Information Security Identification: Confidential Environmental Markets Overview Thoughts on how to: 1) Achieve environmental goals 2) Generate revenue

Information Security Identification: Confidential

Environmental Markets Overview

Thoughts on how to:

1) Achieve environmental goals

2) Generate revenue / Infrastructure investments

3) Create jobs

August, 2011Environmental Innovation Solutions

Environmental Innovation Solutions2

What Are Environmental Markets?Water

• Local Compliance Markets (Nutrient Credit Trading Systems)

Emissions / Carbon Markets

• Regional Compliance Markets (EPA, RGGI, California, WCI)

Renewable Energy

• Twenty-nine US states, District of Columbia & Puerto Rico have market based approaches to promote renewable energy using Renewable Energy Credits (RECs)

Energy Efficiency

• Reduction in energy usage spurred by efficiency measurement and reporting

Biodiversity

Smaller very localized compliance markets (fisheries, habitat preservation, etc.)


Market Based Trading Program Participants

Identify Sectors To Be Covered

Determine Total Environmental Liability

From Covered Sources &

Set Market Cap

Issue Allowances(1 allowance per unit)

Distribute via:AllocationAuction

Combination

Trade

Regulated Sources(e.g. Power Plants)Cover LibailitiesWith Allowances

and/or Offsets

Offsets

+

Regulators Exchanges & Brokers End UsersNGOs

• California Air Resources Board• WCI• Environmental Protection

Agency• Regional Greenhouse Gas

Initiative• Local and Regional Watershed

Authorities

• Climate Action Reserve• American Carbon Registry• Voluntary Carbon Standard

• Green Exchange (CME)

• Blue (NYSE)• NASDAQ

• Utilities• Industrials• Land Developers• Social Organizations

• JPM (EcoSecurities)• Barclays• Cantor Fitzgerald

(CO2e)• Environmental

Markets• Element Markets


The Role of Trading

Polluters will choose least cost option:

• Internal abatement (reduce environmental impact)(scale back output, relocate, alter mode of operation, fuel switching, new technology/investments)

• Buy surplus allowances in state auction

• Buy surplus allowances from “clean” producers

• Invest in verified environmentally beneficial projects = buy offsets

• Pay penalty for non-compliance

Trading unleashes the creativity & economic incentives of markets in allocating capital to the least cost emission reduction options.

Allowances + Offsets > Emissions Allowances + Offsets < EmissionsAllowances + Offsets = Emissions

In Compliance

Bank / SellSurplus

Purchase / Borrow Shortfall


Why Market Based Approaches?

Economists note that an efficient public utility can outperform an efficient private utility because it does not need to produce profits and need not pay taxes on revenue generated.

So why is there a renewed focus on financing alternatives?

• Because these programs are costly

• Federal agencies are reducing grants and loans

• State budgets are stretched thin

• Scarce natural resources require prudent management

• Private sector markets can be a reliable source of funding


Regulator Geography / Industry Estimated AnnualCompliance Revenues

Regional Green House Gas Initiative

10 Northeastern StatesElectric Generators

$200 million (Value of allowances auctioned)

California Air Resources Board

California85% of economy by 2015

$4 billion (Value of allowances allocated / auctioned)

EPA & Army Corp of Engineers Clean Water Act

Almost 300 State & Municipal Programs Industrial & Municipal Point Sources

$1.5 billion (ecosystem Market Place estimate)

EPA Clean Air Rule (CAIR)

28 Eastern States Electric Generators

$3.6 billion (2015 EPA estimate) to be replaced by Transport Rule

State Renewable Portfolio Standards

29 StatesElectric Generators

Various investment amounts directly by utilities

How Much Revenue Can be Raised?


Do These Programs Really Create Jobs?

• Leading economists have estimated that between 20,003 and 26,669 construction, engineering and manufacturing jobs are created for every billion dollars of public sector investment in water infrastructure.

• California studies indicate a net job creation of 112,000 jobs over the first five years of the California Air Resources Board Emissions Trading program while generating $4 billion in annual revenues by 2015.

• A study by the Renewable Electricity Standard Alliance released estimates that setting a target requiring that 25 percent of US electricity be generated from renewable sources by 2025 would support the creation of 274,000 American renewable energy jobs.

“I know there are other builders moving over into the renewable-energy sector for the purposes of maintaining an income,” said Joe Crecca, of JBS Solar and Wind. “There’s a future there.”


