Presentation from Mik McKee of The Climate Trust and Zach Barbane of ecoParnters from the 2016 Land Trust Alliance Road Rally. Information on the state of the carbon markets, how to identify opportunities for land trusts, project examples, and The Climate Trust's pilot carbon investment fund.

1. Integrating Carbon Offset Revenue
in Acquisition Strategy
LTA Rally 2016
Minneapolis Workshop
October 30, 2016

2. Presenters
• Dick Kempka, Chief Commercial Officer, Memphis, TN
• Mik McKee, Senior Analyst Forestry, Portland, OR
• Zach Barbane, Manager of Domestic Services, ecoPartners

3. 1. Intro to Climate Trust
2. State of Carbon Markets
• Voluntary
• Compliance
3. How to Identify Opportunities
for Land Trusts
4. Project Examples
5. ecoPartners and aggregation
6. TCT’s pilot fund
Presentation Outline
Photo Credit: Courtesy of Appalachian Mountain Club

4. • Non-profit Organization – 1997
• Committed to projects – Nearly $33M
• Land-based Offsets – forestry,
grasslands, and livestock methane
• 3.3M tons GHG reduced
• Over 40 projects and 100+
collaborative partnerships
• Compliance and voluntary programs
Mission: The Climate Trust mobilizes conservation
finance to maximize environmental returns

5. Forest Project Experience
• Appalachian Mountain Club (ME) – IFM
• Downeast Lakes Land Trust (ME) – IFM
• City of Astoria (OR) – IFM
• Western Rivers Conservancy/Yurok Tribe (CA) – IFM
• Afognak Island (AK) – IFM
• Middleton Place (SC) – Avoided Conversion
• Pipeline:
• Several Avoided Conversion and Improved Forest
Management Projects being considered
• Five or six on east and west coast
• NGOs, TIMOs, private landowners

6. 1 ton carbon = 1 metric tonne of carbon dioxide equivalents
1 acre forest = 1-3/tons/acre/year

7. Voluntary Market
Voluntary carbon market – an entity (company, individual, or other
“emitter”) that volunteers to offset its emissions by purchasing carbon
credits that reduce the amount of carbon in the atmosphere
Top voluntary standards include:
• Climate Action Reserve (CAR) – CA predecessor to ARB
• American Carbon Registry (ACR) – Division of Winrock International
• Verified Carbon Standard (VCS) – Non-profit in Washington DC
• The Gold Standard – Certification standard globally for carbon
offset projects

8. Voluntary Market
Reports: Ecosystems Marketplace and Carbon Disclosure Project

9. Voluntary Market

10. State of the Voluntary Carbon Markets 2016
• In 2015 the volume of voluntary offset transactions increased by 10% as buyers
contracted 84.1 MtCO2e
• Total market value fell 7% to $278M due to average price drop of 14% to $3.30 ton
• Buyer preferences for project types, standards, vintage (offset age), and location
determine price
• Wind offsets were the most sought after type (12.7M), forestry (REDD+) was second, but
retained the high average price at $3.30/ton with an overall value of $37.5M
• In 2015, US buyers purchased the most offsets of any country, nearly equivalent to the
combined demand stemming from all European countries combined
• Despite the rapid growth of the California compliance market, voluntary offset demand in
North America has grown the last two years; US purchased 15.4 tons in 2015

11. Compliance Market
Compliance carbon market – An international, regional, or state law is passed
required designated covered entities to reduce carbon
emission in the atmosphere based on a emission reduce
cap specified in the law
Examples:
• International – Kyoto Protocol binding emission reduction targets
for 170 countries (not USA)
• Regional Greenhouse Gas Initiative (RGGI) – RGGI is a cooperative effort among
the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New
Hampshire, New York, Rhode Island, and Vermont to cap and reduce
CO2 emissions from the power sector
• California - The Global Warming Solutions Act of 2006, or AB32, is a CA
State Law that fights global warming by establishing a comprehensive
program to reduce GHG emissions from all sources throughout the state

12. • AB32: Statewide limit on GHG emissions
for covered sources
• Set up compliance instruments that can
be traded
• Potential to link to other cap
& trade programs
• Quebec, Ontario, RGGI
California Cap & Trade

13. 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.

