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Understanding Compliance and Market Options for Transportation Fuels

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

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Understanding Compliance and Market Options for Transportation Fuels

  1. 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. 2. Outline • Background on TCT • Defining Offsets • Project types • Supply
  3. 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. 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. 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. 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. 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. 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. 9. http://www.arb.ca.gov/cc/capandtrade/offsets/issuance/issuance.htm
  10. 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. 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. 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. 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. 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. 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. 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. 17. Project Stage & Value Source: Climate Action Reserve & Parhelion
  18. 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. 19. Thank you. Dick Kempka rkempka@climatetrust.org The Climate Trust 901-755-8705

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