The Value of Offsets in Oregon s Load-Based Cap and Trade System

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The Value of Offsets in Oregon's Load-Based Cap and Trade System Carbon Allocation Task Force Presented by: Michael Ashford June 1, 2006

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Agenda Background on The Climate Trust Rationale for Offsets Policy Economic Offsets are an Established Policy Option Importance of Offset Quality Offsets Support the Oregon GHG Strategy's Guiding Principles 2

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Background on The Climate Trust

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The Climate Trust Mission: Offsets The Trust is a 501(c)(3) Non-Profit Corporation "The Climate Trust advances environmental change arrangements by giving superb nursery gas counterbalance extends and propelling sound balance approach." 3 Main Programs Oregon Power Plant Offset Program Greenhouse Gas Offset Partnership Program Offset Policy Initiative 4

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Who is The Climate Trust? Autonomous Buyer of GHG Offsets Market Leader One of the biggest, most experienced counterbalance purchasers in US and world markets Only state-perceived balance supplier Portfolio : 11 ventures, $4.5 million, 1.7 million metric tons CO2 Pipeline : Placing $7 million all the more now 5

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Who is The Climate Trust? Advancing Sound Offset Policy Offset Policy Resource Contributing specifically to reasonability and joining of counterbalance strategy at national, provincial and state levels RGGI, California, Massachusetts, Washington USEPA, 1605(b), Senator Domenici & Bingaman Climate Change White Paper Outreach and Communications UNFCC Conference of Parties, International Emissions Trading Association, CarbonExpo, California Climate Action Registry, National Association of Regulatory Utility Commissioners 6

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Economic and Policy Rationale for Offsets

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What is an Offset? (hypothesis) Specific Project That Reduces GHG Levels CO2 discharges The benchmark case Baseline outflows Offsets Project emanations The venture case/observing & confirmation years Project starts Project closes 8

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Truck Stop Electrification What is an Offset? (hone) Specific Project That Reduces GHG Levels I-5 Corridor in OR and WA "Closing down-and-connecting to" movements from diesel lingering to lower carbon lattice power 90,000 metric tons CO 2 Saving assessed 10 million gallons of diesel fuel Emissions co-benefits: 1,400 tons of nitrogen oxides (NO x ), 40 tons of particulate matter (PM) 16 year contract 9

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Policy Rationale for Offsets More Money for Other Priorities Effective in diminishing GHG levels Lower environmental change relief cost to society Funding driver into un-topped segments into new & imaginative innovation Economic co-benefits Create occupations; spare cash on vitality; upgrade vitality security by lessening oil imports; make interest for clean vitality items. Ecological co-benefits Reduce air contamination; save biodiversity; enhance living space, watersheds, and water quality; lessen soil disintegration; secure imperiled species 10

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Economic Rationale for Offsets Estimated Ranges for Mitigation Costs Illustrative GHG moderation costs US Offsets (Climate Trust) $4 - $7/ton Kyoto CDM offsets $9 - $12/ton Allowances in Europe $~25+/ton Efficiency* $15 - $40/ton Wind Green Tags ($10/mWh) $~15/ton Geo-Sequestration More *Cost to utility for relief in ordinary coal plant 11

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Economic Rationale for Offsets Power of the Market "Counterbalances particularly grow the extent of the program and serve to unleash the force of the market to animate advancement and cost-successfully decrease emanations." Pew Center on Global Climate Change* "Balances ensure the market against cost unpredictability and … diminish the exchange expenses of the outflows exchanging market by expanding market liquidity." The Nature Conservancy* *Senators Domenici & Bingaman White Paper 12

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* Why are Offsets Important? " Cap and Trade" Logic: The additions of exchange $10 Will purchase at $9 and spare $1 $8 Will offer at $9 and make $1 Marginal cost of GHG decrease for given "market" Offset Innovation: Capturing Further Efficiencies Will purchase at $5 and spare $5 $10 Will purchase at $5 and spare $3 $8 $5 Will offer at $5 and make $5 Marginal cost of GHG diminishment with balances 13 *Prices are for illustrative purposes just

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Offsets Fill a Crucial Need: Now Critical to Transition to Lower Carbon Economy Bridge the Technology Gap Cheap Coal; IGCC; Geological sequestration Pew Center for Global Climate Change: "[I]t will take decades to move capital supply of force producing plants to low carbon sources, so there is a basic requirement for balances as a method for cutting net emanations moderately in the short and medium term."* "Central Principle" of GHG Policy "… [All segments ought to be required to add to the atmosphere arrangement, whether they take an interest as topped divisions or as balances. The basis for this is environmental change is such a vast issue, to the point that all segments ought to be solicited to be part from the arrangement even source that are assigned as counterbalances." – Center for Clean Air Policy* *Senators Domenici & Bingaman White Paper 14

