Re Verification Report

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					March 3, 2010

Mr. Jamie Callendar
Engineering Project Manager
Blue Source Canada ULC
Suite 2210, 777 – 8th Avenue SW
Calgary, AB
T2P 3R5


Dear Mr. Callendar:

Re:    Verification Report
       Heffley Creek Biomass Gasification Project in 2006 to 2009
       Heffley Creek, BC
       Project No. 10455 (1.0)

Keystone Environmental Ltd. (Keystone Environmental) is pleased to submit this
Verification Report that contains our deliverables and record of the action we took as
per our work plan that was authorized on January 19, 2010 to conduct a Greenhouse
gas (GHG) verification for the Heffley Creek Biomass Gasification project
(“the Project”), at the Tolko Industries Ltd. integrated plywood mill, located in
Heffley Creek, a district of Kamloops, BC. The objective of the verification is to verify
whether data, controls and processes supporting the emission reduction or removal
calculations as presented in the GHG Offset Project Report (“GHG Report”) and
corresponding emission reductions (“GHG Assertion”) conforms to the requirements
of the CSA Standards GHG CleanProjects™ Registry.

1. BACKGROUND

Tolko Industries Ltd. (Tolko) is a private, Canadian-owned forest products company
based in Vernon, British Columbia that manufactures and markets specialty forest
products to world markets. The Heffley Creek operation is an integrated plywood mill
and is a division of Tolko.

In 2005, Tolko partnered with Nexterra to develop the 38 MMBtu/hr gasification
system that converts approximately 13,000 bone dry tonnes per year of wood
residue into renewable syngas. The syngas generated has been used to displace
natural gas previously used at the mill to dry veneer and to produce hot water for log
conditioning. Nexterra has received financial support and encouragement for this
project from the federal and provincial governments including Natural Resources
Canada, TEAM (Technology Early Action Measures – a federal interdepartmental
technology investment program) and Ethanol BC.
                                                                                                 Verification Report
                                                         Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                                 Heffley Creek, BC


The purpose of the Project was to implement renewable energy generation to support the
business’ goal of facilitating energy self-sufficiency and improving the environmental
performance of the Heffley Creek Mill operations.

The use of biomass in place of fossil fuels achieves a reduction in anthropogenic
GHG emissions, which can be quantified, documented, verified and registered for use under
current voluntary and potentially future compliance GHG offset programs. The sale of verified
emission reductions/removals (VERRs) from the project continues to support the use of
biomass in delivering the thermal energy load for the Heffley Creek Mill in addition to potentially
other divisions. The defensible alternative for the Heffley Creek operation would have been the
use of natural gas to generate an equivalent amount of thermal energy as that generated now
by biomass, which would have had a variety of undesirable environmental impacts, including
increased greenhouse gas emissions. Project details are summarized in the following Table 1.

   Table 1     Project Details

             Project Title        Heffley Creek Biomass Gasification
        Start Date of Project     June 1, 2006
        Expected Lifetime of
                                  15 years until June 1, 2021
              Project
      Legal Land Description      6275 Yellowhead Highway
                                  Kamloops, BC
                                  Canada

                                  Latitude: 50° 50’ 27.24”N
                                  Longitude: 120° 16’ 33.96”W
             Ownership            Tolko Industries Ltd. – Heffley Creek Division
             Project Type         Direct reductions of greenhouse gas (GHG) emissions from
                                  displacing fossil-fuel derived energy through biomass-derived
                                  synthetic fuel gas (syngas) to generate the thermal energy
                                  required to operate a log conditioning unit and a veneer dryer.
                                  Indirect reduction of greenhouse gas (GHG) emissions from
                                  the avoidance of biomass that otherwise would have
                                  undergone anaerobic decomposition in a landfill is omitted in
                                  the scope of the project. All biomass in the baseline period
                                  was burned.
       Types of Greenhouse        Carbon Dioxide (CO2)
         Gases Reduced            Methane (CH4)
                                  Nitrous Oxide (N2O)
      Quantification Protocol     Quantification Protocol for Diversion of Biomass to Energy from
                                  Biomass Combustion Facilities v.1 (Alberta Environment,
                                  September 2007)

        Project Report Title      Greenhouse Gas Reduction Project Report
                                  Heffley Creek Biomass Gasification Project
                                  January 2010




                                                    2                                  Project 10455 / March 2010
                                                                                             Verification Report
                                                     Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                             Heffley Creek, BC



         Reporting Period        June 1, 2006 to December 31, 2009
         Project Proponent       Tolko Industries Ltd.
                                 Address:      P.O. Box 39
                                               Vernon, BC
                                               V1T 6M1
                                 Contact:      Michael Towers, Manager Energy Supply and
                                               Systems
                                 Telephone:    (250) 545-4411
                                 Fax:          (250) 549-5353
                                 E-mail:       Michael.Towers@tolko.com
         Project Developer       Blue Source Canada ULC
                                 Address:      Suite 2210, 777 – 8th Avenue SW
                                               Calgary, AB
                                               T2P 3R5
                                 Contact:      Robert Andrews, President
                                 Telephone:    (403) 262-3026 Ext. 232
                                 Fax:          (403) 269-3024
                                 E-mail:       Roberta@bluesourceCAN.com
         Third Party Verifier    Keystone Environmental Ltd.
                                 Address:      Suite 320, 4400 Dominion Street
                                               Burnaby, BC
                                               V5G 4G3
                                 Contact:      Nelson Lee, M.A.Sc., P. Eng.
                                 Telephone:    (604) 430-0671
                                 Fax:          (604) 430-0672
                                 E-mail:       nlee@keystoneenviro.com


2. VERIFICATION PROGRAM

The purpose of the verification is to provide an independent third party assurance whether the
GHG Assertion presented in the Section 1.9 of the GHG Report is to be considered without
material discrepancy that the VERRs claimed for the Project conforms to the requirements of
the CSA Standards GHG CleanProjects™ Registry.

