1. CAR Livestock Methane Protocol & Project Case Study Scott Subler, Ph.D. Environmental Credit Corp. CAR Offsets Workshop Houston, Texas, June 14, 2011

2. Environmental Credit Corp. Leading US carbon offset project developer and aggregator ~ 65 projects listed through programs including the Climate Action Reserve (CAR), the Clean Development Mechanism (CDM), and the Chicago Climate Exchange (CCX) Project types include: –destruction of ozone depleting substances –agricultural methane destruction –composting –landfill and waste water methane capture –renewable energy production

3. ECCs Offset Projects in the US Livestock methane capture Landfill methane capture Composting Destruction of Ozone Depleting Substances ECC ranked as #1 US offset project developer in 2009 (PointCarbon)

4. Case Study: Fessenden Family Dairy King Ferry, New York (Finger Lakes Region) 1,100 dairy cows Liquid manure management (flush system) Open-air anaerobic manure lagoon manure lagoon dairy barns

5. Dairy Farming

6. Manure collection Photos: USEPA AgStar

7. Animal manure storage is a widespread source of methane emissions anaerobic decomposition (bacteria) VOC, NH 3, H 2 S, N 2 O, CO 2, CH 4 OdorGreenhouse gases Open-air manure lagoon Air Quality Concerns: Greenhouse gas emissions (Fessenden Farm ~200 metric tons methane/year) Odor Ammonia

8. Covered manure lagoon Biogas collection system Generator/flare Benefits: Reduced GHG emissions (Fessenden Farm > 4,000 metric tons CO 2 e/year) Reduced odor Improved stormwater management Potential for biogas use (renewable electricity, heat) Air-tight membrane cover anaerobic digestion biogas CH 4 Simple covers can capture methane from lagoons and reduce GHG emissions

9. Simple, low-cost technology U.S. supplier, local jobs Rapid installation Reliable operation Farmer friendly Lagoon Cover Design & Implementation

11. Methane Emission Reductions Established protocols Established protocols Independently audited Independently audited Formal registration Formal registration Renewable Energy Production Methane Combustion

12. 2 nd Stage Effluent Storage 1 st Stage Heated Covered Lagoon Digester Genset & Heat Exchange Manure & Food waste Fessenden Dairy -- Anaerobic Digestion to Energy

13. Anaerobic digesters in US (livestock) Number of operating digesters (Nov. 2010): AgStar Database Source: USEPA AgStar (129 Dairy)

14. Common Technologies for Dairy AD Ambient Temperature Lagoon Covers Plug Flow/Mixed Plug Flow Complete Mix Other… Photo: RCM International Photo: Fair Oaks Farms

15. ECC Lagoon Cover Program Rob Hilarides Lindsay, CA ECC Build/Own/Operate –Permits, insurance, major maintenance –Carbon monitoring, verification, registration Routine oversight by farmer Farmer compensated with share of carbon credit value Farmer can buy out lagoon cover/biogas collection system to own/operate for a larger share of carbon value

16. Plug Flow Manure Digester

17. Mixed Plug Flow Manure Digester

18. Huckabay Ridge, Texas Centralized Complete Mix Digester

19. Typical Livestock Digester Economics Capital requirements –High ($1,000 – $1,600) per milk cow –AD systems not always farmer-friendly Electricity prices –Mostly low ($0.04 - $0.06/kWh) Renewable energy value –Significant in some states ($0.02 - $0.07/kWh) Carbon prices –Have been significant for some projects; uncertain market Tipping fees for off-farm organic materials (food waste) –Site specific, but in some cases equal to or greater than electricity revenues Separated solids value (nutrients, compost, bedding) –Variable; often high value for bedding

20. CAR U.S. Livestock Project Protocol (v3.0) Project Definition –The installation of a biogas control system (BCS) that captures and destroys methane (CH4) gas from manure treatment and/or storage facilities on livestock operations. Eligible technologies –Centralized digesters –Co-digestion of organic waste (greenhouse gas [GHG] benefits not quantified for non-manure waste streams) –Methane destruction onsite (enclosed flare, open flare, electricity generation, thermal energy production) –Methane destruction offsite (direct use via pipeline) –Methane destroyed as fuel for vehicles (onsite or offsite) –Biogas destruction in fuel cells

21. CAR Project Eligibility Requirements Location –U.S., territories, U.S. tribal lands Start Date –Project must be submitted within six months of becoming operational Performance Standard –Installation of one of the technologies accepted in the protocol Legal Requirement Test –Project must not be required by law Regulatory Compliance –Project must be in compliance with all federal, state and local laws or regulations

22. CAR Project Quantification Methodology Methane emission reductions relative to Baseline –Baseline represents business as usual or what would have occurred without the BCS installation –Calculated monthly for each year of the project –For new livestock operations (greenfield sites), baseline is based on prevailing system type for their region, animal type and farm size Monitoring of methane production, destruction and emissions –Biogas flow and methane concentration –Destruction device operation and efficiency –Project equipment and vehicle emissions Annual reporting and verification Crediting Period –Project is eligible to receive credits for 10 years from start date. Project may apply for a second 10-year crediting period

23. Livestock Methane Project Profile Project DurationLong10 – 30 years Relative Credit YieldLow1,000 – 25,000 per year Total Available MarketLarge, stableThousands of suitable livestock operations; 20+ million tons per year Capital RequirementsHighRelative to carbon yield Additional Revenues/Benefits ManyRenewable energy, RECs, Compost/bedding, Environmental benefits

24. CAR Livestock Methane Projects *As of June 2, 2011 CRT Issuances20072008200920102011 Number2714110 Avg. Quantity18,0004,7007,60011,1000

25. Livestock Project Issues/Risks Carbon credit value tends to be small compared to other project revenues and benefits –Carbon credits are an important driver for carbon-specific lagoon cover projects –Less important for renewable energy projects (although may tip economics favorably) Carbon credit certification is currently only feasible for very large livestock operations –Relatively small quantity of emission reductions per project means that CAR listing and verification expenses, along with required monitoring and sampling costs, tend to exceed the value of the CRTs for all but the largest farms

26. ARB Implementation of CAR Protocol Similar in approach and quantification methodologies Except: 1 CAR CRT is worth only 0.87 ARB offsets? –Reflects project (biogenic) CO 2 emissions from combusted methane Additional costs for conversion of registered CAR CRTs –A desk review may be possible for some project verification transitions, but the cost of even a desk review is likely to be substantial on a per-credit basis Future program design changes that could reduce costs –Bundling of projects –CDM-style small scale project designation with different requirements and costs –Allowing conservative default factors in place of direct measurements –Use of electrical production data in lieu of gas flows and gas composition

27. Keys to Success Ownership –3 rd party build, own, operate –Farmer focus on area of expertise: on farm manure management Bundled projects –Reduced capital costs –More efficient, coordinated O&M Supplemental feed stocks –Readily available organic waste sources for enhanced performance –Additional revenues from organic waste tipping fees, compost sales Aggressive incentives –New state and federal incentives for renewable energy from dairy digesters provide attractive project economics 27 CONFIDENTIAL

28. ssubler@envcc.com