14. (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
CA Compliance Instruments

15. ARB Offset Credits Issued
Project
Type
ODS Livestock U.S. Forest Urban
Forest
MMC Rice
Cultivation
Total
Offsets 12,447,578 2,676,569 29,355,957 0 3,573,844 0 48M
% of Total 25.7% 5.6% 61.3% 7.4% 100%
Product Bid/Ask (Oct 11, 2016)
California Carbon Offset (CCO) $9.70/$10.10
Average transaction price $9.90/ton
Price
Current Value based on offsets issued = $475M

16. Task Air Resources Board American Carbon Registry Verified Carbon Standard
Minimum project
length
100 years after the last carbon offset is issued 40 years from start date
Depends on methodology. 20 years to
100 years, equal to crediting period.
Inventory and
sampling
Permanent or temporary plots; stratification
not required; inventory data no older than 12
years
Permanent or temporary plots;
stratification required if area is
heterogeneous; inventory data no older
than 10 years
Depends on methodology.
Stratification usually required
Crediting period Renewable 25-year term from project start
date
IFM (except stop-logging ): 20 years;
Stop-logging IFM and REDD: 10 years.
Renewable.
20 to 100 years, depending on
methodology
Start date After January 1, 2007
January 1, 2000, document GHG
mitigation was an objective at start
date if delayed listing.
After January 1, 2002
Reporting
requirements
Annual reporting required, full verification at
least every 6 years.
Annual attestation; full verification
every 5 years.
Depends on methodology. Generally,
full verification every 5 years.
Aggregation Not permitted
Commitment between ACR and
Project Proponent. Flexible for
individual landowners.
Aggregation treats aggregated areas as
a single area.
Voluntary and Compliance Market Comparison

17. • Take a position on climate change (CDP, WRI, DJSI)
• Internal carbon reduction targets and/or scheme (Disney, MS,
eBay)
• Charismatic credits that offer ‘co-benefits’
• Local/backyard appeal
• Marketing appeal
• Peer pressure
Overall Corporate Socially Responsibe Buyer
Motivation

18. What buyers look for in a Project?
Compliance
• Credible Counterparty (e.g. investment grade, D&B)
• Offsets that simply fit the regulation
• Best price
• Note: Contracts have more strings
Voluntary
• No legacy environmental or negative PR issues
• Sustainable practices (e.g. FSC status, no clear-cutting)
• Projects located near or important to company operations
• Good Story: Co-benefits wildlife habitat, water quality benefits, and social
benefits

19. Market Standard Impacts
• Types of buyers
• Offset price
• Offset volume
(because of differences in baseline/accounting rules)
• Inventory requirements

20. CA Offset Supply (Shortage)
Source: Stevenson, Sam et al. American Carbon Registry. Compliance Offset Supply Forecast. April 2014
• Over the California market's three compliance periods,
total cumulative offset use 208 MT
• Could be 50-70% or 64 - 102MT short through 2020

21. Market Forecast:
Compliance
• Chamber of commerce challenge
• Post 2020 scoping plan
• Adding international offsets and additional sectors
Voluntary
• Increasingly common for corporations to internally
price carbon
• New protocol development (peat land, wetland
restoration, avoided fire emissions)
• Charismatic projects can fetch higher prices
• Growing recognition of the co-benefits offset
projects provide

22. Anatomy of a Forest Carbon Project

23. http://www.nrs.fs.fed.us/pubs/inf/nrs-inf-06-08.pdf

24. Three Main Forest Types
• Reforestation – restoring tree cover on
land that is not at optimal stocking levels
• Improved Forest Management –
activities that maintain or increase
carbon stocks on forested land
• Avoided Conversion – preventing the
conversion of forestland to a non-forest
land use

25. • Private and public (state, county, municipal) forests
• Commitment to sustainable, natural forest
management
• Most timber rights intact – too many encumbrances
can be tricky
• AC projects require a qualified conservation easement
• Demonstrate financial incentive to convert to
residential, agriculture, or mining use (140 – 180%
higher value)
• Properties being targeted for a conservation easement
– easements held by federal agencies are also tricky
• Financially viable for the project owner
Eligibility Criteria