Emissions FocusRGGI Quick Facts

• Ten Participating States: CT, DE, MA, MD, ME, NH, NJ, NY, RI, VT

• Coverage: Fossil fuel-fired power plants 25 megawatts or greater in size (currently 209 facilities region-wide)

• Initial CO2 Emissions Cap: 188 million short tons per year for the 10-state region

• Timing of CO2 Reductions: 2009-2014, cap stabilizes emissions at 188 million tons annually; 2015-2018, cap declines by 2.5 percent per year for total reduction of 10 percent

• CO2 Allowance Auctions: Regional, held quarterly, open to all who qualify

• Compliance Period: Three years, first compliance period January 1, 2009 – December 31, 2011

• Auction Proceeds: $886.4 million through June 2011. Overall, 80% invested in consumer benefit programs, including energy efficiency, renewable energy, direct energy bill assistance and other greenhouse gas reduction programs

• Benefits of Investment: Significant environmental, consumer and economic benefits, including fewer emissions, lower electric bills and new jobs


Emissions FocusWCI Partners & Observers

Canadian Partner jurisdictions comprise 79% of the total Canadian population and 76% of the Canadian GDP.

U.S. Partner jurisdictions comprise 19% of the total US population and 20% of the U.S. GDP


Renewable Energy FocusWhat Are RECs (Renewable Energy Credits)?


Renewable Energy FocusState RPS Standards

State Amount Year Organization Administering RPSArizona 15% 2025 Arizona Corporation CommissionCalifornia 33% 2030 California Energy CommissionColorado 20% 2020 Colorado Public Utilities CommissionConnecticut 23% 2020 Department of Public Utility ControlDistrict of Columbia 20% 2020 DC Public Service CommissionDelaware 20% 2019 Delaware Energy OfficeHawaii 20% 2020 Hawaii Strategic Industries DivisionIowa 105 MW Iowa Utilities BoardIllinois 25% 2025 Illinois Department of CommerceMassachusetts 15% 2020 Massachusetts Division of Energy ResourcesMaryland 20% 2022 Maryland Public Service CommissionMaine 40% 2017 Maine Public Utilities CommissionMichigan 10% 2015 Michigan Public Service CommissionMinnesota 25% 2025 Minnesota Department of CommerceMissouri 15% 2021 Missouri Public Service CommissionMontana 15% 2015 Montana Public Service CommissionNew Hampshire 23.80% 2025 New Hampshire Office of Energy and PlanningNew Jersey 22.50% 2021 New Jersey Board of Public UtilitiesNew Mexico 20% 2020 New Mexico Public Regulation CommissionNevada 20% 2015 Public Utilities Commission of NevadaNew York 24% 2013 New York Public Service CommissionNorth Carolina 12.50% 2021 North Carolina Utilities CommissionNorth Dakota* 10% 2015 North Dakota Public Service CommissionOregon 25% 2025 Oregon Energy OfficePennsylvania 8% 2020 Pennsylvania Public Utility CommissionRhode Island 16% 2019 Rhode Island Public Utilities CommissionSouth Dakota* 10% 2015 South Dakota Public Utility CommissionTexas 5,880 MW 2015 Public Utility Commission of TexasUtah* 20% 2025 Utah Department of Environmental QualityVermont* 10% 2013 Vermont Department of Public ServiceVirginia* 12% 2022 Virginia Department of Mines, Minterals, and EnergyWashington 15% 2020 Washington Secretary of StateWisconsin 10% 2015 Public Service Commission of Wisconsin

NOTE: *Five states, North Dakota, South Dakota, Utah, Virginia, and Vermont, have

set voluntary goals for adopting renewable energy

instead of portfolio standards with binding targets.

Renewable Portfolio Standards (RPS) are

legislated requirements imposed on electricity

producers to generate a minimum amount of their

output from renewable sources. In lieu of

generating from renewable sources the producers can

purchase Renewable Energy Credits (RECs).


