climate check canarie workshop march4

The Background to GHG Revenues

Understanding GHG Programs, Accounting Protocols and Rules for Generating GHG Revenues

Presented By:

Tom BaumannCEO ClimateCHECKDirector GHG Management Institute

Presented To:

CANARIE Green ITOttawa WorkshopMarch 4, 2009

ClimateCHECKSET THE STANDARDTM

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Tom Baumann, P.Eng.CEO ClimateCHECK and Director GHG Management Institute

• GHG survey findings → 83.2% believe moderate to high risk of an “Enron” in GHG markets (negligence, lack of credibility)

• Lead Author of ISO 14064-2 GHG Project Standard• Over 300 climate change and clean technology projects

since 1998• Past Chair Canadian Advisory Committee on Climate Change

(ISO 14064)• Chair, IEEE Climate Change Technology Subcommittee• Carbon Disclosure Standards Board• Training SCC, RGGI, UNFCCC (verifier accreditation)

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KEY MARKET METRICS

$2 trillion to $3 trillion – value of carbon markets by 2015$500 billion - Value of low-carbon energy markets by 2050$100 billion - Demand for projects generating GHG emissions credits by 2030$100 billion - Worldwide investment in clean energy by 2009$84 billion - Cumulative net savings from energy efficiency in US by 2012Global carbon market expected to grow 58% in 2008 to $92 billionVoluntary carbon market expected to grow to $5 billion by 2013$57 trillion - Carbon Disclosure Project signatories, 1000s of companies participating, expanding to supply chain accounting

SOURCES: Thomson Reuters, Stern Report, The Climate Group, Deutsche Bank, CDP, Ecosystem Marketplace

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Business Recognizing Climate ChangeOpportunity Bigger than IT

“The need to run climate through your business today is comparable to what running the Internet through your business was a few years ago: an indispensable, and potentially landscape-altering redefinition of how work is done.”Conference Board

“Our way of life will change radically, not only over the next 50 years but over the next 10 years. In my mind, those changes are a bigger business opportunity than the Internet ever was.”Thomson Reuters

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Presentation Overview

GHG Policy Key ToolsGHG Regulations, Programs, RegistriesFacing the ChallengesGHG Management ProcessGHG Standards and ProtocolsGHG Accounting for Inventories (permits)GHG Accounting for Project Reductions (credits)

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GHG Policy Key ToolsCarbon Taxes, Cap and Trade, Offsets

Carbon Taxes (and tax credits)Point of application (producer, consumer)Not economically efficient, but administratively easier

Cap and Trade (closed system of permits/allocations)Allocation formula criticalRegulated entities (25kt, 100kt, etc.)Scope of application (70%+ of economy)

Offset System (open system of credits)Baseline, additionality

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GHG RegulationsRegulated Emission Trading Systems

Examples of emission trading systems include:UNFCCC Kyoto Protocol CDM/JI – Clean Development

Mechanism and Joint ImplementationEU ETS – European Union Emission Trading SchemeAlberta SGER – Alberta’s Specified Gas Emission RegulationsRGGI – Regional Greenhouse Gas Initiative (US NE States)AB 32 – Assembly Bill 32 in CaliforniaWCI – Western Climate Initiative

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GHG Registries

A GHG registry receives GHG reports/data for corporate inventories and GHG reduction projects, even credits or allowances, and compiles into an inventory/database.

Examples of existing GHG registries:California Climate Action Registry (CCAR) – now The

Climate RegistryEnvironmental Resources Trust (ERT) – now The American

Climate RegistryWorld Economic Forum Register (WEF)

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GHG Programs

GHG programs can involve several activities:Baseline of historic GHG emissions and performanceFuture GHG reduction targetsGHG information available to stakeholdersTrading in GHG allowances or credits/offsets

Examples of GHG programs include:Chicago Climate ExchangeUS EPA Climate LeadersUS DOE 1605(b)