This verification was conducted in accordance with the requirements and principles of
International Standard ISO 14064-3, Greenhouse gases – Part 3: Specification with guidance
for the validation and verification of greenhouse gas assertions (1st Edition, 2006).

   2.1   Level of Assurance

The verification was conducted to a reasonable level of assurance to satisfy requirements of the
GHG CleanProjects™ Registry.




                                                 3                                 Project 10455 / March 2010
                                                                                               Verification Report
                                                       Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                               Heffley Creek, BC



    2.2   Scope of Work

The scope of work consisted of the verification of the following project information:

•   Project boundaries to establish that ownership issues have been properly dealt with;
•   GHG project, quantification protocol or methodology and analysis, and its baseline
    scenarios;
•   Physical infrastructure, activities, technologies and processes of the GHG project;
•   GHG sources, sinks and/or reservoirs;
•   Types of GHGs; and
•   Time period(s).

    2.3   Verification Criteria

The verification criteria against which the GHG Assertion and supporting evidence were
evaluated include, but are not limited to, the following:

•   Conformance with the requirements and principles of the quantification protocol
    (Quantification Protocol for Diversion of Biomass to Energy from Biomass Combustion
    Facilities v.1 (Alberta Environment, September 2007)), and International Standard
    ISO 14064-2, Greenhouse gases – Part 2: Specification with guidance at the project level
    for quantification, monitoring and reporting of greenhouse gas emission reductions or
    removal enhancements (1st Edition, 2006);
•   The data supporting the GHG calculations have sufficient controls to be considered fair and
    accurate and without material discrepancy;
•   The calculations supporting the GHG Assertion are sufficiently accurate to be considered
    fair and accurate and without material discrepancy;
•   There are no competing claims to the ownership of the GHG Project and the resulting
    VERRs; and
•   Any assumptions or approximations made to bridge data gaps are conservative.


    2.4   Materiality

Materiality is the concept used to identify individual or the aggregation of misstatement,
including errors, omissions or misrepresentations, which could affect the GHG Assertion and
could influence the decisions of the users of the GHG Report. Discrepancies of these
misstatements are evaluated qualitatively and quantitatively.

Qualitative misstatement, which is non-numerical, may include misleading presentation of
circumstance. Qualitative misstatements are determined to be material if these discrepancies
could adversely affect the GHG Assertion at the professional judgement of the Lead Verifier and
Lead Reviewer.




                                                   4                                 Project 10455 / March 2010
                                                                                               Verification Report
                                                       Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                               Heffley Creek, BC


Quantitative misstatements are evaluated individually and in aggregate to determine the
percentage of the discrepancies relative to the GHG Assertion claimed. These discrepancies
are deemed to be material, if they exceed the materiality threshold of 5%.

   2.5   Verification Methodology

The verification was conducted in a four part process to meet the requirements of the
ISO 14064 part 3:

1. Pre-Review arrangements – this involved working with Blue Source Canada representatives
   to gather relevant information related to the project;
2. Planning the Review – this included the preparation of strategic and risk analyses,
   verification and sampling plans, and scheduling times for the site visit;
3. Executing the Review – this included site visit to verify existence of the project, observe
   GHG inventory of sources and sinks, measurement devices and records at the site and to
   interview involved personnel; follow-up, revising draft report and assertions; and
4. Completing the Review and issuing the verification report.

This process was iterative in nature and involved considerable communication with the project
proponent team and subsequent revisions to their calculations, report and plan.

   2.6   Verification Team

To conform to the principle of independence in ISO 14064-3, a Conflict of Interest assessment
was conducted to identify potential threats that may influence the objectivity of the findings and
conclusion of the verification prior to conducting the work. As indicated in the Conflict of Interest
Checklist, real or perceived conflict of interest that may threaten impartiality was not identified.
The Conflict of Interest Checklist is included in Attachment F.

The Verification Team is competent to perform the verification of the GHG project as outlined in
the Statement of Qualification attached in Attachment E. The following is a summary of the
Review Team members and their roles.

Nelson Lee, M.A.Sc., P.Eng.

Mr. Lee’s role was as the Lead Verifier, guiding the team, conducting the on-site verification and
follow-up activities and client liaison.

Dr. Francisco Perelló, Ph.D., P.Eng.

Dr. Perelló’s role was to provide independent internal review of the verification work and – if
appropriate – to sign the verification statement.

Judy Tai, M.A.Sc., P. Eng.

Ms. Tai’s role was to support the Lead Verifier, primarily in research and calculations checks,
and tracking project progress. Her role was as “Lead Verifier-in-Training”, planning and leading
most of the teleconference calls and research and data / calculation checks. She worked under




                                                   5                                 Project 10455 / March 2010
                                                                                             Verification Report
                                                     Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                             Heffley Creek, BC


the direct and continual supervisions of Mr. Lee and all decisions were checked with him before
implementing.

Eva Hung, EIT

Ms. Hung’s role was to support the Lead Verifier, primarily in research and calculations checks.