Renewable Energy FocusRenewable Portfolio Policies

Renewable portfolio standard

Renewable portfolio goal

Solar water heating eligible *† Extra credit for solar or customer-sited renewables

Includes non-renewable alternative resources

WA: 15% x 2020*

CA: 33% x 2020

NV: 25% x 2025*

AZ: 15% x 2025

NM: 20% x 2020 (IOUs) 10% x 2020 (co-ops)

HI: 40% x 2030

Minimum solar or customer-sited requirement

TX: 5,880 MW x 2015

UT: 20% by 2025*

CO: 30% by 2020 (IOUs)10% by 2020 (co-ops & large

munis)*

MT: 15% x 2015 ND: 10% x

2015

SD: 10% x 2015

IA: 105 MW

MN: 25% x 2025

(Xcel: 30% x 2020)

MO: 15% x 2021

WI: Varies by utility;

10% x 2015 statewide

MI: 10% + 1,100 MW x 2015*

OH: 25% x 2025†

ME: 30% x 2000New RE: 10% x 2017

NH: 23.8% x 2025

MA: 22.1% x 2020 New RE: 15% x 2020

(+1% annually thereafter)

RI: 16% x 2020

CT: 23% x 2020

NY: 29% x 2015

NJ: 22.5% x 2021

PA: ~18% x 2021†

MD: 20% x 2022

DE: 25% x 2026*

DC: 20% x 2020

VA: 15% x 2025*

NC: 12.5% x 2021 (IOUs)10% x 2018 (co-ops & munis)

VT: (1) RE meets any increase in retail sales x

2012; (2) 20% RE & CHP x 2017

KS: 20% x 2020

OR: 25% x 2025 (large utilities)*

5% - 10% x 2025 (smaller utilities)

IL: 25% x 2025

WV: 25% x 2025*†

29 states + DC and PR have an RPS(7 states have

goals)

DCOK: 15% x 2015

PR: 20% x 2035

Source: DSIRE


Different Regions of The Country Use Different Fuel Mixes To Generate Electricity


Water FocusA Deeper Dive On Water Programs

• By cutting federal funding states, counties and cities will be under greater pressure to consider creative methods to pay for sustainable infrastructure

• Federal government continues to call for steep cuts in the Clean Water State Revolving Fund (CWSRF)

Good News: Low Interest Rates, Flexible Terms—Nationally, interest rates for CWSRF loans average 2.3 percent, compared to market rates that average 5 percent. Potential 22 percent financing cost reduction.

Bad News: $4 billion in 2009 to $1.5 billion in 2011

• Increase in market based programs

Total number of programs identified: 10

Total number of active programs: 10

Total value of payments in 2008: US$1.35 billion


Water FocusA Deeper Dive On Water Programs

Tools For Investigating Market Based Clean Water Programs

• EPA Financing Alternatives Comparison Tool (FACT)

Analysis tool that helps identify the most cost-effective method to fund a wastewater or drinking water management project

> http://water.epa.gov/grants_funding/cwsrf/fact.cfm

• Handbook on design and implementation of market based clean water programs

http://water.epa.gov/type/watersheds/trading/handbook_index.cfm

• Grants are available for program design / launch

EPA’s Targeted Watersheds Grant (TWG)

Natural Resource Conservation Service’s Conservation Innovation Grant (CIG), a program under the US Department of Agriculture

http://water.epa.gov/grants_funding/cwsrf/fact.cfm


Additional ResourcesEPA Write-Up on Cap & Trade and Renewable Energy

• http://www.epa.gov/capandtrade/

• http://www.epa.gov/chp/state-policy/renewable_fs.html

Carbon Disclosure Project reports• https://www.cdproject.net/CDPResults/CDP%202009%20SandP500%20Report.pdf

BNY Mellon Environmental web-page• http://www.bnymellon.com/eis

Database of State Incentives For Renewable Energy• http://www.dsireusa.org/

Union of Concerned Scientists Data• http://www.ucsusa.org/clean_energy/res/overviewadoption.html

Western Climate Initiative• http://westernclimateinitiative.org/

Regional Greenhouse Gas Initiative• http://www.rggi.org/home

State of Watershed Payments – An Emerging Marketplace • http://www.forest-trends.org/documents/files/doc_2438.pdf

http://www.epa.gov/capandtrade/

http://www.epa.gov/chp/state-policy/renewable_fs.html

https://www.cdproject.net/CDPResults/CDP%202009%20SandP500%20Report.pdf

http://www.bnymellon.com/eis

http://www.dsireusa.org/

http://www.ucsusa.org/clean_energy/res/overviewadoption.html

http://westernclimateinitiative.org/

http://www.rggi.org/home

http://www.forest-trends.org/documents/files/doc_2438.pdf


Documents

Information Security Identification: Confidential Environmental Markets Overview Thoughts on how to: 1) Achieve environmental goals 2) Generate revenue