Accessing the US Carbon Market Through Agriculture and Sustainable by jpo51691


									    Accessing the US Carbon Market
        Through Agriculture and
    Sustainable Forest Management

Delta Institute
    About the Delta Institute

    Mission: Implement projects that integrate environmental quality and economic development in the
    Great Lakes Region

    •Pollution Prevention & Energy Efficiency
          •Policy development, technical assistance, green design, implementation financing
    •Brownfield Redevelopment
          •Financing, land assembly, site control, remediation
    •Sustainability & Community Development
          •Sustainable purchasing, organic food systems, environmental training
    •Emissions Trading Markets
          •Creating community benefits through aggregation and trading of carbon offset credits on the
          Chicago Climate Exchange
    About Me

     BS Forestry – Michigan State University
     MS Environmental Law – Vermont Law School

     Work Experience
     Wo k E pe ience
     US Forest Service
       -Mt Hood NF
       -Tongass NF
       -Huron-Manistee NF
       -Southern Research
     Private Industry
       -Rothig Forest Products
global carbon dioxide cycle
global carbon dioxide cycle

Illustration courtesy of
6      Introduction to the U S C b M k
       I    d i         h U.S. Carbon Market

•Chicago Climate Exchange
•Carbon Offset Credits
       What is the Chicago Climate Exchange?

    •Voluntary, private, member-based, cap-and-trade market for the reduction of greenhouse gases
     S lf     l d        k     hl   ll binding          d
    •Self-regulated market with legally b d emission reduction targets
    •Cap is the member’s average annual emissions from 1998-2001
    •Phase 1 Members – 4% reduction by 2006; 2% by 2010
    •Phase 2 Members – 6% by 2010
     Ph       M b          Under   id
    •Phase 3 Members – U d consideration  i

    The Delta Institute is an Associate Member and Registered Aggregator on the Chicago Climate
    •Over 600 Members
          •Ford, Dow Chemical, DTE Energy, DuPont, Eastman Kodak, Waste
          Management, Cargill, International Paper, Michigan State
          University, City of Chicago, State of New Mexico
    •Emission Reduction Results
          •2003 – 32,806,900 mT (9.0%)
          •2004 – 42,711,000 mT (12.1%)
          •2005 – 32,540,200 mT (9.7%)
          •2006 – 20,819,600 mT (5.9%)
     Chicago Climate Exchange Members
    Aerospace & Eq ipment            D         Light Company
                                     Duquesne Li h C
    Rolls-Royce                      Green Mountain Power
    United Technologies              Hoosier Energy Rural Electric   Forest Products
8                                          Cooperative, Inc.
                                     Manitoba Hydro                  Abitibi-Consolidated
    Ford Motor Company               NRG Power Marketing Inc.        Aracruz Celulose S.A.
                                     Puget Sound Energy, Inc.        Arcelor Mittal Florestas Ltda       Retail
    Beverage Manufacturing                                   Inc.
                                     Reliant Energy Services Inc     Cenibra Nipo Brasiliera S.A.
                                                                                p                        Safeway, Inc.
    New Belgium Brewing              TECO Energy, Inc.               International Paper
         Company                                                     Klabin S.A.                         States
                                     Electronics                     Masisa S.A.                         State of Illinois
    Chemicals                        Motorola, Inc.                  MeadWestvaco Corp.                  State of New Mexico
    Dow Corning                      Sony Electronics Inc.           Neenah Paper Incorporated
    DuPont                           Square D/Schneider Electric     Stora Enso North America            Steam Heat
    Rhodia Energy Brasil Ltda              N.A.                      Suzano Papel E Celulose SA          Concord Steam
                                                                     Tembec Industries Inc.                   Corporation
                                                                                                              C      ti
    Coal Mining                      Environmental Services          Temple-Inland Inc
    Jim Walter Resources, Inc.       Atlantic County Utilities                                           Steel
    PinnOak Resources LLC                   Authority                Manufacturing                       Roanoke Electric Steel
                                     Lancaster County Solid Waste    Bayer Corporation                         Corp.
    Commercial Interiors                    Management Authority     Interface, Inc.
    Knoll, Inc.                      Veolia Environmental Services   Ozinga Bros., Inc.                  Technology
    Steelcase Inc.                          North America Corp       Smurfit-Stone
                                                                     S     fit St                        Freescale Semiconductor
                                     Wasatch Integrated Waste                                            IBM
                                            Management Authority     Municipalities                      Intel Corporation
                                     Waste Management, Inc.          City of Aspen                       STMicroelectronics
    King County, Washington
    Miami-Dade County, Florida                                       City of Berkeley
                                     Ethanol Production              City of Boulder                     Transportation
    Sacramento County, California
                                     Corn Plus LLP                   City of Chicago                     Amtrak
    Di    ifi d M
    Diversified Manufacturing
                    f t i                                            City of Oakland                     San Joaquin Regional Rail
                                     Financial Institutions          City of Melbourne, Australia             Commission
    Eastman Kodak Company
                                     Bank of America Corporation     City of Portland
    Electric Power Generation                                                                            University
                                     Food and Agricultural           Petrochemicals                      Hadlow College
    AGL Hydro Partnership                  Products
    Allegheny Energy Inc.                                            Petroflex Industria e Comercio SA   Michigan State University
                                     & Services                                                          University of Idaho
    Alliant Energy                   Agrium U.S. Inc.
    American Electric Power                                          Pharmaceuticals                     University of Iowa
                                     Cargill, Incorporated                                               University of Minnesota
    American Municipal Power-        Monsanto Company                Baxter International, Inc.
           Ohio                                                                                          University of Oklahoma
    Associated Electric                                              Recreation                          Tufts University
           Cooperative, Inc.         Food Processing
                                     Meister Cheese Co. LLC          Aspen Skiing Company
    Avista Corporation
    Central Vermont Public Service   Premium Standard Farms
    DTE Energy Inc                   Smithfield Foods, Inc.
                                                                d                  ns
                                                          Hundred Million Metric ton CO2