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GHG Market ChallengesMacro and Micro GHG markets are fragmented (provincial, national,

standards) GHG commodity generation & transaction is expensive and

time consuming (credits after 2-3 years) Insufficient experts, many new entrants with lack of

knowledge Underperformance of projects (unrealized credits) Insufficient market infrastructure & tools to enable market

fluidity/credibility necessary to transform economy and meet environmental objectives

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Clean Technologies and Climate ChangeTransforming the Economy

Status Quo → Climate Change and Clean Tech have been separate areas of focus

Climate change focusing on regulatory and economic instruments (regulations, carbon taxes, credits, emission trading)

Clean technology focusing on business opportunities, revitalizing industry and the economy, jobs, exports

Align policy and business objectives/actions (top down and bottom up approaches) to accelerate and sustain economic transformation to achieve objectives

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GHG Management ProcessNew Era of Corporate Restructuring

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Time

ROI Strategic Assessment

Execution Plan

Act and Engage Markets

Lead and Set the Standard

Inventory

Management Commitment, SWOT

Analysis, Gap Analysis

Supply Chain Carbon footprint Internal GHG

Management Team

Workshops and Training

Internal Actions

Carbon Offsets Portfolio and Business Unit

Carbon Responsible Products and

Programs

Energy Efficiency, Renewable Energy

GHG Management Systems

Branding, Market Share, Shareholder

Returns Clean

Technologies


GHG Standards and ProtocolsWRI-WBCSD GHG Protocol and ISO 14064

There are currently two “base” standards for accounting and reporting inventory or project GHG emissions:De facto - WRI/WBCSD GHG Protocol De jure – ISO 14064 GHG Standards

These two standards are compatible.The GHG Protocol provides more “how to do it” guidance.ISO is more focused on “what to do” verifiability.

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Overview of GHG Emissions Inventory

GHG emission inventoryquantifies and documents GHG emissions based on

accepted standards and protocolsattributes emissions to a facility, company or other

organizational unit.GHG emission inventory generally is characterized by the

following factors:Geographic area coveredEntities coveredTime period coveredTypes of emission sources/activities covered

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Defining Organizational Boundaries

Organizational boundaries are important to define because organizations are sometimes complicated systems

For example, many companies consist of subsidiaries, joint ventures, franchises

Organizational boundaries establish a consistent method – similar to financial accounting – for accounting for the GHG emissions from all parts of a company.Equity share approachControl approach – financial or operational

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Defining Operational Boundaries

Classify GHG emission sources/activities to define which are included in the GHG emission inventory.

Setting operational boundaries involves:Identifying sources/activities causing GHG emissionsClassifying these as direct or indirect GHG emissions and

assigning the “Scope” for GHG emissions accountingScope 1 (direct – onsite)Scope 2 (indirect – offsite energy emissions – e.g. Power)Scope 3 (indirect – everything else)

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Classifying GHG emissionsDirect and Indirect – Scope 1, 2, 3

Figure Copyright WRI-WBCSD

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Overview of ISO GHG StandardsPart 1 – ISO 14064

Design and Develop Organizational GHG

Inventories

Part 3 – ISO 14064Verification Process

ISO 14065Specifications for

Validation or Verification Bodies

Part 2 – ISO 14064 Design and

Implement GHG Projects

GHG Inventory Documentation

and Reports

GHG Project Documentation

and Reports

Validation and Verification

Process

Level of assurance consistent with needs

of intended user

Conformance with applicable:

• GHG Program(s) – TCR, GHGS, Alberta

• Legislation – federal, state/provincial, local

• Protocols/Standards – WBCSD/WRI GHG Protocol, industry guidance (API, INGAA, IPIECA, etc.), CDM AMs, technical and safety standards/ codes, etc.