3. VERIFICATION PROCESS AND FINDINGS

   3.1   Verification Process

The verification was completed between the initial engagement in January 19, 2010 and the
issuance of the Verification Report on March 3, 2010 and included the following activities:

1. Mr. Lee received authorization to proceed from Mr. Arsheel Hirji, on behalf of Blue Source
   Canada ULC.
2. Mr. Lee initiated projects, created electronic folders in accordance with
   Keystone Environmental’s standard procedures for electronic filing including I:\ and
   P:\ drive folders, and personal storage table (pst) format e-mail file in the P:\ drive. At
   Mr. Lee’s request, Keystone Environmental administration assistant also created the
   corresponding paper (hard copy) folders in accordance with Keystone Environmental’s
   standard procedures for paper filing.
3. Held Kick-Off meeting with Ms. Tai – sent schedule e-mail to Review Team, including
   Dr. Perelló.
4. Mr. Lee received files with project and client documents from Mr. Jamie Callendar,
   representative of Blue Source Canada ULC.                Mr. Lee saved the documents on
   I:\ drive, e-mails in P drive and shared with the Verification Team.
5. Mr. Lee reviewed documents and identified areas requiring clarifications or additional
   information. Ms. Tai also reviewed the documents and provided her comments and
   questions to Mr. Lee.
6. Mr. Lee prepared the Verification Review Plan, which includes Strategic Analysis, Risk
   Assessment (SARA), a Verification Plan and the Sampling Plan for the Project prior to the
   on-Site visit. Copies of the SARA and Verification / Sampling Plans are included in
   Attachments A and B, respectively.
7. Mr. Lee conducted the on site visit with Mr. Mike Towers of Tolko for one day to witness the
   project, gather documents, interview knowledgeable/responsible staff members and leave a
   list of extra information requirements. Mr. lee left with a much better understanding of the
   project supporting references.
8. Mr. Lee was able to discuss projects with Mr. Towers throughout the day. Methodologies,
   factors, and data to support these were discussed and Mr. Callendar worked on providing
   responses and editing reports and plans to include accurate and updated descriptions and
   information. Some communication was direct with facility representatives, but Mr. Callendar
   took over as the central coordinator for information requests.
9. Mr. Lee provided the first round of questions and issues to Mr. Towers during the trip.
   Mr. Callendar provided a second round of reports.




                                                 6                                 Project 10455 / March 2010
                                                                                                 Verification Report
                                                         Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                                 Heffley Creek, BC


10. Mr. Lee provided an Issues Log to the clients and held a teleconference to discuss. A copy
    of this first Issues Log is included in Attachment C.
11. The site provided requested data and information and Mr. Callendar revised reports and
    calculations.
12. Mr. Callendar provided drafts to Mr. Lee. These incorporated updated data from the sites.
13. Mr. Lee and Ms. Tai reviewed drafts report and calculations and continued to provide
    questions and comments for edits. This was an iterative process that covered the weeks
    following the site visit.
14. Ms. Tai and Ms Hung provided comments and did checks as requested throughout the
    project under Mr. Lee’s guidance. In particular, Ms. Tai checked emission factors and
    sources for alternative factors, the guidance documents and requirements to ensure the
    reports and our work met the CleanProjects™ Registry requirements, quantification
    protocols to ensure that the Offset plans followed the protocols and that the clients made
    reasonable interpretations.
15. Ms. Tai provided a second Issue Log to Mr. Callendar. The copy of this Issue Log is
    included in Attachment C.
16. Mr. Callendar provided revised calculations using natural gas usage data.
17. Mr. Lee, Ms. Tai and Ms. Hung reviewed calculations and provided comments to
    Mr. Callendar.
18. Mr. Lee and Ms. Tai reviewed facility’s environmental compliance status and project
    ownership status.
19. Mr. Callendar provided revised project report.
20. Mr. Callendar prepared final versions and completed internal reviews and sign-offs.
21. Mr. Lee reviewed government documents with Dr. Perelló.
22. Mr. Lee reviewed client reports and plans with Dr. Perelló.
23. Mr. Lee reviewed Keystone Environmental documents with Dr. Perelló.
24. Dr. Perelló was satisfied on the assumption that the final, signed client documents were
    in order.
25. Final Keystone Environmental documents were prepared for signing, were signed, scanned
    and sent to client.
26. Hard copies of client documents and Keystone Environmental documents sent via courier
    while PDF versions were exchanged by email.
27. Client registered credits on-line.
28. Mr. Lee plans to provide management letter to client with beneficial edits, data and
    information management practice improvements and other beneficial suggestions.
29. Review Team plans to fully document process, photos, data, working papers, etc. – hard
    copy to archives and electronic files to P:\ drive for seven-year retention.
30. Keystone Environmental’s internal auditor plans to audit the process followed against the
    Keystone Environmental internal GHG verification procedure (based on ISO 14064, part 3).

A copy of the verification schedule is attached with this report in Attachment D.




                                                     7                                 Project 10455 / March 2010
             ATTACHMENT A

STRATEGIC ANALYSIS, RISK ASSESSMENT (SARA)
                                                                                                                                      Verification Report
                                                                                              Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                                                                       Hefley Creek, BC



Strategic Analysis & Risk Template
  Company:          Tolko, Hefley Creek                             Lead Verifier:       Nelson Lee
 Date of Plan:      2010 Jan 26                                   Assurance Level:       Review / Limited
 Target Date:       2010 Feb 26                                      Materiality:        5%

         1                            2                      3                       4                                               5
                                                                                                             Planned Verification Response (state
                           Client Awareness of
 Strategic Analysis                                                                                             data or information-think about
                                 the Issue        Control Designed to
  Issue (Clients &                                                        Risk Level and Reasoning                         approach)
                           (incl. perception of    Manage the Issue
       LRQA)
                               materiality)

