The document discusses carbon offset mechanisms and markets. It provides an overview of The Climate Trust, a carbon fund manager with expertise in developing climate solutions projects. It then summarizes several carbon pricing programs and markets including cap and trade systems in California and China, as well as offset standards and project types. Specific project examples discussed include livestock digesters, forestry, and nutrient management. Pricing data is provided for compliance and voluntary carbon markets.

1. CARBON MECHANISMS,
MARKETS, AND PROJECTS
The Climate Trust
Sean Penrith, Executive Director
Portland-Kunming Exhibition
Kunming Urban Planning Exhibition Center
122 Tuodong Rd, Panlong, Kunming, Yunnan China
October 22, 2014
Transforming the economy to value our climate

2. Framing
¨ Low carbon policies & programs improve health,
energy security, and deliver economic gain
¨ Offer revenue opportunity to state/provinces/
countries that administer such programs
¨ Stimulate low carbon entrepreneurship in multiple
project sectors
¨ Help transition to a low carbon economy, now
2

3. About
3
¨ We are a carbon fund manager for
Oregon’s existing mandatory and
voluntary ($43 million) commitments to
emissions reduction
¨ 16 years of expertise in climate solutions
for utilities, businesses, and governments
¨ Created in 1997 in response to the
passage of the Oregon Carbon Dioxide
Standard
¨ Establish & maintain processes for the
evaluation, verification and funding of
carbon mitigation projects for both
compliance & voluntary markets.
¨ Work nationally & internationally
¨ Focus on agriculture, livestock, forestry
and energy efficiency sectors

4. Basics of Cap & Trade
4
Offsets can be used
for compliance (up
to 8% in CA, 3% in
REGGI)

5. GHG Emission Trading Globally
5
• China has 7
pilot regions
underway
ending 2016
• National ETS
planned for
2018
• Regional
schemes have
been illiquid

6. What is a carbon offset?
A carbon offset is the reduction or sequestration of carbon dioxide or
greenhouse gas made to compensate for or offset emissions produced
elsewhere

7. China’s pilot carbon prices in line with EU ~5.7 Euros/ton
7

8. Offsets Should:
¨ Be real, independently verified, with clear
ownership
¨ Be additional & address leakage
¤ Demonstrate that offset funding incentivized the
implementation of the reduction project
¨ Have a realistic
baseline & address permanence
¨ Be quantified and monitored

9. Oregon’s Carbon Dioxide Standard
9
1997: Reduce CO2 17% below level of best gas
combustions-turbine plant in the US over lifetime of
the plant
1. Reduce at site
2. Directly manage offset projects
3. Pay a “Qualified New energy facility Organization” to manage offset projects

10. The Climate Trust’s Role
10
3. Pay a “Qualified Organization” to manage offset projects
Monetary Pathway calculates the $ amount
S&C
Oregon Department
of Energy oversees
TCT
• Select projects for review & due diligence
• Enter into Emissions Reduction Purchase Agreement (ERPA)
PM
• Ensure adherence to recognized protocol for credits generated
• Monitor carbon credit stream that results from selected projects
CO2
• Offsets verified by 3rd party
• Pay for the credits on delivery
• Retire the credits on behalf of the energy facility
CURRENT MONETARY PATH RATE
$0.23 per
metric ton
$0.92 per
metric ton
Offset management
funds
Offset funds

11. TCT Business Model
Producers cannot take carbon market risks.
Aggregators must structure business models
that take on that risk.
Participants"
Aggregation of Greenhouse Gas Emissions Offsets: Benefits, Existing Methods and Key
Challenges. Electric Power Research Institute, Palo Alto, CA: October 2011.
Carbon
Fund Market"
Manager"

12. Carbon Fund Manager
12
Energy Agriculture Forestry Livestock
Oregon
Retire on
behalf of the
energy facility
that pays into
the fund via
Monetary
Pathway
Colorado Carbon
Fund (CCF)
Retired on
behalf of the
citizen or
corporation that
pays into the
fund
NW Natural
Smart Energy
Retired on
behalf of the
contributing gas
utility customer
contributing $

13. TCT U.S. Projects
13
• 33 active project in 8 sectors
• Average cost to retire $4.32/ton
• Plan to retire another 4.2 million tons equal to
950,000 passenger vehicles taken off the road

14. Carbon Credit Management
14
Smart
Energy
WA
program
OR
program
Credit Supply
Contract with
projects for
credits
Retired
Voluntary
Market
Regulated
Market

15. California’s
Assembly
Bill
32
2020
Emissions
(507
million
mtCO2e)
=
1990
Emissions
(427
million
mtCO2e)
=>
Reduce
2020
Emissions
by
80
million
mt
CO2e
Source: California Air Resource Board. “California’s GHG Emissions – Forecast (2008-2020).” Updated October 2010.

