketing

• Asset Management
• Credit Aggregation

GHG and Renewable Projects

• Landfill Methane
• Composting, Organic Waste Digestion

Outsourced Solutions Outsourced Solutions

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• Credit Monetization
• Structured Financial Products

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• Other Methane (Anaerobic Digestion, Coal Mines)
• Renewable Power – Solar PV

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
• All Regional and federal emissions markets
• Landfill Methane
• Composting and Organic Waste Digestion
• Transacted ~20 million GHGs in 2010

GHG and Emissions Markets

• Forestry
• Other GHG Mitigation

EM Project Pipeline

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

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• #1 SO2 Dealer (2009) – Energy Risk
• #1 NOx Dealer (2009) – Energy Risk
• Best Trading Company, SO2 Emissions Credits (2008, 2009) – Environmental Finance

RENEWABLE ENERGY GROUP RENEWABLE ENERGY GROUP

Renewable Energy Marketing Renewable Energy Marketing

• All compliance and voluntary markets
• All Energy Efficiency markets

Project Development Project Development

• Landfill Methane to Energy
• Solar Photovoltaic
• Transacted ~19 million RECs to date

State RPS and Goals

• Wind

EM Project Pipeline

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 B t S l P I t (2009) E Ri k

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• # 2 Best Solar Power Investor (2009) ‐ Energy Risk
• # 3 Best Wind Power Investor (2009) – Energy Risk

ENVIRONMENTAL CREDITS ENVIRONMENTAL CREDITS

GHG Offset = represents one metric tonne of CO2e avoided or removed by a carbon reducing project

P d ti f Renewable Energy Credits:

Tradable Renewable Credits

Production of Renewable Energy

Commodity Electricity

Energy Efficiency Credits:

T d bl

Energy Savings Energy Savings

Tradable Efficiency Credits

Old Energy Usage

New Energy Usage

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New Energy Usage

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

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FEDERAL GHG LEGISLATION FEDERAL GHG LEGISLATION

Status of congressional legislation

Summer 2009 Fall 2009 2011? Spring 2010

House of Representatives passes Waxman‐Markey bill Senate EPW committee releases Kerry‐Boxer bill Bill could be debated in the next Congress, especially given status of EPA l ti Bill fails to gain traction in Senate Debbie Stabenow (D‐MI) releases “Offsets Amendment” EPA regulations

• 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

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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 CO2 is subject to regulation as a pollutant under the Clean Air Act September 2009 December 2009 Q1 2011 Q1 2010

EPA promulgates GHG Mandatory Reporting Rule, requiring EPA promulgates Final PSD/Title V Tailoring Rule, raising stationary Stationary Source GHG Regulation under the Clean Air Act will be EPA makes Final GHG Endangerment Finding, allowing it to

GHG l i d d h Cl Ai A

stationary sources over 25,000 mtCO2e to report emissions source compliance threshold to 100,000 mtCO2e triggered regulate GHGs under the Clean Air Act

GHG regulations underway under the Clean Air Act

• 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

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largely expected to face a Presidential veto

• The barrage of EPA regulations could spur action in the next Congress

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 I D l S il S i

• In Development: Soil Sequestration
• Prices:
• $2.50‐ $6.00

Project Types Listed Registered Total Landfill Methane 91 42 133 Livestock Methane 35 14 49 Forest Management 30 4 34 Avoided Conversion 6 6 Avoided Conversion 6 6 Reforestation 5 5 Organic Waste 3 3 Coal Mine 1 1 2

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Nitric Acid N2O 3 3 ODS 2 3 5 Total 176 64 240

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’

i l f i f d l GHG potential for use in a federal GHG program

VCS – Domestic Project Type # of Projects Landfill Methane 12 ACR Project Type # of Projects Landfill Methane 9 Livestock Methane 2 Coal Mine Methane 2 Organic Waste Methane 4 Total 20 Livestock Methane 1 EOR 5 Other 6 Total 21

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Total 20 Total 21

AB32 GHG MARKET FRAMEWORK AB32 GHG MARKET FRAMEWORK

Covered Entities

It is important to note that, withstanding political risks, California’s AB32’s cap and trade program will begin in 2012

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 (2nd compliance period)

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• Covered entities are the “facility operators”

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

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AB32 AB32

Other Aspects of AB32

• The California Air Resources Board (ARB) recently approved a 33% by 2020 Renewable Portfolio

Standard (to be discussed in the next section) ( )

Potential Changes to Mandatory Reporting

• ARB has proposed the following changes:
• Change from reporting only CO2 to CO2e
• Lowered reporting threshold of 10,000 MTCO2e
• Annual verification of emissions data reports for facilities above 25k

Political Risks

• Several challenges to AB32 are shaping up:

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• Proposition 23, which would suspend AB32, submitted by Congressman Tom

McClintock, Assemblyman Dan Logue, and political group People’s Advocate – currently under review by the Attorney General

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• Meg Whitman, the GOP gubernatorial candidate, has promised to suspend AB32

upon taking office; Democrat Jerry Brown would allow AB32 to proceed

RENEWABLE PORTFOLIO STANDARDS (RPS) RENEWABLE PORTFOLIO STANDARDS (RPS)

• Thirty states and the District of Columbia have implemented Renewable Portfolio Standards; five

more have renewables goals without financial penalties

• State‐level renewable portfolio standards remain the primary source of demand for renewable

State level renewable portfolio standards remain the primary source of demand for renewable generation