                                                                                                                  Review against other potentially
  Choice of protocol              Aware                   N/A                        N/A
                                                                                                                       applicable protocols
  Project guidance                                                                                            According to CSA CleanProjects, ISO
                                  Aware                   N/A                        N/A
     documents                                                                                                               14064
                                                                                                             Review against latest versions and BC /
 Choice of emissions                                                                                                     WCI sources
    factors, HHV,                 Aware                   N/A                        N/A
equipment efficiencies                                                                                           Discussed with AENV on related
                                                                                                                            projects
 Offset Plan content,
level of detail, format,                                                                                        Indicated questions, weaknesses,
                                  Aware                   N/A                        N/A
   quality of plans -                                                                                                  edits required by client
    general issues
                                                                                                                     Discuss with client on-site
 Project boundaries               Aware                   N/A                        Med
                                                                                                                        Implications of Merritt
                                                                           High – the GHG reductions
     Production                   Aware                Measured                                              Production records, financial statement
                                                                            are based on production
                                                                           Low-Medium – monitoring
Biomass consumption               Aware           Measured / estimated                                       Weigh scale tickets, estimating methods
                                                                            data for daily operation




                                                                     1                                                       Project 10455 / March 2010
                                                                                                                                          Verification Report
                                                                                                  Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                                                                           Hefley Creek, BC



                                                                                                                 Planned Verification Response (state
                          Client Awareness of
 Strategic Analysis                                                                                                 data or information-think about
                                the Issue            Control Designed to
  Issue (Clients &                                                               Risk Level and Reasoning                      approach)
                          (incl. perception of        Manage the Issue
       LRQA)
                              materiality)

Energy measurement                                                                Medium –data for QA/QC
                                 Aware                     Measured                                              Thermocouples, flow meters, calibration
    from Syngas                                                                         purposes

                                                                                       High – the GHG
                                                                                                                   Discuss issue with client to consider
Rate of natural gas use                                                           calculations are based on
                                 Aware                      Metered                                                 incorporating into calculations for
      in baseline                                                                   historical natural gas
                                                                                                                              comparisons
                                                                                          reductions
Rate of electricity use          Aware                      Metered                         N/A                           N/A according to protocol
                                                                                  Low – Medium – client is         Discuss with client to ensure mutual
  Sources and sinks                                  Table included GHG
                                 Aware                                             aware and has some               understanding. Revise content if
     considered                                    Report to explain rationale
                                                                                        experience                     necessary (e.g., elaborate)
Evaluation of excluded                             Table included to explain      Low – client is aware and
                                 Aware                                                                                   Ensure protocol is followed
    and included                                           rationale                  has experience
  Data sources and
                                                   Table included to explain      Low – Medium – client is          Field review: interviews, document
   quantification                Aware
                                                           rationale             aware and has experience            review and observations - photos
    calculations
 Monitoring Plan and                                                                                                  Want to ensure that control is
  QA/QC as well as                                 Table included to explain      Low – Medium – client is       maintained. Will review procedures and
                                 Aware
recording – storage of                                     rationale             aware and has experience        interview involved staff. Potential calls
       records.                                                                                                              to third parties.
                                                       Partial description       Low – limited GHG impact          Verify compliance status and no HC
     Ash handling                Aware
                                                            available                     from ash                 Surrogate for biomass consumption
                          Aware, but potentially                                    Med – could over or              Functional equivalence could be
 Historical operating
                           not aware of impact          QA/QC system                underestimate heat             impacted if drier and log conditioner
      conditions
                              on materiality                                           transferred                     operated in different fashion




                                                                             2                                                   Project 10455 / March 2010
                                                                    Verification Report
                            Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                     Hefley Creek, BC



Detail here changes
 made to the SARA
      during the
verification process:




                        3                                  Project 10455 / March 2010
        ATTACHMENT B

VERIFICATION PLAN, SAMPLING PLAN
                                                                                                                                           Verification Plan
                                                                                                 Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                                                                         Hefley Creek, BC



Verification Plan
  Company:           Tolko, Hefley Creek, BC                          Lead Verifier:       NPL
 Date of Plan:       2010 Jan 27                                     Assurance Level:      Review / Limited
 Target Date:        2010 Feb 26                                        Materiality:       5%

  1              2                                  3                                       4                                               5
                                                                              Data and Information
 Date      Time        Issue/Process/Procedure/Role/Department               Requirement (evidence                      Lead Verifiers Reasoning
                                                                                 gathering plan)
                                                                     Understand processes and equipment on
 2010
                              Equipment, facilities – tour site       site; measuring equipment, recording                   Basic requirement
Feb 26
                                                                        equipment, gather serial numbers
 2010                    Environmental compliance status – talk to
                                                                     Seek evidence to verify compliance status               Basic requirement
Feb 26                          Environmental coordinator
 2010
                        Review Ownership of equipment / facilities               Contracts, letters                          Basic requirement
Feb 26
 2010                    Baseline flow schematic or other data to       Contracts, letters of measurement
                                                                                                                             Basic requirement
Feb 26                support process changes/dates – Tour process           methodology changes
                                                                                                                           Basis for baseline and
 2010                                                                   Metering systems, calibration, wood
                           Production rate – fuel feed to gasifier                                                         functional equivalence
Feb 26                                                                   waste quality and characteristics
                                                                                                                                 comparison
                                                                      Scales, numbers, accuracy, calibration
 2010                   Production data – biomass estimates, weigh                                                    For establishing baseline and
                                                                       etc Related production information;
Feb 26                              scales, truck tickets                                                              project production intensity
                                                                         correlated to sales / Blue Book
                                                                     Downloaded information and transmission
 2010                    Quantity of energy – thermocouples, flow
                                                                        methods, calibration records and
Feb 26                                    meters
                                                                                   procedure