16. California
Cap
and
Trade
Program
Source: Image from Fine, Steve. “The Interaction of Complementary Measures and the Cap & Trade Program under AB-32.”
April 16, 2013 presentation at the EPRI-IETA Joint Symposium GHG Offsets Policy Dialogue in San Francisco, CA.

17. Offset Market Activity
¨ All years of market activity has reduced 844
MtCO2e valued at $4 billion ($5.9/tCO2e)
¨ Private sector energy, transportation, finance, and
insurance sectors top buyers
¨ “Combatting climate change” – top buyer
motivation.

18. Carbon offset projects types
FIGURE 7: TRANSACTED VOLUME BY PROJECT CATEGORY, OTC 2012
MtCO2e and % Share
Notes: Findings pertain to the 75.5 MtCO2e associated with a response to this question, including “N/A” and “Other”.
Source: Forest Trends’ Ecosystem Marketplace. State of the Voluntary Carbon Markets 2013.
* First Biennial report of the United States of America, 2014

19. Global Carbon Project Sectors
FIGURE 24: MARKET SHARE BY PROJECT TYPE, OTC 2012
% Share
Notes: Findings pertain to the 75.5 MtCO2e associated with a response to this question, including “N/A” and “Other”.
Source: Forest Trends’ Ecosystem Marketplace. State of the Voluntary Carbon Markets 2013.

20. U.S. Offset Project Types
California Market
¨ Approved
¤ Livestock Digesters
¤ Forestry
¤ Urban Forestry
¤ Destruction of Ozone Depleting
Substances
¤ Coal Mine Methane (Apr 2014)
¨ Anticipated (October)
¤ Rice Cultivation
Voluntary Standards
¨ CAR: Climate Action
Reserve (5%)
¨ ACR – American Carbon
Registry (1%)
¨ ACR & CAR focusing on
CA’s compliance market
¨ VCS – Verified Carbon
Standard (29%)

21. Voluntary Market Pricing
Source: Forest Trends Ecosystem Marketplace. Sharing the Stage: State of the Voluntary
Carbon Markets 2014.

22. PROJECT STAGE & VALUE
Source: Climate Action Reserve & Parhelion

23. Compliance Pricing (California)
$22
$21
$20
$19
$18
$17
$16
$15
$14
$13
$12
$11
$10
$9
$8
$7
$6
$5
Golden CCO
CCO (8 year buyer liability)
Current CCA (auction)
ODS CRT & Livestock CRT & Forestry CRT
Jan 13 Feb 13M ar 13A pr 13M ay 13J un 13 Jul 13 Aug 13S ep 13O ct 13 Nov 13D ec 13 Jan 14 Feb 14M ar 14A pr 14M ay 14J un 14 Jul 14 Aug 14S ep 14

24. ARB Offset Credits Issued
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
Source: Argus Media, Sept 2014

25. CA Offset Supply (Shortage?)
• Over the California market's three compliance periods, total cumulative
offset demand could reach just over 200 million tons.
• Could be 67% or 134M short by third CP 2018-2020
Source: Stevenson, Sam et al. American Carbon Registry. Compliance Offset Supply Forecast. April 2014

26. Low Carbon Fuel Standard Overview
¨ Sets annual carbon intensity standard for gasoline, diesel
and the fuels that replace them
¨ Carbon Intensity (CI) is the measure of GHG emissions
associated with producing & consuming a fuel (gCO2e/MJ)
¨ LCFS goal in California is reduce CI of transportation fuel by
at least 10% by 2020
¨ Regulated party: Tradition fuel refiners and importers
¨ Credit: LCFS Credit (1 mt CO2e reduced from target)
¤ Separate and distinct from carbon offset
¨ Sunset: 2020
- 2020 target applies until changed or rescinded

27. LCFS Accounting System
27

28. Fuels Generating LCFS Credits
28
• ‘12 – ’14 ~1,8
million tons
traded
• Price range $10
- $85/MT

29. LCFS & Cap & Trade Policy Effect =
Economic & Health Gain
29
• Save $4.3 billion by 2020 and $8.3 billion by 2025 in California
• Reduce 167,000 tons of NOX (Nitrogen Oxide)
• Reduce 9,000 tons of PM2.5(Air Particulates)
• Reduce 3,850 tons of SOX (Sulfur Dioxide)

30. Health Benefits of LCFS
30

31. Renewable Fuel Standard 2
¨ Federal mandate on quantity of renewable fuel that
is consumed for transportation in the US
¨ Regulated party: Transportation fuel refiners and
importers
¨ Credit: Renewable Identification Number (RIN)
¨ Sunset: 2022