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Offsets are an Established Policy Option

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Where are Offsets Traded Now? Kyoto Protocol Joint Implementation, Clean Development Mechanism EU Emissions Trading Scheme New South Wales Voluntary Markets PG&E, Ford, British Airways, Nike Climate Trust, CCX 16

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Offsets in State Policy Oregon CO2 Standard Washington Standard Massachusetts Standard California "The center [in Oregon and Washington] is to guarantee top notch, practical balances that give a perpetual and suitable nexus between those in charge of environmental change outflows and the at present accessible answers for decrease and dispose of those discharges after some time. A program like the Climate Trust program ought to be considered for California." Climate Change Action Team Report to the Governor (March 2006) 17

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Offsets in Regional Policy Regional Greenhouse Gas Initiative half of required decreases can be counterbalances "[T]he RGGI balances part is an adaptability instrument that gives a measure of protection against high remittance costs. By permitting a more extensive scope of specialized choices outside the electric influence division to be utilized to accomplish outflows decreases, consistence expenses will be brought down." RGGI Staff Working Group Evaluation of Offsets Supply and Potential Demand 18

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Offsets in Federal Policy Senator Domenici and Bingaman White Paper Extensive exchange of balances Offset Pilot Program McCain-Lieberman Climate Stewardship Act 15% of required diminishments can be from balances Senator Feinstein's Strong Economy and Climate Protection Act Substantial counterbalance arrangements, especially in the horticultural segment 19

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Importance of Offset Quality

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Quality Projects: Selection Criteria Rigorous Internal and External Review Process Primary determination variables Additionality Cost adequacy: $/metric ton of GHG advantage Reliability of innovation Reliability of venture accomplice Other venture choice components include: Monitoring & verification -Replicability Permanence -Expandability Guarantees -Portfolio assorted qualities Location of project -Co-benefits

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Quality Projects: Additionality Projects Must Create New Emissions Benefits Mitigation measures that would not happen without balance extend subsidizing Excludes basic practice, controlled exercises Money making ventures qualified, if different boundaries Types of hindrances balance financing beats Limited or no entrance to capital Investment jump rate No monetary return High saw dangers Resource accessibility Infrastructure 22

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Quality Projects: Quantification Experts Prepare Baseline Studies and M&V Plan Baseline think about Build in expected changes from the same old thing Monitoring & Verification Plan Measurement method Periodic estimation 3 rd party check Funding arrangement Escrow to guarantee adequate M&V financing Results utilized as a part of agreements to confirm conveyance 24

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Ensuring Quality & Mitigating Risk Top Priority for The Climate Trust Due ingenuity amid venture audit Technology and its balance traits Offset supplier Portfolio differences mitigates chance Structuring our agreements to moderate hazard Preserving our capital Reducing the danger of underperformance Defining the responsibility for 25

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Preserving Offset Fund Capital Preservation is a Fiduciary Responsibility Pay after the occasion making the balances Pay for checked tons as they happen Pay for program establishment of measures Pay upon business operation (Engineer's or 3 rd party confirmation) Conditions point of reference to shutting (Rely on senior moneylenders) Security enthusiasm for venture hardware 25

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Reducing Underperformance Risk Ensuring We Get Tons After We Pay Our Money Most contracts incorporate conveyance ensures Full or halfway assurance of amount of tons Takes a few structures Replace tons if a setback happens On influence producing ventures where we pay upon business operation, we require an assurance of the foreseen amount of tons Give cash back Program balances incorporate execution breakthroughs; Trust can de-commit Active part in dealing with our balance contracts Define solutions for underperformance in view of normal reporting 26

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Defining the Ownership of Offsets Establishing Legal Basis for a New Commodity Extensive lawful definitions in regards to balances Developer exchanges all rights to CO 2 decreases Bill of Sale Annual Offset Certificate Third gathering check of the amount of balances conveyed Programmatic balances: Participation understandings make a reasonable proprietorship trail to huge amounts of CO 2 27

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Avoiding Double Counting Critical to Environmental Integrity Seller rejections: Seller can't offer similar tons to another element Seller can't utilize the tons for different purposes No offer of CO 2 in ecological