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Climate Change Uncertainties Opportunity for Business Innovation? Possibilities of Offsetting Carbon March 27, 2008 George F. Hoguet Director of Product Marketing. - PowerPoint PPT Presentation
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Climate Change UncertaintiesClimate Change UncertaintiesOpportunity for Business Innovation?Opportunity for Business Innovation?
Possibilities of Offsetting CarbonPossibilities of Offsetting CarbonMarch 27, 2008March 27, 2008
George F. HoguetGeorge F. HoguetDirector of Product MarketingDirector of Product Marketing
““Climate change is a real problem. Climate change is a real problem. ... If ... If we do business as usual ... by the year we do business as usual ... by the year 2030 we will hit the [amount greenhouse 2030 we will hit the [amount greenhouse gas emissions] that scientists say is the gas emissions] that scientists say is the threshold of catastrophic climate threshold of catastrophic climate change change ... which means we have to get ... which means we have to get going now.going now.””
Ray AndersonRay AndersonFounder & Chairman, Interface, Inc. Founder & Chairman, Interface, Inc.
World GHG Emissions Reduction Scenario60% Reduction from World 1990 Levels by 2050
World GHG Emissions Reduction Scenario60% Reduction from World 1990 Levels by 2050
19801980 20002000 20202020 20402040 2100210020602060 20802080
Annex IAnnex I
Non-Annex INon-Annex I
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-100%-100%
-80%-80%
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+37%+37%
-60%-60%
-40%-40%
-20%-20%
+20%+20%
19901990
3.33.3
16.516.5
13.213.2
10.010.0
6.76.7
3.33.3
0.00.0
20252025
2.22.2
KyotoKyoto
After John Byrne et al (2004)“Reclaiming the atmospheric commons: Beyond Kyoto.”After John Byrne et al (2004)“Reclaiming the atmospheric commons: Beyond Kyoto.”
Center for Energy and Environmental PolicyCenter for Energy and Environmental Policy
Legislation Is Clearly Needed
US Market Is EvolvingUS Market Is Evolving Compliance coming as RPS and COCompliance coming as RPS and CO22
cap – Utilities. Heavy industry later.cap – Utilities. Heavy industry later. Voluntary green power and carbon Voluntary green power and carbon
offset market for consumers and offset market for consumers and other businesses growing at 100+%other businesses growing at 100+%
Starting point is a GHG Inventory – Starting point is a GHG Inventory – determining Carbon Footprintdetermining Carbon Footprint
Sources of Carbon Footprint
Mitigations
Digesters Biofuels Efficiency– Process Consolidate New Systems “Beano” Go Local Solar Co-Generation Biofuels Efficiency
Ag Methane Fuels Electricity – Heating Fuels Refrigeration
Yogurt
“ Offsets are designed to ensure that emissions do not continue to rise. They do not, however, decrease emissions, which is essential to addressing climate change drivers.
When offsets are coupled with corporate efforts to concurrently decrease total emissions, they can become an essential part of corporate climate strategy.”
Offsetting Emissions: A Business Brief on the Voluntary Carbon MarketBusiness for Social Responsibility December 2006
Do Offsets Have A Place?
GHG Protocol – Scopes of Emissions
Corporate GHG reduction or Green Power commitment
- GPP, Climate Leaders, CCX, GPMDG
Stakeholder Relations - Employees (Timberland, Mohawk Paper) - Customers (Aveda, ClifBar, Stonyfield, GMCR)
Brand Identity (Interface, ClifBar, Ben & Jerry’s,
Stonyfield, GMCR)
STRATEGIC
VALUE
Regulatory Requirement
- EU/CA/RPS
Offsets in Business
Gaining Carbon Market Experience
Enhance Reduction Project ROI vs Offset Costs
U.S. Is Mostly Voluntary Today
VERsERsPERs
Global Compliance Global Voluntary Market
$29.9 B (USD) $91 MM (USD) 2006
Source: State of the Voluntary Carbon Market Ecosystems Marketplace
OTC
13.4 MtCO2-e
10.3 MtCO2-e
U.S. = 68%
CERs – CDM ProjectsERUs – JI ProjectsEUAs - EuropeRGGI – US NortheastAB32 – US CaliforniaNGACs - Australia
Source: State of the Voluntary Carbon Market Ecosystems Marketplace
A Renewable Project May Have RECs and GHG Reductions:
RECs – Renewable Energy Credits – The rights to claim the environmental benefits and marketing rights from a certain quantity (kWh) of renewable electricity produced.
RECs Green power claims
Direct CO2 Reductionse.g. reduced onsite fugitive emissions
[methane abatement]
Direct CO2 Reductionse.g. waste heat recovery
reduces fossil fuel use
What Is a CO2 Offset?
An offset represents an action,
beyond business as usual, that
causes a reduction or the sequestration of CO2
usually via funding of some type of project
Offsets are “Direct” or “Indirect”
“Direct” means that the reductions occur within the project boundary
“Indirect” means that the reductions occur outside the project boundary
Engine-generator burns methane biogas from the digester, and runs round-the-clock. Most systems provide 2x farm needs.
Farm Digesters Produce Methane Gas from Manure
Manure is digested in a closed tank that captures methane gas. Digestion stabilizes the manure, eliminates odor and facilitates spreading for better absorption by crops.
