Developing Offset Projects in a U.S. Pre-Compliance Market: Smart Investment or Unwise Policy Gamble Potential Carbon Markets & Utah Agriculture Utah State University October 8, 2009

Regulatory Risks What are the areas of certainty regarding offsets in a US cap and trade system? Offsets will be allowed as part of cap-and-trade system –Limitations on offsets vary significantly House of Representatives Bill (Waxman-Markey) -- 1 Billion tonnes domestic during first year –Approved project types Significant number of ag-related project types in Senate Bill (Kerry- Boxer) including agricultural, grassland and rangeland sequestration and management practices, manure management and biogas capture –US based projects 2 | Blue Source | A Leading Climate Change Portfolio

Regulatory Risks What are the areas of uncertainty related to offsets in a US cap- and-trade system? Timing of implementation of cap-and-trade Project Start-Date –Kerry – Boxer -- Jan. 1, 2009 Early Action –Kerry-Boxer -- Jan. 1, 2001 and are registered Registries and Methodologies –Chicago Climate Exchange, Climate Action Reserve, Voluntary Carbon Standard, American Carbon Registry 3 Blue Source | A Leading Climate Change Portfolio

Agricultural Project Types Methane collection, combustion and avoidance projects involving organic waste streams that would have otherwise emitted methane in the atmosphere, including manure management and biogas capture and combustion; Projects involving afforestation or reforestation of acreage not forested as of January 1, 2009 Forest management resulting in an increase in forest carbon stores, including harvested wood products Agricultural, grassland, and rangeland sequestration and management practices, including –Altered tillage practices, including avoided abandonment of such practices, –Winter cover cropping, continuous cropping and other means to increase biomass returned to soil in lieu of planting followed by fallowing; 4 | Blue Source | A Leading Climate Change Portfolio

Agricultural Project Types Continued… reduction of nitrogen fertilizer use or increase in nitrogen use efficiency; reduction in the frequency and duration of flooding of rice paddies; reduction in carbon emissions from organic soils; reduction in greenhouse gas emissions from manure and effluent; reduction in greenhouse gas emissions due to changes in animal management practices, including dietary modifications; planting and cultivation of permanent tree crops; practices to reduce and eliminate soil tillage; reductions in greenhouse gas emissions through restoration of wetlands, forestland, and grassland; and sequestration of greenhouse gases through management of tree crops; 5 | A Leading Climate Change Portfolio

Agricultural Project Types Continued… Changes in carbon stocks attributed to land use change and forestry activities, including— –management of peatland or wetland; –conservation of grassland and forested land; –improved forest management, including accounting for carbon stored in wood products; –reduced deforestation or avoided forest conversion; –urban tree-planting and maintenance; –agroforestry; and –adaptation of plant traits or new technologies that increase sequestration by forests. 6 | Blue Source | A Leading Climate Change Portfolio

Protocol Developments related to Agricultural Projects Kyoto – CDM Province of Alberta Voluntary Carbon Standard Chicago Climate Exchange Climate Action Reserve American Carbon Registry 7 | Blue Source | A Leading Climate Change Portfolio

How Buyers/Emitters Manage the Regulatory Risk: A Portfolio Approach Offset a material portion of the risk using a portfolio approach –Multiple vintages, projects, types of offsets, project start- dates Execute transfers on recognized registries such as the Climate Action Reserve (CAR), American Carbon Registry (ACR) and Voluntary Carbon Standard (VCS) Purchasing offsets today provides a hedge against increasing prices and uncertainty about the availability of offset supply A secondary voluntary market exists today for offsets that are not eligible for compliance purposes in the future 8 | Blue Source | A Leading Climate Change Portfolio

Pre-Compliance Transaction Trends According to New Carbon Finance, Aug-Sep 2008 pricing: $10.75 / tonne for Climate Action Reserve offsets $7.25 / tonne for Voluntary Carbon Standard offsets $4.00+ for “other” offsets Compliance eligibility risk -- offsets with a lower perceived eligibility risk command a premium price (more established offset types with recent start dates) Product specification regarding standard and registry are also fundamental determinants of price Potentially have 1-2 more years of pre-compliance trading with uncertainty relating to offset criteria 9 | Blue Source | A Leading Climate Change Portfolio

Chicago Climate Exchange 10 | Blue Source | A Leading Climate Change Portfolio

Blue Source’s Offset Portfolio Blue Source’s VER portfolio is the largest in North America: –Carbon Capture and Storage (CCS) –Coal mine methane –Wastewater treatment –Landfill gas –Agriculture –Forestry –Industrial Gas Destruction Blue Source has $500M in capital from Och Ziff Capital Management Group to invest in VER projects and CO 2 pipeline infrastructure projects. 11 | Blue Source | A Leading Climate Change Portfolio

Blue Source’s Strategic Alliance with Goldman Sachs Blue Source views a significant pre-compliance market emerging Blue Source expects credit to become more important in transactions Goldman has a significant client base of large emitters and potential pre-compliance purchasers Goldman Sachs has the ability to see the marketplace and create products to meet the need 12 | Blue Source | A Leading Climate Change Portfolio

Contact Information 13 | Blue Source | A Leading Climate Change Portfolio Lauren Kimble Vice President, Marketing Salt Lake City, Utah