Climate Action Reserve ODS Project Protocols

Geneva, SwitzerlandJune 14, 2010

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Background on the Climate Action Reserve

• Non-profit organization, chartered by California state legislation in 2001

– Mission is to encourage voluntary actions to reduce emissions and to have such emissions reductions recognized

• Balances business, government, and environmental interests

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What We Do• Develop High Quality Standards

– Convene stakeholders and lead development of standardized protocols for carbon offset projects

• Manage Independent Third Party Verification

– Training and oversight of independent verification bodies

• Operate a Transparent Registry System

– Maintain registry of approved projects

– Issue and track serialized credits generated by projects

Listed & Registered Projects

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Reserve stats

CRTs registered ~5.2 million (~1 million ODS)

Account holders 325

Projects 350 (3 ODS)

ExchangesCRT futures are traded on: •Chicago Climate Futures Exchange (CCX)•Green Exchange (NYMEX)

Recent prices $5-8 per CRT

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Performance Standards

• Why a performance standard is different

– The hard work is upfront

– Assess industry practice as a whole, rather than individual project activities

• Less subjective determination to qualify

• More certainty in amount of credits

• Lower risk for developers and investors

• Faster project processing

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ODS Project Definition

• All ODS destroyed within a twelve month period by a single project developer at a single destruction facility– May come from a single or multiple sourcesIncludes only gases for which production is completely phased out

• Excludes halons

– Refrigerants• Collection and destruction of ODS refrigerant from residential, commercial

and industrial equipment, systems and appliances, or stockpiles

– Foam• Extraction and destruction of ODS blowing agent from foam; or• Destruction of intact foam sourced from building insulation

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Sources and Destruction

• Acceptable sources– US sources: Must originate from US sources for

destruction in US– Imported sources: Must originate from (one or more)

Article 5 countries for destruction in US• Why only U.S. destruction?

– Role of destruction facility is very important. We only permit destruction at U.S. facilities that are regulated for ODS destruction by U.S. EPA.

• If there were a similar mechanism for overseeing ODS incinerators globally, we would be pleased to collaborate with it.

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Additionality

• Legal requirement test

• Performance standard test: Must exceed a standard of common practice for ODS management

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Performance standard test

• Must exceed a “common practice” standard for managing ODS– US: ODS destruction is not common practice,

so all ODS destruction activities are considered additional

– Article 5 Countries: ODS destruction is not common practice, so all ODS destruction activities are considered additional

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Calculating reductions

• Emission reductions = baseline emissions – project emissions

• Baseline emissions: Sum of all emissions in the baseline scenario over 10 years

• Project emissions: Sum of all emissions in the project over 10 years

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Baseline scenarios

• US– Refrigerants: Recovered and used to charge existing

equipment– Appliance foam: shredded and landfilled– Building demolition foam: landfilled

• Article 5 countries– Virgin stockpiles of refrigerants: used to recharge

existing equipment– Refrigerants from end-of-life equipment: 100% vented– Appliance foam: shredded and landfilled– Building demolition foam: landfilled

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Project emissions

• Sum various sources such as– Transportation of gases for destruction– Losses from extraction of foam– Losses from incomplete destruction– Energy use at destruction facility– Emissions from non-ODS substitutes

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So what does all this mean?

• Destruction of one kg CFC 12– Article 5 source

• Government stockpile: ~10 tonnes CO2e• End of life: ~10.9 tonnes CO2e

– U.S. source• End of life: ~9.58 tonnes CO2e

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Project Examples

• Project Developer: EOS Climate– Partnered with firm that gathers and recycles

U.S. refrigerators– Instead of reuse, CFC-12 is destroyed– To date, issued ~250,000 CRTs

• Project Developer: Coolgas– Ships ODS to US from private Indian

stockpiles for destruction– To date, issued ~650,000 CRTs

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Who are the buyers?

• Large industrial firms that expect to be regulated under state or federal climate legislation.

• Financial firms hoping to buy now and sell to regulated entities later.– Banks, hedge funds, private equity funds

• Pure voluntary buyers

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How does financing work?

• We do not get involved in financial transaction

• Currently, most transactions are through a broker– There are a handful of active CRT brokers– Can be exchange-traded– Common for project developers to pre-sell

some CRTs and get some upfront financing—depends on risk profile

• Helps pay for verification and project costs

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The bottom line today

• We currently accept Article 5 sourced ODS projects for U.S. destruction from:– Government stockpiles;– Equipment end-of-life.

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Going forward

• For destruction elsewhere, we are very interested to work with the Ozone Secretariat and others to develop an oversight mechanism for destruction in Article 5 countries.

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Would a facility be useful?

• In the short-term, voluntary and pre-compliance buyers are generating moderate demand.

• Looking out several years, federal program will have large demand

• Over next 1-3 years, a facility could ramp projects up to scale– Administration would be very simple for

projects registered with the Reserve

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Contact Information

Joel Levin

jlevin@climateactionreserve.org

www.climateactionreserve.org

523 W. 6th Street, Ste. 428Los Angeles, CA 90014

(213) 891-1444