26. Forest Ecoregions – Common Practice

27. 1. Multiple co-benefits:
• Habitat conservation
• Endangered species protection
• Protection of culturally significant sites
• Preservation of traditional hunting and fishing rights
• Sustainable (less than annual growth) timber harvest
• Estate planning
2. Additional revenue – supplement existing sources of
income with sale of carbon offsets
3. Ensure project development proceeds smoothly and as
efficiently as possible through the select carbon
protocol
Other Important Considerations

28. Project Steps–Continued
California Program Requirements
1. Feasibility assessment – Determine eligibility
and estimated offset volume
2. Project Listing on approved offset registry –
Prove project eligibility and estimated ICS
3. Project Development – Forest inventory,
modeling, Offset Project Data Report (OPDR)
4. Verification – Third party audit
5. Registry and ARB review – issuance
6. Review and Agree on Sales Bids– Secure and
select best offer with consideration to price,
volume, and ease of contracting.

29. Project Risks
• Project Feasibility
• Low carbon stocks, intensive management, unnatural species distribution may make a
project ineligible
• Carbon Market Fluctuation
• Price could go up or down depending on supply, demand, policy, decision, etc.
• Long Term Forest Carbon and Timber Management Commitment
• Annual reporting
• Full verification every 6 years
• Update forest inventory data no less than every 12 years
• Maintain initial carbon stocks
• Unintentional Reversal–Unintentional depletion of carbon stocks through fire or pest
outbreak is covered by the project contribution to the buffer pool.
• Intentional Reversal–Intentional depletion of carbon stocks

30. Anatomy of a Grassland Carbon Project

31. Avoided Emissions Protocol
• Overtime grasslands sequester
and store carbon
• Disturbance (tilling) results in
a release of CO2 (oxidization)
• Depending on management,
grasslands can have a net
negative or net positive on
climate
• Climate Action Reserve
developed Grassland Project
Protocol (July, 2015)
• V2.0 due out in January

32. Cropland expansion outpaces agricultural and biofuel
policies in the United States
Figure 1 and Figure 3 from Cropland expansion
outpaces agricultural and biofuel policies in the
United States
Tyler J Lark et al 2015 Environ. Res. Lett. 10 044003

33. Avoided conversion of grassland to
cropland
• Permanent conservation
• Project area must be grassland for at
least 10 years prior to project
• Land must be suitable for cultivation
• Landowner must face financial
pressure to convert
• No legal barriers to conversion, such
as a prior easement
Determining Project Eligibility

34. Major Project Inputs
• Feasibility assessment
• Basic cash flow analysis
• Costs and revenues
• Mapping the project area
• Major Land Resource Areas
• Soil Texture
• Land Capability Classification
• Reporting period data
• Animal grazing days
• Fuel consumed
• Area burned

35. Cooperatives
• Multiple projects managed by a single cooperative
developer (no limit on # of participants)
• Not necessarily a legal entity
• Common monitoring, reporting, and verification
• Single verification report
• May have different start dates
• Projects may enter and leave cooperatives over time
• Achieve economy of scale

36. Project Suitability
• Greater than 75% in LCC
I-IV
• Soil texture (fine,
medium, coarse)

37. Wabassus Lake (Voluntary)
• Partner organization: Downeast Lake Land Trust.
• Mission: Long-term economic and environmental well-
being of the Downeast Lakes region through the
conservation and exemplary management of its forests and
waters.
• Location: Eastern Maine
• Purpose: Non-profit organization interested in adding
revenue from sustainable timber management.
• Voluntary Protocol: American Carbon Registry Improved
Forest Management.
• Status: Conducted site visit and feasibility assessment in
2016
• Summary: Project appears feasible – forest will be managed
for increased carbon sequestration

38. Oregon Grasslands (Voluntary)
• Partner organization: TNC – Oregon
• Protocol: CAR’s avoided conversion of grasslands
• Project: Protection of intact grasslands in eastern
Oregon
• Impact: TCT will pre-purchase 50% of the carbon
offsets generated over the first 10-years to the
project. Pre-purchase funds will be used as non-
federal match for NRCS ALE program
• Summary: Great partnership opportunity and good
source of matching funds

