understanding compliance and market options for transportation fuels
TRANSCRIPT
Dick KempkaVP Business Development
Argus California Carbon and LCFS SummitSession: Fuel Markets- Understanding Compliance and Market Options for
Transportation Fuels
Napa Valley, California - Oct 1 , 2014
Outline• Background on TCT • Defining Offsets• Project types• Supply
Mission: To provide expertise and financing, to accelerate innovative climate solutions
• Non-profit Organization – 1997 • Managed over $27M of carbon funding• Land based Offsets – forestry, agriculture, livestock • 1.7M tons GHG reduced• Compliance program examples
– OR, WA, MT, MA, CA• Voluntary program examples
– NW Natural Smart Energy– Colorado Carbon Fund
• Conservation NGO’s The Nature Conservancy, Ducks Unlimited
• Carbon Management– Expand investment in project types
anticipated in policies– Pilot new methodologies– Effectively aggregate projects– Remove upfront financing and
other barriers– Develop compliance portfolios for
utilities
• Climate Services– Design, finance and implement
forestry and livestock projects– Assist project developers to finance
business models and developer pro forma’s
• Policies & Standards– Share tangible
lessons learned and experience to help improve policies, rules and standards
Carbon Management
Policies & Standards
Climate Services
What We Do
California Cap & Trade
• Statewide limit on GHG emission for covered sources
• Setup compliance Instruments that can be traded
• Potential to link to other Cap & Trade Programs
Compliance Instruments(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.
Role of Offsets in Cap & Trade• Cost Control – reduce compliance cost for
covered entities.• Uncapped Sectors - Promote emissions reductions
in sectors not covered by the C & T program. • Low carbon tech - Encourage the spread of clean,
low carbon technologies outside California• Co-benefits – provide environmental, social and
economic benefits.
How Offset Projects Work• ARB defines allowable project types.• Developer creates a project that fits under
the ARB protocol definition.• Developer submits project for approval
including amount of carbon emissions reduction achieved.
• Third party verifies this as accurate.• ARB issues an offset credit (e.g. ARBOC)• ARBOC can be sold (e.g. covered entity)
http://www.arb.ca.gov/cc/capandtrade/offsets/issuance/issuance.htm
ARB Approved Offset Types • Ozone Depleting Substances (ODS) –
Destruction of refrigerants.• Livestock Methane – manure
digesters.• U.S. Forestry
Improve Forest Management Avoid Conversion
• Urban Forestry
ARB Offset Credits Issued
Source: Argus Media, Sept 2014
Project Type Volume
Ozone Depleting Substance 5,406,692
U.S. Forest 5,997,317
Livestock 594,019
Urban Forestry 0
TOTAL 11,998,028
Top Offset Credit Volume ProjectsCompany Project Type ARBOCs
EOS Climate Inc. ODS 2,490,833
Heartwood Forestland Fund IV Limited Partnership U.S. Forest 2,163,951Environmental Credit Corp. U.S. Forest 1,219,152
Coastal Ridges LLC U.S. Forest 1,128,277
The Yurok Tribe U.S. Forest 836,619National Audubon Society U.S. Forest 570,049Reclamation Technologies U.S. Forest 528,118
The Conservation Fund U.S. Forest 398,476
Camco International Group, Inc. Livestock 375,776Pure Chem Separation LP ODS 356,623
Source: Argus Media, Sept 2014
Offset Supply Shortage?
Source: Stevenson, Sam et al. American Carbon Registry. Compliance Offset Supply Forecast. September 2012
• Over the California market's three compliance periods, total cumulative offset demand could reach just over 200 million tonnes.
• 29% short in its 2013- 2014 pilot phase• Could be 67% of 134M short by third CP 2018-2020
Source: Four Twenty Seven/Thomson Reuters Point Carbon, July 2013
• Aggregated offset use for the entire AB32 C&T regulation equals about 208MT cumulative through 2013-20
• Current projections for offset supply through 2020 range from 64 to 102 Mt cumulative for approved protocols (50-70% short).
• Adding rice cultivation, mine methane and nitrogen management – potential supply of offset credits increases to an estimated 109 to 147 Mt cumulative by 2020 (30-50% short).
Offset Supply Projections
New Project Types• Mine Methane Capture - Adopted 4/25/14 protocol
estimated to generate 30-60 million offsets starting 2015• Rice Cultivation – Anticipated this fall season• Being researched for viability or with promise
– Nitrogen Management– International Avoided Deforestation (REDD)– Avoided Grassland Conversion (ACOGS)– Wetlands Restoration
• ARB closing monitoring concerns over invalidation– Overstating, double counting, out of legal compliance with EHS
laws
Compliance Instruments(Ordered by Value)
• California Carbon Allowances (CCA) - Most valuable because not revocable.
• Golden CCO (GCCO) - ARBOCs backed by CCAs or guaranteed replacement (e.g. cash).
• ARBOCs (aka CCO8s) - ARB issued offsets with 8 year liability, subject to invalidation.
• CCO3s - 3 year liability - CCO8 with a second verification to reduce the invalidation period to 3 years.
Project Stage & Value
Source: Climate Action Reserve & Parhelion
Compliance Pricing
$5
$6
$7
$8
$9
$10
$11
$12
$13
$14
$15
$16
$17
$18
$19
$20
$21
$22
Golden CCOCCO (8 year buyer liability)
Current CCA (auction)ODS CRT & Livestock CRT & Forestry CRT
