Carbon Offsets: A Tool to Help Slow Climate Change (and Finance Facility Improvements??) Jennifer Clymer February 14, 2008

2 Agenda Why be concerned about climate change? Why be concerned about climate change? What can be done to lessen impact of climate change? What can be done to lessen impact of climate change? What role do carbon offsets play? What role do carbon offsets play? How can offsets help pay for facility improvements? How can offsets help pay for facility improvements?

3 Climate Change in Central TX Weather Impacts Weather Impacts Water Resource Impacts Water Resource Impacts Human Health Impacts Human Health Impacts

4 Weather Impacts in Central TX Temperature will increase year-round Temperature will increase year-round –In summer, highs could increase 3-7°F July heat index could rise 10-25°F July heat index could rise 10-25°F –In winter, lows could increase 3-10°F Fewer freezes expected Fewer freezes expected Precipitation changes are less clear Precipitation changes are less clear –Changes in average precipitation uncertain –More frequent flooding with longer droughts

5 Water Impacts in Central TX Coastal sea level rise of ft. could lead to inland migration Coastal sea level rise of ft. could lead to inland migration Increased evaporation of surface water up to 35% Increased evaporation of surface water up to 35% –Less water available for groundwater recharging –Less water available for crop irrigation Crop yields could be reduced by up to 68% Crop yields could be reduced by up to 68%

6 Health Impacts in Central TX Increased heat and pollution related illnesses and deaths Increased heat and pollution related illnesses and deaths –More intense heat waves –More Ozone Action Days Increased insect related illnesses and deaths Increased insect related illnesses and deaths –Expanded range/duration for mosquitoes and other disease-carrying insects

7 Two Ways to Combat Climate Change Reduce personal carbon footprint (and potentially generate offsets) Reduce personal carbon footprint (and potentially generate offsets) –Turn off the lights –Get out of the car –Reduce, reuse, and recycle Help reduce others’ carbon footprints (aka, buy offsets) Help reduce others’ carbon footprints (aka, buy offsets)

8 What is a Carbon Offset? 1 offset = 1 metric ton * of greenhouse gases (GHGs) that are voluntarily kept out of the atmosphere 1 offset = 1 metric ton * of greenhouse gases (GHGs) that are voluntarily kept out of the atmosphere –Reductions must be “beyond business-as- usual” * 1 metric ton = 1.1 U.S. ton

9 Three Ways to Create Offsets Reduce the burning of fossil fuels (oil, gas, coal) Reduce the burning of fossil fuels (oil, gas, coal) Store carbon in plants or underground Store carbon in plants or underground Minimize the amount of GHGs leaked to the atmosphere Minimize the amount of GHGs leaked to the atmosphere

10 Projects that Reduce Fossil Fuel Combustion Renewable Energy/Fuels Renewable Energy/Fuels –e.g., wind farm, landfill gas, biofuels Energy Efficiency Energy Efficiency –e.g., green building, ENERGY STAR ® Industrial Efficiency Industrial Efficiency –e.g., cogeneration, operational upgrades Transportation Efficiency Transportation Efficiency –e.g., signal synchronization, mass transit

11 Projects that Store Carbon Tree Planting Tree Planting Avoided Deforestation Avoided Deforestation Improved Agriculture Practices Improved Agriculture Practices –e.g., reduced fertilizer use, no till

12 Projects that Reduce GHG Leakage Natural gas pipeline improvements Natural gas pipeline improvements Industrial gas processing and handling improvements Industrial gas processing and handling improvements –e.g., reducing SF 6 leakage from electrical transformers, reducing HFC leakage from A/C units

13 Offsets Must Meet Certain Quality Criteria Must be a real, measurable GHG reduction Must be a real, measurable GHG reduction Must not be required by law Must not be required by law Must be beyond business-as-usual Must be beyond business-as-usual Must not be financially or otherwise feasible without offset sales Must not be financially or otherwise feasible without offset sales Must not be double-counted Must not be double-counted

14 Benefits of Creating Offsets Can provide funding for energy-efficient facility upgrades Can provide funding for energy-efficient facility upgrades –Less demand for energy = less demand from power plants –Growing demand for new offset projects Can provide good PR Can provide good PR –Promote proactive environmental initiatives (although beware increased scrutiny of project)

15 Energy Efficiency Example HVAC replacement + reflective roof HVAC replacement + reflective roof

16 Energy Efficiency Example (cont.) Saved 291 kW of peak demand and 387,000 kWh of energy Saved 291 kW of peak demand and 387,000 kWh of energy Offset revenue = $29,500 over 15 years at $10/metric ton Offset revenue = $29,500 over 15 years at $10/metric tonvs. Austin Energy rebate = $114,500 Austin Energy rebate = $114,500

17 Benefits of Buying Offsets Cost-effectively reduce GHG emissions when can’t reduce internally Cost-effectively reduce GHG emissions when can’t reduce internally Provide flexibility for compliance programs Provide flexibility for compliance programs May have secondary environmental and/or social benefits May have secondary environmental and/or social benefits

18 Wide Range of Offset Prices Offset prices range from $0.50-$78/ metric ton Offset prices range from $0.50-$78/ metric ton –Low end prices for Chicago Climate Exchange offsets –High end prices for Kyoto offsets Conservatively expect to pay ~$10/metric ton for a high quality, U.S.-based offset Conservatively expect to pay ~$10/metric ton for a high quality, U.S.-based offset

19 U.S. Offsets are Relatively Cheap Source: Modified from Hamilton et al., State of the Voluntary Carbon Markets 2007: Picking Up Steam. Published by Ecosystem Marketplace and New Carbon Finance, July 18.

20 Demand for Offsets is on the Rise 1 st recorded carbon offset in st recorded carbon offset in 1989 Market began picking up steam after U.S. rejected Kyoto in 2001 Market began picking up steam after U.S. rejected Kyoto in 2001 –Since 2002, number of offset providers has jumped 220% And really took off in past few years And really took off in past few years –B/t , offset sales skyrocketed by nearly 200% –B/t , sales expected to at least double

21 Regulations will Further Increase Demand in U.S. 3 regional cap-and-trade programs 3 regional cap-and-trade programs –Regional Greenhouse Gas Initiative –Western Climate Initiative –Midwestern Greenhouse Gas Accord Numerous state carbon regulations Numerous state carbon regulations –CA, OR, MA, FL, etc. Imminent federal carbon regulation Imminent federal carbon regulation –Demand for offsets in the 1 st year of leading cap-and-trade proposal could be over 30X the current volume of offsets!

22 Recommendations Evaluate your facilities for GHG savings potential Evaluate your facilities for GHG savings potential –Before you can reduce, must measure Make sure they’re certified to a non- proprietary standard to ensure quality Make sure they’re certified to a non- proprietary standard to ensure quality –VCS, CCAR, Gold Standard, CDM Record offset transactions with a GHG registry to ensure credit Record offset transactions with a GHG registry to ensure credit –ERT GHG Registry, CCAR, CCX

23 QUESTIONS??