New Financing Mechanisms:

Sustainable Conservation Dairy Summit – Modesto, CA – May 10, 2013 Dick Kempka, VP of Business Development │ Peter Weisberg, Sr. Program Analyst

Environmental Credits & Their Applicability in CA

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Outline

• Introduction

• Carbon Markets

• Renewable Identification

Numbers (RINs)

• Low Carbon Fuel Standard (LCFS)

• Summary

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Mission: To provide expertise, financing, and inspiration to accelerate innovative climate solutions that endure

• Managed financing of over $20M

• Ten (10) diverse project sectors

• Projects in (9) states and (2) countries

• Compliance program examples

– OR, WA, MT, MA, CA

• Voluntary program examples

– NW Natural Smart Energy

– Colorado Carbon Fund

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• Carbon Management – Expand investment in project types anticipated in policies

– Pilot new methodologies

– Effectively aggregate projects

– Remove upfront financing & other barriers

– Develop compliance portfolios for utilities

• Climate Services – Design, finance and implement climate action plans

– Assist project developers to finance business models that endure

• Policies & Standards – Share tangible

lessons learned and experience to help improve policies, rules and standards

Carbon Management

Policies & Standards

Climate Services

Areas of Service

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$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

$5,000,000

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

An

nu

al N

et

Re

ven

ue

Environmental Markets

Environmental Markets - Low Price (IRR = 15.30%)

Baseline - No Environmental Markets (IRR = 7.83%)

Low Carbon Fuel Standard Credits

Renewable Identification Numbers

Carbon Credits

European Carbon Price

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Start 2013: regulations will cover GHG emissions from electric generation facilities, industrial emitters, and fuel suppliers. Reduce emissions to 1990 levels by 2020.

3 compliance periods: 2013-2014 (Phase I); 2015-2017 (Phase II); 2018-2020 (Phase III)

CA Carbon Allowances (CCA): AB32 Allowances for 2013 Delivery

• Current Value: $14-$14.50/ton

AB32 CAR Approved CRTs: One of the approved CAR offset protocols

• Livestock Methane, ODS, Forestry

• Risk with CAR CRT’s is they may need re-verification by CARB

• OWC/OWD being evaluated

CA Carbon Offsets (CCO): AB32 Guaranteed Offsets for 2013 Delivery

• CCOs are CARB issued offsets

• Falls under the 8% of allowable offset usage limit

California Program Overview

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CA Carbon Market Key Insights

• Buyers = large greenhouse gas emitters in California

• Project Types: – Livestock manure – (Post-consumer food waste = voluntary, not yet

accepted by California)

• Sunset: 2020

Offsets generated and owned by the digester

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California Carbon Offset Livestock CRT Prices

17,500

Baseline - No Environmental Markets (IRR = 7.83%)

Carbon - Price Floor (IRR = 9.50%)

Carbon - ARB Modeling (IRR = 11.23%)

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CA Carbon Market Uncertainty

• February auction results

– 2013 – 100% allowances sold, $13.62 clearing

– 2016 – 46% allowances sold, $10.71 floor

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Anticipated Offset Supply Shortage with Additional Protocols

Source: Stevenson, Sam et al. American Carbon Registry. Compliance Offset Supply Forecast. September 2012

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RINs Key Insights

• Buyer: Transportation fuel refiners and importers • Project types: Biogas from:

– Dairies – Waste water treatment plants – Landfills – (EPA currently considering food waste pathway)

• Sunset: 2022

RINs generated and owned by the fueling station

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RIN Prices

• 77,000 BTUs = 1 Advanced Biofuel RIN

• Prices (May 2012 – March 2013):

$/RIN $/MMBTU

Low $0.29 $3.77

Average $0.52 $6.75

High $1.07 $13.90

Current $0.955 $12.40 Price data aggregated from the Oil Price Information Service and the Eco Engineers RIN Price Index.

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

$2,000,000

$2,200,000

$2,400,000

$2,600,000

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

RIN Market Uncertainty

•Fraud ̶ 5-10% of issued RINs found to be fraudulent

•Volatility •Annual adjustment of required RIN retirement No long term buyers

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Low Carbon Fuel Standard Key Insights

• Buyer = Transportation fuel refiners and importers

• Project types: – Dairy biogas to CNG – High solids digestion food yard waste – Landfill gas to CNG

• Sunset: 2020 – (2020 target applies until legislation is modified)

Low Carbon Fuel Standard Credits

LCFS credits generated and owned by the digester.

*Must report data from fueling station

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Low Carbon Fuel Standard Uncertainty

• Commerce clause violation

– US District Court – Unconstitutional

– Ninth Circuit – Stay of preliminary injunction

• Cost of commercializing advanced biofuel unknown price of LCFS credits unknown

LCFS Credit Prices - 2012

Graph taken from Yeh, Sonia, et al.“Status Review of California’s Low Carbon Fuel Standard – Spring 2013.” April 2013. Available online at http://info.argusmedia.com/uslib/ArgusWebinar_CaliforniasLCFS_Economicsandtradeprospects.pdf

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

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The Climate Trust

• Carbon market buyer – Existing funds to purchase

• California carbon credits from dairy digesters • Voluntary carbon credits from food waste

digesters – Project manager

• Data and verification management • Commercialization

• Environmental market advisory services

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Summary

•Environmental markets (under “likely” price scenarios) could make up 25%-30% of revenues from dairy biogas transportation fuel project.

• Political and price uncertainty mean these revenue streams are not bankable.

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Questions

Thank you for your interest

Please visit us at www.ClimateTrust.org

Dick Kempka (901)755-8705

Pete Weisberg (503)238-1915 x207