                                CCX                                                                                                               540

                           Germany                                                                                                          400

       2003 start
                                 a                                                              300

                      United Kingdom                                       245

                             Poland                                        237

                                    y                                      232

                           Australia                                 174

                              Spain                              171

                             France                             151

           U               GI)
           US NE States (RGG                                      0

                           California                          130

                      Czech Republic                      94

                     The Netherlands
                                   s                      86

                             Greece                  71

                            Belgium                  60

                    New South Wales
                                  s                  56

                             Finland             45

                            Portuga             37

                                   a            33

                            Denmark             31

                            Slovakia            30

                                  y             29
                                                                                                                                                              CCX Compared to Other Markets

                            Sweden              22

                             Ireland            22
                                                                                                                            Live Market

                             Estonia        19
                                                                             Under discussion

                                   a        11
                                                                                                  Market in development

                            Slovenia        9

                              Latvia        4

                         Luxemborg 3
     The CCX in Perspective

     •   CCX Member-wide emissions represent:*
          – 15% of U.S. stationary emission sources
          – 25% of emissions covered under EU ETS

     •   CCX Members represent:*
          – 10% of Fortune 100 Companies
          – 17% of Dow Jones
          – 20% of U.S. power sector

     *As of November 2007
     What are Carbon Credits?

                                          y                  p
      Carbon offsets are a new commodity that has developed as a result of the
     carbon market
          Prevention of future emissions
              Continuous Conservation tillage – limits the release of carbon through
            low impact agricultural practices
            l i        t    i lt l       ti
              Anaerobic manure digesters – capture methane (a powerful
            greenhouse gas), allowing it to be used for energy or flared into CO2,
            a less potent greenhouse gas
              Continuous Grass planting – prevents soil disturbance, while storing
            some CO2
          Reduction of past emissions
              Tree planting – CO2 removed from atmosphere via photosynthesis and
            sequestered within the tree
              Managed Forests – improve carbon sequestration through sustainable
            forest management

      Members can “offset” a ton of emissions by purchasing a ton of credits
     •Members can use offset credits to meet 3% of their 6% target
         Introduction to Agricultural Offset

 •Conservation Tillage
 •Continuous Grass
       Agricultural Offset Opportunities

                                     g (                p )
     1. Continuous Conservation Tillage (no-till or strip-till)   Documentation
           Credited at 0.4 or 0.6 tons per acre per year          • FSA 578
           Not available in Maine                                 • FSA Maps
     2. Continuous Grass Cover                                    • CCC -509 or AD-
           Credited t 1 0 t
           C dit d at 1.0 tons per acre per year, if                 1026
           established after 1/1/99                               • Copy of CRP Contract
     3. Methane Collection (manure digesters)
           Credited at 21 tons per every ton of methane

         No enrollment costs
         Annual credit sales at the market price
         CRP/CREP lands are eligible
     Conservation Tillage Availability
15       Introduction to M
         I    d i              d Forest P
                         Managed F      Program

 •Program Basics
 •Project Eligibility
 •Enrollment Process
 •Inventory Guidance
      Program Basics

      Joint project between the Delta Institute
     & Michigan Dept of Natural Resources
            Landowners earn offset credits by
          sustainably managing existing
      CCX formally released final protocols
     on December 12, 2007
      Contractual agreement to sustainable
     manage f       l d
      Timber harvesting is permitted, but
     landowners do not want to remove more
     carbon through the harvest than is
     sequestered through annual growth
      One year lag between enrollment and
     Project Eligibility

