2. ALBERTA: NORTH AMERICA’S FIRST COMPLIANCE OFFSET CARBON MARKET Carbon Consultation, October, 2008 Tom Goddard, Alberta Agriculture and Food Karen Haugen-Kozyra, Climate Change Central Andy Ridge, Alberta Environment

3. Outline Context Regulatory Framework Offset System – Tillage offset First Compliance Period Conclusions

4. Alberta’s GHG Emissions in the Canadian Context (MT CO 2 e/ yr) 223 66 0.5 2 62 21 91 9 20 22 2 207 2004 2020 305 87 88 168 85 24 48 25 2 6 0.4 1.6

5. Alberta Approach Long term issue –Need to start with practical, achievable objectives Policy certainty for industry –Large investments being made now – expensive to retrofit, investment is for 40 years+ Implementation of new technology will be a big part of the long-term solution. –Linked to our unique role as North America’s energy supplier Market instruments - bridge gap between current emissions and long-term solutions. All Albertans must be part of the solution Requires strategic and focused investment in transformational changes (technology, behavioral) Remain globally competitive

6. Where have we come from? Taking Action on Climate Change – 2002 Provincial 50% GHG intensity/GDP target by 2020 Seven thrusts, including: Government Leadership Energy Conservation Carbon Management/ Technology and Innovation Renewable and Alternative Energy Enhancing Carbon Sinks Adaptation Climate Change and Emissions Management Act –GHG regulations on: Mandatory reporting of GHGs by industry - 2003 Intensity targets for large facilities - 2007

7. Specified Gas Emitters Regulation Applies to all facilities in Alberta that produce over 100,000 tonnes of CO 2 e –Facilities have been reporting since 2003 –103 existing and new facilities as of 2006 Develop facility baselines –Based on average emissions intensity from 2003-05 (emissions/production=baseline intensity) Reduction targets off of baseline (-12%)

8. Power Plants 45% Oilsands 21% Heavy Oil 7% Gas Plants 7% Chemicals 6% Other14% (>100,000 tonnes CO2e/year) Alberta Reporting Program - 2006 Large Industrial Emitters Profile

9. 1.Emission Performance Credits These are credits for better than target performance 2.Fund Credits Invest in the Climate Change and Emissions Management Fund at $15/tonne – funds used to develop or invest in Alberta based technologies, programs, and other priority areas (as per CCEMA) 3.Emission Offsets Voluntary emission reduction opportunities in support of achieving environmental objectives Options to Achieve Targets

10. Alberta Offsets Afforestation Beef feeding Beef life cycle Biofuel Biogas Biomass Energy Efficiency Pork Tillage Compost Enhanced Oil Recovery (2) Landfill Gas Waste Heat Recovery (2) Supported by: Documentation Calculators Guidance docs

11. Protocols Under Consideration 1.Nitrogen Use Efficiency 2.Wetlands Management 3.Conversion to Perennial Forages 4.Reducing Summerfallow 5.Residue Management 6.Rangeland 7.Beef - Residual Feed Intake 8.Pasture Management 9.Soil Amendment

12. Offset Criteria Emission Offsets –Action (project) taken on/after January 1, 2002 –All actions must occur in Alberta –Must be real, quantifiable and measurable –Not otherwise required by law; clearly owned –Not double counted (Unique) –Must be verified by 3 rd party Tools and Standards –Protocols – most comprehensive set in NA 23 Protocols now approved; 4 more in protocol review process 12 more under development for this year –Project-based Registry launched –Guidance Documents – Projects, Verification, Protocols (draft)

13. Offset System Design Protocols –Developed on ISO 14064 Part 2 framework –Considered scientific and technical review –Basis for linking and building when other markets are developed Verification Happens After Credit is created –Need strong government approved protocols Validation and Registration – optional –Business Risk management tool Registry Supporting doc: Offset Credit Project Guidance Document

14. Protocol development/validation Check Carbon Offset Solutions website for draft protocols, protocols under development Develop & compile Technical Seed Document(s) (TSD) for protocol foundation Prepare Technical Protocol Plan (TPP) Submit TPP & TSDs to Alberta Government for review Provide feedback to protocol developers – 60 days* Adapt into Alberta protocol format (Standardization) 1 st round of reviews – expert technical review No sustained objections, then move forward. 2 nd round of reviews – broader stakeholder review No sustained objection, then move forward 3 rd round of reviews – posting for public review 30 days Finalization of protocol & review of public comments by Alberta Environment** Government approval & posting of protocol 2-10 mo 4-6 mo 10-30 days 1-2 mo 1 2 3 4 5 6 7 8 9 10 11 Protocol Developer Alberta Government Protocol Developer Coordination by Climate Change Central (C3) “All parties involved” Alberta Government