32. Multiple Environmental Credit Benefits
32
Bedding
1%
Transporta7on
Gas
Sales
58%
Nutrients
6%
Tipping
Fees
10%
Carbon
Credits
2%
RINs
10%
LCFS
13%
Environmental
Markets
25%
RECs 8%

33. Environmental Market Returns: 5,000 cow digester
$5,000,000
$4,500,000
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
Low
Carbon
Fuel
Standard
Credits
Renewable
IdenOficaOon
Numbers
Carbon
Credits
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Annual
Net
Revenue
Environmental
Markets
-­‐
High
Price
(IRR
=
34.36%)
Environmental
Markets
-­‐
Low
Price
(IRR
=
15.30%)
Baseline
-­‐
No
Environmental
Markets
(IRR
=
7.83%)

34. Nexus: Agriculture, Carbon Markets, Finance
Sector Potential Status
Anaerobic digestion. Installation of covered lagoon or
22 million mtCO2e per
enclosed vessel digesters at livestock facilities, avoiding
year1
methane emissions normally release from anaerobic
lagoons.
Compliance. Livestock
digesters (anywhere in the
US) qualify for California’s
cap-and-trade system.
Grassland conservation. Avoiding the conversion of
grassland into marginal cropland, maintaining carbon
sequestered in soils.
2 million mtCO2e per
year2
Voluntary. Voluntary
protocol developed (with
USDA CIG). First
transaction to be
completed in October.
Nutrient management. Increasing the efficiency of
nitrogen fertilizer application, reducing emissions of
N2O.
55 million mtCO2e per
year3
Voluntary. Three major
protocols. Pilot transaction
only.
Switch to no-till. Decreasing the amount of soil tillage,
maintaining carbon sequestered in soils.
138 million mtCO2e
per year3
Voluntary. No modern
transaction.
1 Carbon Prices and the Adoption of Methane Digesters on Dairy and Hog Farms. USDA Economic Research Service Economic Brief Number 16, Washington DC:
February 2011.
2 Evaluation of Avoided Grassland Conversion and Cropland Conversion to Grassland as Potential Carbon Offset Project Types. Issue paper prepared for the
Climate Action Reserve, Los Angeles, CA: December 2012.
3 Greenhouse Gas Mitigation Potential of Agricultural Land Management in the United States A Synthesis of the Literature. Second Edition. Nicholas Institute for
Environmental Policy Solutions, Durham, NC: March 2011. Report NI R 10-04, page 26.

35. Project Case:
Ducks Unlimited
- Grassland Conservation
¨ The Climate Trust entered into forward
contract to purchase tons from Ducks
Unlimited
¨ Contract was then used to back the upfront
payment to 100 landowners to enroll
50,000 acres in easements
¨ Ducks Unlimited offered landowners
upfront purchase of carbon rights in
exchange for easement rights
¨ Found that 13,000 of the 50,000 acres
enrolled were additional.
¨ These 13,000 acres are anticipated to
deliver 384,000 mtCO2e over a 10-year
crediting period ~ $4 million
Photo : Amy Taborski. Ducks Unlimited. Sheridan County, North Dakota. June 2010.

36. Double Benefit of Biogas

37. Avoided Methane
Projects that digest
eligible feedstocks
and combust biogas
can earn carbon
credits for avoided
methane emissions.

38. First Merchant Food Waste Digester in U.S.
38
¨ TCT carbon credit purchase contract
enables financing
¨ Facility built adjacent to composter
and farm area that agreed to buy
organic compost and fertilizer
product from JCB
¨ JCB processes 25,000 tons/year of
commercial organic waste & dairy
manure from Portland, Eugene, &
Corvallis areas
¨ Digester combusts the methane gas
to generate 1.5 MW of baseload
renewable energy.
¨ Exploring compressing methane gas
to use as low carbon transport fuel
¨ 10,000 tons of CO2 avoided per
year equal to taking 2,000 cars off
the road
¨ Received $2 million for RECs

39. Total market potential for U.S. dairies in
bio-economy
39

40. Benefit of Suite of Credit Policies
¨ Complementary carbon mechanisms and fuel policies add:
¤ Economic gain
¤ Energy security, and
¤ Reduce negative health impacts
¤ Reduce CO2 emissions
¨ Can channel a portion of tax or cap and trade revenues to a special
purpose fund manager for targeted reinvestment in multi-sector
projects to support transition to low carbon economy.
¨ Due to China's growing consumption of dairy products and growth of
Yunnan's dairy developing a competitive edge in Southwest China
and for export to ASEAN neighbors, commercial scale biodigesters
would be suitable.
¨ China ETS in 2018 will set the stage for offset project development
opportunities.

41. Thank you!
Sean Penrith, Executive Director, spenrith@climatetrust.org