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Developing Offset Projects in a
U.S. Pre-Compliance Market:
Smart Investment or Unwise
Policy Gamble
Potential Carbon Markets & Utah
Agriculture
Utah State University
October 8, 2009
Regulatory Risks
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What are the areas of certainty regarding offsets in a US cap
and trade system?
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Offsets will be allowed as part of cap-and-trade system
– Limitations on offsets vary significantly
• House of Representatives Bill (Waxman-Markey) -- 1 Billion tonnes
domestic during first year
– Approved project types
• Significant number of ag-related project types in Senate Bill (KerryBoxer) including agricultural, grassland and rangeland sequestration
and management practices, manure management and biogas
capture
– US based projects
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Regulatory Risks
•
What are the areas of uncertainty related to offsets in a US capand-trade system?
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Timing of implementation of cap-and-trade
• Project Start-Date
– Kerry – Boxer -- Jan. 1, 2009
• Early Action
– Kerry-Boxer -- Jan. 1, 2001 and are registered
• Registries and Methodologies
– Chicago Climate Exchange, Climate Action Reserve, Voluntary
Carbon Standard, American Carbon Registry
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Agricultural Project Types
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Methane collection, combustion and avoidance projects
involving organic waste streams that would have otherwise
emitted methane in the atmosphere, including manure
management and biogas capture and combustion;
Projects involving afforestation or reforestation of acreage
not forested as of January 1, 2009
Forest management resulting in an increase in forest carbon
stores, including harvested wood products
Agricultural, grassland, and rangeland sequestration and
management practices, including
– Altered tillage practices, including avoided abandonment of such
practices,
– Winter cover cropping, continuous cropping and other means to
increase biomass returned to soil in lieu of planting followed by
fallowing;
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Agricultural Project Types Continued…
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reduction of nitrogen fertilizer use or increase in nitrogen
use efficiency;
reduction in the frequency and duration of flooding of rice
paddies;
reduction in carbon emissions from organic soils;
reduction in greenhouse gas emissions from manure and
effluent;
reduction in greenhouse gas emissions due to changes in
animal management practices, including dietary
modifications;
planting and cultivation of permanent tree crops;
practices to reduce and eliminate soil tillage;
reductions in greenhouse gas emissions through restoration
of wetlands, forestland, and grassland; and
sequestration of greenhouse gases through management of
tree crops;
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Agricultural Project Types Continued…
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Changes in carbon stocks attributed to land use change and
forestry activities, including—
– management of peatland or wetland;
– conservation of grassland and forested land;
– improved forest management, including accounting for
carbon stored in wood products;
– reduced deforestation or avoided forest conversion;
– urban tree-planting and maintenance;
– agroforestry; and
– adaptation of plant traits or new technologies that
increase sequestration by forests.
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Protocol Developments related to Agricultural
Projects
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Kyoto – CDM
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Province of Alberta
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Voluntary Carbon Standard
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Chicago Climate Exchange
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Climate Action Reserve
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American Carbon Registry
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How Buyers/Emitters Manage the Regulatory
Risk: A Portfolio Approach
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Offset a material portion of the risk using a portfolio
approach
– Multiple vintages, projects, types of offsets, project startdates
Execute transfers on recognized registries such as the
Climate Action Reserve (CAR), American Carbon Registry
(ACR) and Voluntary Carbon Standard (VCS)
Purchasing offsets today provides a hedge against increasing
prices and uncertainty about the availability of offset supply
A secondary voluntary market exists today for offsets that
are not eligible for compliance purposes in the future
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Pre-Compliance Transaction Trends
•
According to New Carbon Finance, Aug-Sep 2008 pricing:
• $10.75 / tonne for Climate Action Reserve offsets
• $7.25 / tonne for Voluntary Carbon Standard offsets
• $4.00+ for “other” offsets
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Compliance eligibility risk -- offsets with a lower perceived
eligibility risk command a premium price (more established
offset types with recent start dates)
Product specification regarding standard and registry are
also fundamental determinants of price
Potentially have 1-2 more years of pre-compliance trading
with uncertainty relating to offset criteria
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Chicago Climate Exchange
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Blue Source’s Offset Portfolio
• Blue Source’s VER portfolio is the largest in
North America:
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Carbon Capture and Storage (CCS)
Coal mine methane
Wastewater treatment
Landfill gas
Agriculture
Forestry
Industrial Gas Destruction
Blue Source has $500M in capital from Och Ziff Capital
Management Group to invest in VER projects and CO2 pipeline
infrastructure projects.
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Blue Source’s Strategic Alliance with Goldman
Sachs
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Blue Source views a significant pre-compliance market
emerging
Blue Source expects credit to become more important in
transactions
Goldman has a significant client base of large emitters and
potential pre-compliance purchasers
Goldman Sachs has the ability to see the marketplace and
create products to meet the need
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Contact Information
Lauren Kimble
Vice President, Marketing
[email protected]
801.438.1534
Salt Lake City, Utah
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