             ,                      g            ,         y      g
     Private, non-industrial working forestlands, actively managed for sustainable timber
     management, wildlife habitat, conservation, etc.
     All forestlands in a single state under same title holder must be enrolled
     Complete forest inventory to establish baseline carbon stock and future carbon
            t ti
     Participation in stewardship certification program
        American Tree Farm System
        Sustainable Forestry Initiative
        Forest Stewardship Council
     Forest Stewardship Plan or other sustainable forest management plan
     Letter of intent to maintain forestland in certification program for at least 15 years
     Annual update to account for changes in carbon stocks
     Annual verification
      Enrollment Process

 1.   Complete enrollment application and contract with CCX approved Aggregator
           Contract lengths vary
 2.   Perform forest inventory to establish carbon baseline
           Emphasis on measuring total growth
           Performed by qualified forester
           Project owners bears the cost
 3.   Model inventory data to establish carbon baseline and gross sequestration
           ‘Grow’ the forest stand to determine baseline carbon stocks and rate of sequestration
           Project owner earns credits for above-ground live, below-ground live and possibly, long-
           lived wood products

 4.                             p            g
      Landowner submits annual update on changes in carbon
           Occurs at the end of the year
           Add or subtract any changes in carbon stocks from
           amount predicted by the model
               Catastrophic events
               Timber harvests
           Result: Net Annual Carbon Sequestration
 5.   Verification
           Independent, 3rd party verifier confirms and validates
           baseline amount and annual net carbon sequestration
           Costs shared by all project owners in enrollment pool,
           proportional to the amount of credits that each project
           owner contributes
           Deduction from sale of credits

 6.                      p
      Verifier submits reports to CCX
           CCX removes reserve pool credits
                Annual, 20% deduction to reduce impact of catastrophic events
                At end of contract period, unused credits are released and sold on market
           CCX discounts the enrollment pool for sampling error and variance
           End Result: Salable carbon credits
 7.   Aggregator sells credits on the Chicago Climate Exchange trading platform with net
      profits returned to project owners
           Aggregation & Data Management Fee
           CCX Trading Fee - $0.20 per ton
           Verification fee – proportional to amount of credits that a landowner contributes to
           the enrollment pool
          Inventory Guidance

     1.    “Qualified” foresters conduct inventory
                State Registered Forester
                SAF Certified Forester
                Member of Association of Consulting
     2.    Variable and fixed radius plots
                Variable radius plot to measure overstory
                Hundredth (1/100) acre plots to measure
                understory vegetation
     3.    CCX requires inventory be done to a 90%
           confidence interval

     Stand Data Requirements                         Plot Data Requirements
                                                     Variable radius, overstory plots
        Stratify property by forest cover type
                                                     •Record species and count of trees using FIA codes
        List site index and site index species for
        each stand                                   •Measure diameter for all trees greater than 4.6”
        Record the approximate age of each           dbh
        stand                                        •Management prescription
        Delineate stands on maps, preferable
        in GIS shapefiles                            Fixed Radius , Understory Plots (1/100 acre)
                                                     •Record species and count of trees using FIA codes
                                                     •Meas re diameter for all trees less than 4.6” dbh
                                                     •Measure                                  4 6”
                                                     •If trees are greater than 1’ ft but less than 4.5’,
                                                     record diameter as 0.1
                                                     •Estimate height in 1 ft increments
23             d forest program details
         managed f    t         d t il

•Contractual Terms and Conditions
•Program Costs
 P       Revenue
•Program R
     Contractual Terms and Conditions

     Contract Term
          Varies by Aggregator – 5 years to 15 years
          Fall enrollments means 2008 baseline – credits earned for net carbon storage
          during 2009, 2010, 2011 and 2012 growing seasons
          Crucial to establish baseline as soon as possible to preserve salability of credits
     Reserve Pool
          CCX requires that 20% of credits each year be placed in a reserve pool to
          protect against catastrophic events
                                             p ,         y
          In the event of wholesale catastrophe, liability is limited to the credits in the
          reserve pool. Will not have to buy credits to account for catastrophic losses

     Losses to timber harvesting
          CCX does not permit reserve pool credits to be used for timber harvesting losses
          If landowner has an carbon deficit due to timber harvesting, future sequestration is
            pp                            y g
          applied to the deficit before anything can be sold
          Landowner loses unsold credits or buys replacement credits
                                                  non compliance
          Reserve pool credits cannot be used to non-compliance
     Letters of intent
          Maintain certification for 15 years
          Managed according to sustainable forest management plan
      Program Costs