US Renewable Energy Credit Markets

State RPS

WI : 10% by 2015

IA : 105 MW

NY : 15% by 2015 : 8% by 2013

Proposed RPS Voluntary RPS and Goals EM Assets & Representative Transactions

: 10% by 2011 *CO : 10% by 2015

• In 2010, several states have updated RPSs; CT, MA,

PA, DE

• New state RPS legislation has increasingly
• New state RPS legislation has increasingly

included an energy efficiency component

• 21 states have an energy efficiency resource

standard (EERS)

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COMPLIANCE MARKET SNAPSHOT COMPLIANCE MARKET SNAPSHOT

Characteristics CA CT Class I NJ TX Procurement IOUs Munis and Coops have to establish their own targets Retail Suppliers Retail Suppliers Retail suppliers g Tracking System WREGIS GIS GATS Administered by ERCOT

• No. of Classes

N/A 3 3 1 + non‐wind goal Online Date None for in‐state facilities Class I: none, except for biomass/hydro; Vary for other classes 1/1/2003 9/1/1999 Geography WECC NEPOOL + adjoining PJM Anywhere in TX First point of delivery for the power must into the state areas Shelf Life Tradable RECs not yet allowed by CPUC 3 years 1 year 3 years 2010 Target 20% 14.0% total; 7.0% Class I ~5.0% ~3.7 million MWh

Indicative North of $25/MWh for 2010 Class I: $ $ 2011 Class I: $2‐$3 2010: $0.75 ‐ $0.95

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Current Pricing bundled RECs $50 ACP $12‐$13 2011 Solar: $665

Source: Prices from Argus Air Daily as of 10/8/2020 and EM

REC MANAGEMENT & TRACKING SYSTEMS REC MANAGEMENT & TRACKING SYSTEMS

• Substantiation of ownership and sales of

Value of Tracking Systems

RECs

• Transparency, transactional efficiency and

reduced costs

• Electronic access to REC portfolio from

Electronic access to REC portfolio from any location

• A single source to manage, transact,

acquire, allocate and retire RECs

• Ease of access to non financial/CSR
• Ease of access to non‐financial/CSR

reporting data

• Inter‐registry transfers, tracking and

retirement of RECs

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VOLUNTARY RECS VOLUNTARY RECS

• Despite the growth of mandatory RPS programs, voluntary markets still generate a substantial share of the

demand for renewable energy

• RECs may be used to offset ‘indirect’ emissions and mitigate a company’s ‘carbon footprint’

Source: NREL Source: NREL Source: WBCSD/WRI (2004), The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition, World Business Council for Sustainable Development, Geneva, World Resources Institute, Washington, DC

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MONETIZATION OF RECs MONETIZATION OF RECs

Wind Farm Wind Farm Electricity Sold

End Buyers

Provider Retail Electric Provider Buyers Voluntary Buyers Out of State

• 1. Register Project &

Generate Power 2 Generation Data

• 4. RECs Sold Direct

Wholesale Buyers

Out of State Compliance (fungibility)

• 4b. RECs Sold

Retail

• 2. Generation Data

Verified & Entered into Tracking Registry

• 3. RECs are attributed to

generator

Wholesale

• 4a. RECs

Sold Wholesale

generator

• 5. RECs Retired For

Compliance or to Claim Green

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Claim Green Attribute

Opportunities for Wastewater Technologies Opportunities for Wastewater Technologies

• Biogas Opportunity
• Under the California Energy Commission RPS eligibility guidelines, pipeline biogas can be used by a

utility toward RPS compliance

• Odor mitigation
• Nutrient management
• GHG Credit Opportunity for wastewater treatment plants with existing capacity

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ELEMENT MARKETS SERVICES ELEMENT MARKETS SERVICES

Marketing

• Element Markets utilizes its business relationships and knowledge of the various

environmental markets to best market assets for its clients

• Element Markets also has the flexibility to act as a direct off‐take for credits and can

structure complex or flexible transactions to meet the client’s individual needs Project Development

• Element Markets has the ability to partner with clients in development projects and will
• ften provide up‐front capital to advance projects

Transacting

• Element Markets’ in‐house risk and legal teams value transactions and prepare all

necessary paperwork to facilitate transactions Merchant Services

• Element Markets helps clients to make informed decisions around their environmental

needs and portfolios based on its extensive market experience and knowledge across all environmental products T b ith d il/ b k d id dditi l ti ith

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• Team members with energy and oil/gas backgrounds provide additional expertise with

green gas/power pricing and project development

CONTACT INFORMATION CONTACT INFORMATION

Jackie Ferlita Director Jackie Ferlita, Director Element Markets, LLC 15541 Commerce Lane Huntington Beach, CA 92649 Office: 714‐397‐5508 Fax: 281‐207‐7211 jferlita@elementmarkets.com www.elementmarkets.com

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DISCLAIMER DISCLAIMER

This document is intended for informational and discussion purposes only. The information and any statistical data contained herein have been obtained from sources which we believe to be reliable, but we do not represent that they are accurate or complete and they should not be relied upon as such All opinions accurate or complete, and they should not be relied upon as such. All opinions and data provided by Element Markets, LLC are subject to change without notice. A i f i l d i hi i i d d/ i il d Any information enclosed within, contains restricted and/or privileged information and is intended only for authorized screening and/or confidential presentation at Element Markets, LLC’s discretion. You must not disseminate, modify, copy/plagiarize or take action in reliance upon it, unless previously h i d i i i b El M k LLC N f h i l id d authorized in writing by Element Markets, LLC. None of the materials provided in this presentation may be used, reproduced or transmitted, in any form or by any means, electronic or mechanical, including recording or the use of any information storage and retrieval system, without prior written permission f El M k LLC from Element Markets, LLC.

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