39. Forest Carbon Offset Projects
Zach Barbane
Manager, Domestic Services

40. About ecoPartners
North America
• Compliance and voluntary markets
International
• REDD+
Forest Carbon Works

41. Basic Concepts
Trees sequester carbon
Forests can be managed to store more carbon
Forests that store more carbon than “business-as-usual” can generate carbon
offset credits
Credits can be sold to entities to cover emissions

42. Improved Forest Management
Compare carbon stocks in forest to similar private
forests in region
• Forest type and site class
• Legal constraints (additionality)
• Financial constraints
Emissions reductions/removals (credits) based on
difference between “project” and “baseline”

43. Improved Forest Management

44. CarbonStocks(tCO2e/ac)
Time
Project Carbon Stocks
Above Baseline
CreditGeneration
(tCO2e/acre)
Year
Annual Credit Generation

45. Below Baseline
CarbonStocks(tCO2e/ac)
Time
Project Carbon StocksCreditGeneration
(tCO2e/acre)
Time
Annual Credit Generation

46. Harvesting Cycle
CreditGeneration
(tCO2e/acre)
Time
Annual Credit Generation
CarbonStocks(tCO2e/ac)
Time
Project Carbon Stocks

47. Path to credits
Forest
Inventory
Project
Development
Third-Party
Verification

48. Traditional Development
Up-front and ongoing costs
• Inventory
• Development
• Verification
• Additional fees
Feasibility threshold ~3,000 acres
• Industrial, TIMO, tribes, large land trusts

49. New Technology

50. Innovative sampling design
Fast and accurate measurements
• Inventories can be completed in as little as a weekend
• Results can be processed very quickly
Simple process
• Can be completed by anyone after brief training
• Internalize or minimize inventory costs

51. Forest Carbon Works
Rapid inventory
Automated development
Pseudo-Aggregation
• Each landowner is their own project
• Group landowners to reduce costs
Simplified access and annual payments

52. Forest Carbon Works
ForestCarbonWorks.org
Process:
• Create account
• Apply
• Measure
• Receive offer
• Enroll

53. New Carbon Fund – Launched January 2016

54. The Problem: Carbon projects need funding to develop
required offsets and unleash full market potential
• Traditional funding not available - Lenders
perceive carbon markets to be risky, and
therefore heavily or completely discount
future revenues from carbon offset sales.
• Key Risks:
 Execution Risk – Will projects generate
credits as anticipated?
 Market Risk – If so, what will those credits be worth?
• SOLUTION: The Climate Trust will finance projects that
will depend upon revenues from carbon markets,
through an upfront investment

55. Our offer: Upfront financing to early stage projects
Investment
•The Climate Trust invests in a ten year stream of
carbon offsets from a project.
•Capital is made available upfront for new projects.
Active
management
•The Climate Trust will work with a
project to develop a carbon monitoring
plan and commercialize credits.
Revenue
share
•After carbon sales have repaid the
principal investment, The Climate Trust
and project owners share additional
revenue (usually 50/50).
Benefits:
• Guaranteed minimum
carbon value
• Revenue share
rewards project
owners as carbon
prices increase

56. Example: Improved Forest Management project
200,000
* $5.00
= $1,000,000
Credits available from the project over ten years (20,000 credits per year *10)
One half of current market price of carbon in CA ($10.00 used as an example)
Total size of upfront investment from The Climate Trust
Pre-credit sale:
Post-credit sale:
$12.00
* 200,000
=$2,400,000
Sale price of credits (Example)
Total credits to be sold
Total income from project
$2,400,000
-$1,000,000
= $1,400,000
Total income
Upfront investment
Net income
50/50 split gives $700,000 to project owner

57. Our offer: Upfront financing to early stage projects
• Available funds: We will deploy $5.5M in 2016, with
the potential of an additional $25M in 2017 and 2018.
Each project will receive between $250K-$2M.
• Financing can be used for: Expenses related to
project implementation such as down payment on
land purchase, easement payments, loan repayment,
operation, etc.
• Scaling up: This $5.5M fund is a pilot; success unlocks
additional funding.

58. Q & AQ & A
Zach Barbane, Manager Domestic Services
zbarbane@ecopartnersllc.com
415-634-4650
Dick Kempka, Chief Commercial Officer
rkempka@climatetrust.org
901-755-8705
Mik McKee, Senior Project Analyst
mmckee@climatetrust.org
503-238-1915