                                                                        1                                                       Project 10455 / March 2010
                                                                                                                                          Verification Plan
                                                                                                Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                                                                        Hefley Creek, BC



                                                                             Data and Information
 Date      Time      Issue/Process/Procedure/Role/Department                Requirement (evidence                      Lead Verifiers Reasoning
                                                                                gathering plan)
                                                                        Verify meter numbers; accuracy,                Demonstrates reduction of
 2010                                                                                                                    natural gas as a fuel
                          Gas meters and gas transportation            calibration etc. for space heating if
Feb 26
                                                                                     available                           Source of relevant HHV
 2010                                                                Monthly records, electronic download,             Provide comparison of heat
                            Gas data from baseline years
Feb 26                                                                             archiving                                  equivalence
 2010                  Data management and record keeping /                                                              Robustness of system,
                                                                   Data management systems, records, files
Feb 26                             checking                                                                                transparency, etc.


Verification Plan Template

ANSWER THE FOLLOWING QUESTIONS & PROVIDE JUSTIFICATIONS FOR YOUR ANSWERS

Are the assessor days contracted for the remaining process analysis sufficient? If not please indicate additional timing required.
yes
Is the competence of the assigned verification team appropriate?
yes
Do you need a technical expert member of the team? If so please state expertise required.
no
Will the verification plan and client commitment allow Keystone to meet the target verification date?
yes




                                                                      2                                                        Project 10455 / March 2010
                                                                                                                                              Verification Plan
                                                                                                    Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                                                                            Hefley Creek, BC




                        Decided that production of logs is an audited number and not critical to the calculations.
Detail here changes
  made to the plan      Hog ratio is determined by hog sold divided by log production in 2004 and 2005, average is applied to remaining years.
      during the        Hog to gasifiers is hog produced minus hog sold (quite variable because of inventory).
verification process:
                        Biomass numbers only used to support energy estimates, therefore did not spend much more time to seek extra data.




                                                                           3                                                       Project 10455 / March 2010
ATTACHMENT C

 ISSUES LOGS
                                                                                                                                                Issues Log
                                                                                                    Heffley Creek Biomass Gasification Project in 2006 - 2009
                                                                                                                                            Hefley Creek, BC


Issues Log – Hefley Creek GHG Offset Verification
February 8, 2010

  #                  Issue                                    Action Required                                  Consequence If Not Remedied
   1.    Accounting for biomass GHG         Revise GHG calculation methodology to include biomass           Potential material issue due to the
        emissions in methodology            GHG emissions.                                                  exclusion of biomass GHG emissions

   2.   Biomass            quantification   Provide sufficient records of total wood waste generated,       Potential material issue due to
        data/records                        wood waste “sold” for net wood waste to Nexterra system         inaccuracies in determining biomass
                                            for 2006 to 2009.                                               GHG emissions

   3.   Scale calibration records for at    Provide records for each calibration for at least the project   Lack confidence in production /
        least project period                period.                                                         biomass quantities that are potentially
                                                                                                            material.

   4.   GHG Calculator to be based on       Instead of one value for each year, use the values provided     Potential material inaccuracy                 in
        actual HHV from Terasen Gas         by Terasen Gas – at least monthly weighted average (or          estimating emissions reductions
                                            daily as provided by Terasen)

   5.   Calculation methods used in the     Provide the calculation methodology that would allow us to      Cannot verify GHG reductions – cannot
        data logger / historian for         reproduce the MMBtu/hr values determined in the                 issue Verification Statement or strongly
        calculating energy transfer         spreadsheets.                                                   worded qualified Statement.

   6.   Nexterra energy report              Provide formulae used by Nexterra to quantify energy in         Qualified Verification Statement
                                            their 2008 reports

   7.   Intermediate calculations from      Provide intermediate calculations and walk through the          Time delay for us to independently
        raw data to GHG calculator          process with Judy and Eva by telephone/webinar.                 recreate the intermediate calculations
        values for each of the three                                                                        and potential erroneous conclusions
        quantification methods used                                                                         reached that could effect the wording
                                                                                                            of the Verification Statement.

   8.   Accuracy and calibration records    Conversation with Head Electrician and provide available        Potential material uncertainty leading
        for thermal couples                 information about the thermocouples: manufacturer, model        to qualified Verification Statement.
                                            #s, accuracy, recommended calibration frequency,
                                            maintenance procedure and logs, calibration records etc.




                                                                          1                                                      Project 10455 / March 2010
                                                                                                                                               Issues Log
                                                                                                   Heffley Creek Biomass Gasification Project in 2006 - 2009
                                                                                                                                           Hefley Creek, BC



#                  Issue                                         Action Required                               Consequence If Not Remedied
 9.   Gaps in thermal data                Propose methodology with data to support claims                  Overly conservative GHG reduction
                                          (alternatively, if gaps cannot be “filled” and the decision is   estimates
                                          to claim zero credits during these periods, flag this
                                          prominently in the Executive Summary that this very
                                          conservative approach was taken)

 10. Alternate method to quantify         Invoiced natural gas data from 2003 to 2008 – Dave Bryant        Challenging to determine how accurate
     GHG      emissions      reductions   and Mike Towers provided 2009 data. Something of similar         the estimates are using thermal energy
     required (historical database)       content/format.                                                  leading to a qualified Verification
                                                                                                           Statement.