 1.    p
      Upfront Costs
          Initial Forest Inventory
               Landowners pay an average of $2 - 10 per acre
          Cost to develop sustainable forest management plan
               Forest Stewardship Program offers cost-share for plan development
          Sustainability certification
 2.   Back-end
      Back end Fees Deducted from Sale of Credits
          Aggregation fee – 10% to 20% depending on Aggregator
          CCX registration and trading fee - $0.20 per ton
          Verification fee
          V ifi i f
                Estimate $5,000 – 10,000 for ENTIRE enrollment pool
                Landowner’s portion of that amount would depend on the size and
                    t ib ti     f th      j t         i th      l
                contributions of other project owners in the pool
                Largest landowner in an enrollment pool = greater share of verification costs
       Program Revenue

      2006 Pilot Participants

      Gross Credits                          201,300

      Harvest                                28,400

      Annual Net Cseq                        172,900

                                                                        To date, all credits sold grossing $435,980
                                                                            Average sales price $3.39 per ton
      Reserve Pool (20%)                     34,600
                                                                         Net Revenue to landowners - $389,097
      Tradable Credits                       138,300
                                                                              Net Revenue per acre - $8.00

                  2008       Gross Revenue       Aggregation       Trading         Net Revenue
     $2 per ton          $       276,576     $      27,685     $   27,658      $       221,261
     $3 per ton          $       414,864     $      41,486     $   27,658      $       345,720
     $4 per ton          $       553,152     $      55,315     $   27,658      $       470,179
     $5 per ton          $       691 440
                                 691,440     $      69,144
                                                    69 144     $   27 658
                                                                   27,658      $       594 638
     $6 per ton          $       829,728     $      82,973     $   27,658      $       719,098
     $7 per ton          $       968,016     $      96,802     $   27,658      $       843,557
          Carbon Policy Implications for Managed

•Previously Proposed Legislation
•Lieberman/Warner Bill
•Future of Carbon Trading
      Previously Proposed Legislation

       g                     g
     Legislation before Congress
      Climate Stewardship & Innovation Act – S.280
      Global Warming Pollution Reduction Act – S.309
      Electric Utility Cap-and-Trade Act – S.317
      Gl b l Warming R d ti A t – S 485
      Global W         i Reduction Act S.485
      Clean Air Planning Act – S.1177
      Clean Air/Climate Change Act of 2007 – S.1168
      Climate Stewardship Act – H.R.620
      Safe Climate Act – H.R.1590 (companion to S. 309)
      America’s Climate and Energy Security Act – S.2191
     America’s Climate & Energy Security Act
     (S 2191)

      •Sponsored by Senator Lieberman (I-CT) & Warner (R-VA) (Substituted by Boxer
      •Targets & Timetables
           •Cut US GHG emissions 19% below current levels by 2020; 71% below current
           levels by 2050
      •Important Provisions
           •A facility’s use of carbon offset credits is capped at 15% of the facility’s compliance
           •Allowed the use of agricultural and forestry offsets (included sustainably managed
                                   g                      y       (                   y      g
           •Allowed credits registered on the Chicago Climate Exchange to be used for
           •Provided $300 billion through 2050 to support agricultural & forestry programs
                       $                 g               pp    g                   yp g
           that cut emissions but don’t qualify as offsets
      •Received 48 ‘Yes’ votes before full Senate, but fell short of the 60 votes
      necessary to overcome filibuster
      •Cap-and-Trade                          Senator s
      •Cap and Trade bills are supported by Senator’s McCain and Obama
     The Future of Carbon Trading

     Chicago Climate Exchange  g
          Scheduled to end in 2010 - CCX members discussing a Phase 3 which may extend
         to 2012 or 2014
          CCX is positioning itself to be the trading platform in a mandatory system
                 ill likely   the        til the     li          k t take ff t
          CCX will lik l fill th gap until th compliance market t k effect
     Dingell-Boucher “Discussion Draft” bill
          Phase in reductions gradually, with more aggressive reductions in future
               6% below 2005 levels by 2020
               44% below 2005 levels by 2030
               80% below 2005 levels by 2050
          Agricultural/Forestry offsets left to the discretion of EPA Administrator
     President elect Obama
          Reduce to 1990 levels by 2020
          Reduce 80% below 1990 levels by 2050
          Emitters would buy nearly all permits
      Forestry Projects and RGGI

                          j          g
      Afforestation Projects are eligible for
            Project must occur on land that has
          been in a non-forested state for at
          l t 10 years
            Promote the restoration of native
          forests by using native tree species
            If trees are to be harvested, must
          obtain certification through ATFS, FSC
          or SFI
            Permanent conservation easement
            Requires direct measurement of trees
                   Inventory to a sample error of
                 +/- 10% at a 95% confidence
contact me

33    Contact Information
                   Todd Parker
                   600 W St Joseph Ste 1G
                   Lansing, MI 48933
                   517 482 8810



To top