Schrack Farm - LogantonSchrack Farm - Loganton
650 Milkers, 150 heifers will fuel a 165 kW system producing - 1000 MWh/yr
1.RECs CO2 reduction ~ 640 tons/yr
2.Fuel CO2 reduction ~ 105 tons/yr
3.Avoided Lagoon methane ~ 2237 tons CO2e/yr of GHG offsets
Assuming all paid as 20-year, up-front = 15 % of project cost
Type of renewable sourceType of renewable source Consumer and business preference Consumer and business preference
for wind and solar. for wind and solar. Where the source is locatedWhere the source is located
Even for ‘global’ warming offsets, a Even for ‘global’ warming offsets, a project closer to home is more project closer to home is more attractiveattractive
Who owns the source, and are there Who owns the source, and are there social benefitssocial benefits Extra value for non-utility projects, Extra value for non-utility projects,
with local economic benefits such as with local economic benefits such as not-for-profit, farmer and tribal-ownednot-for-profit, farmer and tribal-owned
What Does the Voluntary What Does the Voluntary Market Value?Market Value?
Offsetting Emissions: A Business Brief on the Voluntary Carbon MarketBusiness for Social Responsibility December 2006
Important Quality - AdditionalityImportant Quality - Additionality
Are the REC/offset project revenues Are the REC/offset project revenues needed?needed? Is the project beyond “business as usual” – Is the project beyond “business as usual” –
what is the baseline? what is the baseline? Is the long-term sale of RECs/offsets helpful Is the long-term sale of RECs/offsets helpful
or critical to proceeding with construction?or critical to proceeding with construction?
Does Does my purchasemy purchase of the RECs/offsets of the RECs/offsets make a difference?make a difference?
Discounted Forward Stream Production Volume
Total Volume Retirement in Current Year
ExpectedAnnual Productionof ProposedRenewable Energy Project
Ener
gy P
rodu
ction
- M
Wh
# number years
Average
DiscountedAverage
Discounted Average / Yearx
# number years
=Upfront Payment Provides
Critical Support to Renewable Energy Project
>>
Forward Stream 101Forward Stream 101
04/21/23
Forward –StreamProductionAccounting
Those Who “Helped Build” the Little Alex
Project-Specific AdditionalityProject-Specific Additionality
Four tests: Is the return on project investment (ROI) too low without the offset revenues?
If the ROI is adequate, does the project owner lack access to the capital to make the investment?
If the ROI is adequate and capital available without offset revenues, are there other technical barriers to implementation?
If ROI is adequate, capital is available, and there are no technical barriers, is the project the first or substantially the first of its kind in the particular market, region or application?
Existing Pre 1997Existing Pre 1997
Non-additionalNon-additional
REC $$ = gravyREC $$ = gravy
Existing “New” 1997+Existing “New” 1997+
“ “New” = proxy for indirect New” = proxy for indirect additionalityadditionality
REC $$ = often helpfulREC $$ = often helpful
New Planned - ExpectedNew Planned - Expected
Direct additionalityDirect additionality
REC $$ = expected, but has REC $$ = expected, but has tolerance for short-term salestolerance for short-term sales
New Planned - NeededNew Planned - Needed
Direct additionalityDirect additionality
REC $$ = critically needed, has REC $$ = critically needed, has no toleranceno tolerance for short-term for short-term salessales
Pre-1997
“New” 1997+
Planned - expected RECs sales
Planned - needed RECs sales
REC Quality & PriceREC Quality & Price
PR
ICE
QUALITY/VALUE
Quality: RSVPE - Real Surplus Verifiable Permanent Enforceable
Ensuring The Offsets Are RealEnsuring The Offsets Are Real
Schrack Family Farm Loganton, PA
800 Cows
In family since 1776
Penn England Farm Williamsburg, PA
800 cows
In family since 1936
Dovan Farm Berlin, PA
Wanner’s Pride N Joy Narvon, PA
350 Cows
In family since 1900
700 Cows
In family since 1840
2982 tons/yr 2950 tons/yr
1430 tons/yr 2725 tons/yr
Monitoring REC Performance
Certification of RECs and OffsetsCertification of RECs and Offsets A buyer values third-party certification of their A buyer values third-party certification of their
purchase – or knowledge of meeting third-party purchase – or knowledge of meeting third-party standardsstandards
A certified REC does not equate to certified COA certified REC does not equate to certified CO22
offset – changing with Green-e Climate standardoffset – changing with Green-e Climate standard
Certification costs can become material – with Certification costs can become material – with some buyers preferring to put their dollars into some buyers preferring to put their dollars into more RECs or offsetsmore RECs or offsets
Off
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ARSO or OSCARS?ARSO or OSCARS?
A.R.S.OA.R.S.O.. = = AAvoid/void/RReduce/educe/SSubstitute then ubstitute then OOffset what remains. Vision of ffset what remains. Vision of Forum for Forum for the Future , the Future , UK NGOUK NGO
We suggest action to prime the pump:We suggest action to prime the pump:
O.S.C.A.R.SO.S.C.A.R.S = = OOffset/ffset/SStart tart CConversations onversations about how to about how to AAvoid/void/RReduce/educe/SSubstituteubstitute
For more information contact For more information contact NativeNativeEnergy atEnergy at
(800) 924-6826(800) 924-6826
Or visit us on the web atOr visit us on the web at
www.nativeenergy.comwww.nativeenergy.com