 11. Energy      conversion       used    The difference is merely 0.04%, but the CSA factor may be        Immaterial
     (1.05506 GJ/MMBtu) is in             more suitable for the purpose of conservativeness (since
     accordance        to      ISO31-4.   it's lower) and consistent with the CSA registry. CSA
     However, it's slightly higher than   website below:
     the energy conversion factor         http://www.ghgregistries.ca/cleanprojects/emission_estimat
     (~1.05466 GJ/MMBtu) listed on        ion_resources_e.cfm
     the CSA website.

 12. Report                               Content to be revised to address above issues.                   Qualified Verification Statement




                                                                         2                                                      Project 10455 / March 2010
                                                                                                                                             Issues Log
                                                                                             Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                                                                     Hefley Creek, BC



Issues Log – Hefley Creek GHG Offset Verification
February 18, 2010

  #                  Issue                                  Action Required                               Consequence If Not Remedied
       Natural gas original invoices   Provide records of natural gas invoices for baseline and       Potential material inaccuracy in
  1.
       from Terasen Gas.               project periods.                                               estimating emissions reductions
       Production data calculations.   Confirm production data. Provide supporting documents          Potential material inaccuracy in
  2.   Source of production data.      such as accounting annul reports on production data for        estimating emissions reductions
                                       baseline and project periods.
       Production weigh scale          Provide records of maintenance, calibrations,                  Lack confidence in production
  3.   maintenance records.            Measurement Canada certification etc. for baseline and         quantities that are potentially material.
                                       project periods
       Deviations from the proposed    Identify deviations from the proposed protocol and provide     Relevance and transparency issues.
  4.
       protocol.                       explanation in the report.
       Emission factors.               Update emission factors used based on the latest version       Accuracy issue.
  5.
                                       of the National Inventory Report.
       Report and calculators          Content to be revised to address above issues.                 Qualified Verification Statement
  6.




                                                                     1                                                   Project 10455 / February 2010
  ATTACHMENT D

VERIFICATION SCHEDULE
                                                                                                                             Verification Report
                                                                                      Heffley Creek Biomass Gasification Project in 2006 – 2009
                                                                                                               Heffley Creek, British Columbia


Verification Schedule

       Date                                                         Activities
January 19, 2010 to   Keystone Environmental Ltd. received authorization to proceed. Mr. Lee initiated project 10455 00010 on
January 29, 2010      January 19, 2010.

                      Mr. Lee previously arranged the site visit and briefed Ms. Tai and Dr. Perelló about the expected start of
                      the project.
January 29, 2010      Prior to the site visit Mr. Lee prepared the following documents based on documentation provided by
                      Blue Source and forwarded the draft Verification Review Plan to Blue Source:
                           Statement of qualifications;
                           Conflict of interest;
                           Draft verification statement;
                           Strategic analysis;
                           Risk analysis (inherent, control and detection risk evaluation);
                           Verification plan; and
                           Sampling plan.
February 1 to 2,      Mr. Lee travelled to Kamloops on February 1, 2010 and arrived at Tolko Heffley Creek plywood mill on
2010                  February 2, 2010. Mr. Lee conducted site visit from 9:00 AM to 2:00 PM.

                      Mr. Lee held a discussion with:
                             Mr. Dave Bryant, Controller, Heffley Creek Division;
                             Mr. Phil Bean, Green End Superintendent, Heffley Creek Division, and
                             Mr. Mike Towers, Manager - Energy Supply and Systems, Tolko Corporate Office.

                      Mr. Towers and Mr. Bryant provided the afore-referenced records of production, woodwaste and natural gas
                      data in excel format. Some calibration and related records are pending and Blue Book pages and final
                      GHG calculator are expected in mid-February 2010.
                      Mr. Lee toured the on-site operation and gasification system.




                                                                  1                                                 Project 10455 / March 2010
                                                                                                                                Verification Report
                                                                                         Heffley Creek Biomass Gasification Project in 2006 – 2009
                                                                                                                  Heffley Creek, British Columbia



       Date                                                              Activities
February 10, 2010      Mr. Lee prepared an Issues Log and checked the SARA, VP and Sampling Plan plus Ms. Tai’s comments.
                       Ms. Tai e-mailed to the client on February 10, 2010.
February 16, 2010      Ms. Tai received revised version of calculator and requested documentation from Mr. Jamie Callendar
                       Ms. Tai began to draft report based on CleanProjects™ Registry Verification template.
February 18, 2010      Ms. Tai prepared the second Issues Log and forwarded the document to the client on February 18, 2010.

February 22, 2010 to   Ms. Tai received revised version of calculator and requested documentation from Mr. Jamie Callendar.
February 26, 2010
March 1, 2010          Ms. Tai received the final version of GHG calculation and final project report from Mr. Jamie Callendar,
                       along with the draft Notice of Creation.
                       Ms. Tai completed her review of Verification Report and related documentation.

March 2, 2010          Ms. Debbie Christie, Keystone Environmental’s Office Administrator, formatted the draft Verification Report.
                       Subsequently, Dr. Perelló reviewed the draft Verification Report.
March 3, 2010          Ms. Tai received the signed Notice of Creation from Mr. Jamie Callendar
                       Ms. Tai edited the Verification Report according to Dr. Perelló‘s comments.
                       Final Verification Report printed by Keystone Environmental’s Administration Team and signed by
                       Dr. Perelló and Mr. Lee.