15. Challenges of Delivering Agriculture-Based Offsets to Market Developing Science Transaction Costs and Risks: –Small amounts from each farm –Need to be “Grouped or Aggregated” Verification Costs: –Need a low-cost verification system Producers will need: –Contractual project and market advice

16. Carbon Trading 101

17. Alberta Offset System Can sell credits back to 2002 and as far into the future as you are willing to contract Can contract 1 or more years, part or all of your acres, and part or all of tonnes per acre allowed through the AB government protocol No deadline to sign up  you will not lose your carbon credits if you wait

18. Key Regulatory Issues Addressing Additionality –Actions have to be new after 2002 –Not allowing ‘anyway tonnes’ Addressing the non-permanent nature of Soil Organic Carbon (reversals of CO2e)

19. Alberta – Ensuring Additionality 1990199920002002 CO 2e Time  NT RT Adjusted Baseline -only New C going forward 2001

20. Permanence - Alberta Government backs the liability Assurance Factor –Based on expert opinion –Frequency of reversal of tillage practices in Dry Prairie and Parkland –Reversal risk – shaves off C for every tonne created – into virtual Reserve pool –Backs the liability of a reversal of Soil C –No credits earned for that year (no liability on farmer/project developer)

21. Alberta Government Protocol Figure A1. The boundary between Dry Prairie and Parkland is the Black-Dark Brown soil zone boundary. The east-central and east is the boundary is that between the Atlantic Maritime and Mixed Wood Plains ecozones. From McConkey 2006. Protocol Area Soil Zones Emissions Factor ParklandBlack Soil Zone, Boreal Plains, Lake Manitoba Plain, Boreal Shield (AB, SK, MB, and NW ON), Montane Cordillera (AB) 0.16 metric tonnes / acre Dry Prairie Dark Brown Soil Zone, Brown Soil Zone 0.084 metric tonnes / acre

22. Initial transactions (July-Dec, 2007) 25% of liabilities were settled with offsets. Tillage protocol was favourite –7 Projects: 3 Tillage, 2 Wind, 1 LFG, 1 Biomass $6 to $12 / tonne –30-40% transaction costs Note – Demand approx 10 to 12 Mt per year

23. Alberta Offset System Experience proved the aggregator model works. interest in biosequestration projects – the model works. is now competing on reduced transaction costs. More project documentation templates are required. Verification standards are needed for more complex projects (e.g. tillage). Ownership issues – barred additional tillage offsets. Accreditation of verifiers may be warranted. Unanticipated costs found on the project developer side will lead to more diversification of projects ($15 safety valve a challenge).

24. www.CarbonOffsetSolutions.ca www.CarbonOffsetSolutions.ca Climate Change Central Website Market Standards (ongoing) (protocols) Market Intelligence Market Registry (Meeting Place) “How to” Guides List of aggregators, verifiers, buyers Sample Contracts (seller- buyer; seller- verifer)

27. Summary Alberta the first jurisdiction in North America to create a multi-sector regulatory-based demand for carbon reductions Provincial system focused on technology development and new market opportunities –First stages of a carbon market –New carbon investment opportunities Credit creation opportunities exist –Back to 2002 – no deadline to sell –Need to consider the $15/tonne limit –Variety of offset projects eligible –A voluntary component of an environmental regulatory policy framework –Tools to support market activity

28. 1.Completeness – Include all relevant GHG emissions and removals. Include all relevant information needed in order to issue valid offset credits; 2.Consistency – Ensure the methodologies for comparable projects yield similar net reductions/removals and ensure consistency among the elements of a Project Document; 3.Accuracy – Reduce bias and uncertainties as far as practical; 4.Transparency – Disclose sufficient and appropriate GHG-related information to allow the Program Authority and verifiers to make decisions with reasonable confidence; 5.Relevance – Select GHG sources, GHG sinks, GHG reservoirs, data and methodologies appropriate to the needs of the intended user. Quantification Principles

29. Information Climate Change Central: http://www.carbonoffsetsolutions.ca Alberta Government: http://www3.gov.ab.ca/env/climate/index.html Tom.Goddard@gov.ab.ca KarenHK@climatechangecentral.com Andy.Ridge@gov.ab.ca