Verification of the GHG Assertion

Validation and/or Verification of

the GHG Assertion

Figure Copyright ISO - modified

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Overview of ISO GHG StandardsLife Cycle Framework of ISO 14064-2

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Offsite Emission Sources Affected by the Project

by Economic Changes (e.g. activity shifting or

market transformation, i.e. “leakage”)

Offsite Emission Sources Affected by the Project

by Economic Changes (e.g. activity shifting or

market transformation, i.e. “leakage”)

Onsite Emission Sources Owned/Controlled by the

Project

Onsite Emission Sources Owned/Controlled by the

Project

Offsite Emission Sources Downstream During the

Project Related by Energy or Material Flows (e.g. transportation, product

use)

Offsite Emission Sources Downstream During the

Project Related by Energy or Material Flows (e.g. transportation, product

use)

Offsite Emission Sources Upstream During the

Project Related by Energy or Material Flows (e.g.

raw material extraction, transportation)

Offsite Emission Sources Upstream During the

Project Related by Energy or Material Flows (e.g.

raw material extraction, transportation)

Offsite Emission Sources Upstream Before Project

Starts Related to the Project by Energy or Material Flows (e.g.,

construction, transportation)

Offsite Emission Sources Upstream Before Project

Starts Related to the Project by Energy or Material Flows (e.g.,

construction, transportation)

Offsite Emission Sources Downstream After

Project Ends Related to the Project by Energy or Material Flows (e.g. end

of life, waste management)

Offsite Emission Sources Downstream After

Project Ends Related to the Project by Energy or Material Flows (e.g. end

of life, waste management)


Overview of ISO GHG StandardsBenefits of ISO 14064-2 → Standard for Post Kyoto

Modular “building block” structure of ISO standard more easily accommodates new technology – thereby saving time and costs.

Versatility to bridge initial investment decisions of new technologies and products with more reliable estimates of revenues from GHG markets.

GHG revenues accelerate technology innovation thereby improving environmental and business returns.

LCA approach good for consumers that do not tolerate “green washing”.

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Case Study – Renewable Powered Data CenterCan GHG commodities/benefits and revenues be created?

GHG regulations or voluntary marketsType of GHG commodity to be traded – allowances or

offsets/creditsOwnership claimsGHG standards, protocols and methodologiesAvailability, completeness, accuracy and transparency of

data to support GHG assertionsMarket price of carbon and cost of goods sold

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Case Study – Renewable Powered Data CenterScenarios and Issues

Business as usual electricity consumption from onsite or offsite generation?

Proposed project renewable electricity consumption from onsite or offsite generation?

GHG Regulations?Regulated entity with cap and trade allowances program?Regulated (but voluntary participation) offset/credit system?

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Case Study – Renewable Powered Data CenterWith GHG Regulations (Entity Emissions Regulated)

Onsite Offsite

Onsite Excess permits (if baseline back off, no power export)

Offsite not regulated for entity. Depending on allocation rules, might get “set aside” permits.

Offsite Excess permits (if baseline back off, no power export)

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BASELINE/BASE YEARNon-renewable

PROJECT/ACTION

Renewable


Case Study – Renewable Powered Data CenterWithout GHG Regulations

Onsite Offsite

Onsite Voluntary offsets Voluntary offsets

Offsite More difficult to get voluntary offsets

More difficult to get voluntary offsets

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BASELINE/BASE YEARNon-renewable

PROJECT/ACTION

Renewable


Canarie Pilot – Green IT Zero Carbon Internet

• Complicated GHG scenarios → different types of reductions (whether permits or credits), for example:• Fuel switch (high carbon to low carbon RE, or Ag AD, etc.)• Efficiency improvement (better resource use efficiency

optimization, load balancing, packet switching because data center sized for peak)

• Avoid T&D losses (whether relocating power or IT)

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Canarie Pilot – Green IT Zero Carbon InternetLinking different GHG accounting

• Entity inventory (company, university, government, etc. permits/allowances)

• Project reductions (credits)• Products (labelling)• ISO (Audit) GHG Protocol (Guidance)• 14064-1 → Corporate• 14064-2 → Project• 14064-3• 14067 → Product (new)• RE standards and baseline grid standard (NRCan and IEEE)• EE standard (EVO/IPMVP and IEA)

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