                                                                  2                                                    Project 10455 / March 2010
     ATTACHMENT E

STATEMENT OF QUALIFICATIONS
March 3, 2010

Mr. Jamie Callendar
Engineering Project Manager
Blue Source Canada ULC
2210 - 777 8th Avenue, SW
Calgary, AB
T2P 3R5


Via e-mail: jamiec@bluesourcecan.com


Dear Mr. Callendar:

Re:      Statement of Qualification
         Heffley Creek Biomass Gasification Project in 2006 to 2009
         Heffley Creek, BC
         Project No. 10455 (1.0)

Keystone Environmental Ltd. (Keystone Environmental) is pleased to submit this
Statement of Qualification (SoQ) to Blue Source Canada ULC and appreciate the
opportunity in providing the service regarding this project

Statement of Qualification

The Review Team has adequate areas of knowledge and experience:

•     Greenhouse gas offset system including:
         The legal rules under which the review is being undertaken (e.g., the
         parameters of any legal documents or contracts agreed between
         Alberta Environment and the Project Developer).
         Any specific principles or requirements of the relevant standards or of
         Alberta Environment’s Regulations that fall within the scope of the Review.
         The GHG quantification protocols to be used.
•     Greenhouse gas science including:
         The processes that generate GHG emissions and removals and the technical
         issues associated with their quantification, monitoring and reporting.
         The sources and types of GHG sources and sinks in the Project scope.
                                                                                      Statement of Qualification
                                                      Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                              Hefley Creek, BC



•   Data assurance methodologies including:
       Concepts of assuring data and information, including roles and responsibilities, level of
       assurance, materiality, and review criteria.
       Process of assuring data and information, including review planning, data sampling, risk
       assessment methodologies, uncertainty assessment techniques, and sensitivity
       analysis.
       Application of data and information assurance to GHG reviews.
       The activities required to identify failures in GHG reporting systems and their impact on
       the GHG project's GHG assertion.
       The types of verification statements, including acceptable reservations in the statement.

•   Science-related and/or industry expertise including:
       Technical competence in the industry, sector and the specific operations of the project
       developer.
       An understanding of the GHG project and its baseline conditions.
       GHG emission or removal quantification, monitoring and reporting methodologies used,
       including inherent uncertainties in the quantification process (e.g., measurements and
       calculations.).
       An understanding of the functional equivalence between the comparator (e.g., legislated
       cap, base year, baseline, etc.) and the projects emissions and removals.

In addition, the Lead Verifier, Mr. Nelson Lee, M.A.Sc., P.Eng., is an EMS Auditor, certified by
the International Register of Certificated Auditors (IRCA).

Mr. Nelson Lee, M.A.Sc., P.Eng., Team Lead and Chief Auditor has completed successful
verification projects, on time and on budget, for submission to Alberta Environment. Nelson
specializes in environmental and sustainability strategy and brings over twenty years of
international experience to projects. He is a certified environmental management auditor
qualified to perform ISO 14001, OHSAS 18001 and ISO 14064 Green House Gas Verification
and Validation assessments. He has a Master’s degree in Environmental Engineering and is
registered as a professional engineer in Alberta and British Columbia.

Nelson has focused on verification work after investing considerable time in specialized training
in sustainability and Green House Gas verification and validation. In 2009, Nelson completed
five Greenhouse Gas Offset project verifications that adhered to ISO 14064; part 3 resulting in
over two million dollars revenue for carbon credits for his clients.

Nelson has completed the following courses related to Sustainability:

•   Stanford Graduate School of Business Executive Program in Business Strategies for
    Environmental Sustainability;
•   Environment Canada Green House Gas Verification and Validation course;




                                                  2                                Project 10455 / March 2010
                                                                                     Statement of Qualification
                                                     Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                             Hefley Creek, BC



•   LRQA Green House Gas Data and Information Verification Assessments, Levels 1 and 2;
    and
•   BCIT Sustainable Urban Development SUST # 7100.

Francisco A. Perelló, PhD, P.Eng., Senior Peer Review, leads the Quality Assurance and
Quality Control on Keystone Environmental’s GHG Verification and Validation services,
GHG Emissions Inventories and Reduction services, and is responsible for developing
long-term energy and emission strategies for many industrial processes and
regional economies.

Judy Tai, P.Eng., Project Engineer, has been a member of the verification team for
GHG offset projects related to alternative energy and energy efficiency in Alberta. She has also
completed the quantification and reporting for Keystone Environmental’s Corporate Greenhouse
Gas (GHG) inventory, and is involved in GHG inventory review for the pulp and paper industry.
She has led and managed NPRI reporting for the last three years for the forest industry. She is
also the project manager and field lead for a various air quality and wastewater sampling and
monitoring projects.

Eva Hung, EIT, Project Technician, has been a member of the verification team for
GHG offset projects related to alternative energy and energy efficiency in Alberta. She has also
completed the quantification and reporting for Keystone Environmental’s Corporate Greenhouse
Gas (GHG) inventory, and is involved in GHG inventory review for the pulp and paper industry.
She has completed CSA’s ISO 14064:2006 – part 1 course and is a Certified Greenhouse Gas
Inventory Quantifier (GHG-IQ) under CSA Standards Personnel Certification Program.

Our team has completed five verifications of GHG reduction projects in Alberta that have now
been completed:

•   Two projects involved reducing natural gas consumption through the use of biomass for
    energy at sawmills;
•   Two projects related to GHG reductions from energy efficiency (process) at a pulp and
    paper mill and a pulp mill; and
•   One related to GHG reductions through the use of biomass energy for combined heat and
    power at a sawmill.

All five projects have now been uploaded to the Alberta Climate Registry. The projects we
verified are registered at the following website:

                      http://www.carbonoffsetsolutions.ca/aeor/index.php

We are currently verifying these projects for the 2009 year emissions.




                                                 3                                Project 10455 / March 2010
       ATTACHMENT F

CONFLICT OF INTEREST CHECKLIST
March 3, 2010

Mr. Jamie Callendar
Engineering Project Manager
Blue Source Canada ULC
2210 - 777 8th Avenue, SW
Calgary, AB
T2P 3R5

Via e-mail: jamiec@bluesourcecan.com


Dear Mr. Callendar:

Re:    Conflict of Interest Checklist
       Heffley Creek Biomass Gasification Project in 2006 to 2009
       Hefley Creek, BC
       Our File No. 10455/1.0

Keystone Environmental Ltd. (Keystone Environmental) is pleased to submit this
checklist to Blue Source Canada ULC and appreciate the opportunity in providing the
service regarding this project.

Conflict of Interest Checklist

Please note that a signed original Conflict of Interest Checklist (not a copy) must be
submitted along with Project information in any Offsets used for Compliance in the
Alberta system.


                                  Question                                       Yes   No
 1. Can the verifying organization or the verification team members
    directly benefit from a financial interest in the Project Developer or the
    Project Developer’s Project?
 For example:
 • Owning shares of the Project Developer;
 • Having a close business relationship with the Project Developer;
 • Contingent fees relating to the results of the engagement;
 • Potential employment with the Project Developer; or
 • Undue concern about the possibility of losing the verification or other
     fees from the Project Developer.
                                                                                       Conflict of Interest Checklist
                                                         Heffley Creek Biomass Gasification Project in 2006 to 2009
                                                                                                   Hefley Creek, BC




                                      Question                                                     Yes       No
2. Can the verifying organization or verification team members be in a position of
   assessing their own work?
For example:
• Involvement of the verification organization in the compilation of the data
    contained in the GHG assertion.
• Involvement of the verification organization in the development of a quantification
    protocol other than protocol recognized or recommended by the regulatory
    authority.
• A verification organization member performing non-verification services that
    directly impinge on the client’s GHG assertion, such as implementing the GHG
    data management system, or having performed validation services on the project
    being reviewed;
• A member of the verification engagement team having previously been a GHG
    data compiler of the Project Developer or who was employed by the Project
    Developer in a position to exert direct and significant influence over the Project
    Developer's GHG assertion being verified.
3. Does the verifying organization or a member of the verification team, or a person
   in the chain of command for the verification, promote or be perceived to promote,
   a Project Developer's position or opinion to the point that objectivity may, or may
   be perceived to be, compromised?
For example:
• Dealing in, or being a promoter of, GHG credits on behalf of a Project Developer;
    or
• Acting as an advocate on behalf of the Project Developer in litigation or in
    resolving disputes with third parties.
4. Is one or more of the verification team too sympathetic to the Project Developer's
   interests by virtue of a close relationship with a Project Developer, its directors,
   officer or employees?
For example:
• A person on the verification team has a close personal relationship with a person
    who is in a senior GHG compilation role at the Project Developer; or
• The verification team or a person of influence on the verification team has
    accepted significant gifts or hospitality from the Project Developer.
5. Is a member of the verification team or a person in the chain of command is
   deterred from acting objectively and exercising professional scepticism by threats,
   actual or perceived, from the directors, officers or employees of the Project
   Developer.
For example:
• The threat of being replaced as a third party verifier due to a disagreement with
    the application of an GHG quantification protocol;
• Fees from the Project Developer represent a large percentage of the overall
    revenues of the verifying organization
• The application of pressure to inappropriately reduce the extent of work performed
    in order to reduce or limit fees; or
• Threats of litigation from the Project Developer.




                                                     2                                 Project 10455 / March 2010
    ATTACHMENT G

STATEMENT OF VERIFICATION
March 3, 2010

Mr. Jamie Callendar
Engineering Project Manager
Blue Source Canada ULC
Suite 2210, 777 – 8th Avenue SW
Calgary, AB
T2P 3R5


Dear Mr. Callendar:

Re:     Verification Statement
        Heffley Creek Biomass Gasification Project in 2006 to 2009
        Heffley Creek, BC
        Project No. 10455 (1.0)

Keystone Environmental Ltd. (Keystone Environmental) is pleased to submit this
Verification Statement to Blue Source Canada ULC (“Blue Source”) and appreciate
the opportunity in providing the verification service for the Heffley Creek Biomass
Gasification project (“the Project”), at the Tolko Industries Ltd. (Tolko) integrated
plywood mill, located in Heffley Creek, a district of Kamloops, British Columbia.

Scope

We have reviewed the assertion of GHG emission reductions (“GHG Assertion”)
presented in the report titled ”Greenhouse Gas Offset Project Report – Heffley Creek
Biomass Gasification Project” prepared by Blue Source Canada ULC, dated March
3, 2010, and supporting documentation for the period from June 1, 2006 to
December 31, 2009. The GHG Assertion is summarized as follows:


                        CO2             CH4              N20              Total
   Vintage Year   (tonnes CO2 e)   (tonnes CO2 e)   (tonnes CO2 e)   (tonnes CO2 e)
       2006            4,904            150              250              5,304
        2007           9,556            294              487            10,337
        2008           9,868            303              503            10,674
        2009          10,013            308              511            10,832


Blue Source is responsible for the preparation and presentation of the information
within the report. Our responsibility is to express a conclusion as to whether the
GHG Assertion is considered to be fair and accurate without material discrepancy
conforming to requirements of the CSA Standards GHG CleanProjects™ Registry.