1. Information Security Identification: Confidential Environmental Markets Overview Thoughts on how to: 1) Achieve environmental goals 2) Generate revenue / Infrastructure investments 3) Create jobs August, 2011Environmental Innovation Solutions

2. 2 What Are Environmental Markets? Water Local Compliance Markets (Nutrient Credit Trading Systems) Emissions / Carbon Markets Regional Compliance Markets (EPA, RGGI, California, WCI) Renewable Energy Twenty-nine US states, District of Columbia & Puerto Rico have market based approaches to promote renewable energy using Renewable Energy Credits (RECs) Energy Efficiency Reduction in energy usage spurred by efficiency measurement and reporting Biodiversity  Smaller very localized compliance markets (fisheries, habitat preservation, etc.)

3. Environmental Innovation Solutions 3 Market Based Trading Program Participants Identify Sectors To Be Covered Determine Total Environmental Liability From Covered Sources & Set Market Cap Issue Allowances (1 allowance per unit) Distribute via: Allocation Auction Combination Trade Regulated Sources (e.g. Power Plants) Cover Libailities With Allowances and/or Offsets Offsets + RegulatorsExchanges & BrokersEnd UsersNGOs California Air Resources Board WCI Environmental Protection Agency Regional Greenhouse Gas Initiative Local and Regional Watershed Authorities Climate Action Reserve American Carbon Registry Voluntary Carbon Standard Green Exchange (CME) Blue (NYSE) NASDAQ Utilities Industrials Land Developers Social Organizations JPM (EcoSecurities) Barclays Cantor Fitzgerald (CO2e) Environmental Markets Element Markets

4. Environmental Innovation Solutions 4 4 The Role of Trading Polluters will choose least cost option: Internal abatement (reduce environmental impact) (scale back output, relocate, alter mode of operation, fuel switching, new technology/investments) Buy surplus allowances in state auction Buy surplus allowances from “clean” producers Invest in verified environmentally beneficial projects = buy offsets Pay penalty for non-compliance Trading unleashes the creativity & economic incentives of markets in allocating capital to the least cost emission reduction options. Allowances + Offsets > EmissionsAllowances + Offsets < EmissionsAllowances + Offsets = Emissions In Compliance Bank / Sell Surplus Purchase / Borrow Shortfall

5. Environmental Innovation Solutions 5 Why Market Based Approaches? Economists note that an efficient public utility can outperform an efficient private utility because it does not need to produce profits and need not pay taxes on revenue generated. So why is there a renewed focus on financing alternatives? Because these programs are costly Federal agencies are reducing grants and loans State budgets are stretched thin Scarce natural resources require prudent management Private sector markets can be a reliable source of funding

6. Environmental Innovation Solutions 6 RegulatorGeography / IndustryEstimated Annual Compliance Revenues Regional Green House Gas Initiative 10 Northeastern States Electric Generators $200 million (Value of allowances auctioned) California Air Resources Board California 85% of economy by 2015 $4 billion (Value of allowances allocated / auctioned) EPA & Army Corp of Engineers Clean Water Act Almost 300 State & Municipal Programs Industrial & Municipal Point Sources $1.5 billion (ecosystem Market Place estimate) EPA Clean Air Rule (CAIR) 28 Eastern States Electric Generators $3.6 billion (2015 EPA estimate) to be replaced by Transport Rule State Renewable Portfolio Standards 29 States Electric Generators Various investment amounts directly by utilities How Much Revenue Can be Raised?

7. Environmental Innovation Solutions 7 Do These Programs Really Create Jobs? Leading economists have estimated that between 20,003 and 26,669 construction, engineering and manufacturing jobs are created for every billion dollars of public sector investment in water infrastructure. California studies indicate a net job creation of 112,000 jobs over the first five years of the California Air Resources Board Emissions Trading program while generating $4 billion in annual revenues by 2015. A study by the Renewable Electricity Standard Alliance released estimates that setting a target requiring that 25 percent of US electricity be generated from renewable sources by 2025 would support the creation of 274,000 American renewable energy jobs.  “I know there are other builders moving over into the renewable-energy sector for the purposes of maintaining an income,” said Joe Crecca, of JBS Solar and Wind. “There’s a future there.”

8. Environmental Innovation Solutions 8 Emissions Focus RGGI Quick Facts Ten Participating States: CT, DE, MA, MD, ME, NH, NJ, NY, RI, VT Coverage: Fossil fuel-fired power plants 25 megawatts or greater in size (currently 209 facilities region-wide) Initial CO2 Emissions Cap: 188 million short tons per year for the 10-state region Timing of CO2 Reductions: 2009-2014, cap stabilizes emissions at 188 million tons annually; 2015-2018, cap declines by 2.5 percent per year for total reduction of 10 percent CO2 Allowance Auctions: Regional, held quarterly, open to all who qualify Compliance Period: Three years, first compliance period January 1, 2009 – December 31, 2011 Auction Proceeds: $886.4 million through June 2011. Overall, 80% invested in consumer benefit programs, including energy efficiency, renewable energy, direct energy bill assistance and other greenhouse gas reduction programs Benefits of Investment: Significant environmental, consumer and economic benefits, including fewer emissions, lower electric bills and new jobs

9. Environmental Innovation Solutions 9 Emissions Focus WCI Partners & Observers Canadian Partner jurisdictions comprise 79% of the total Canadian population and 76% of the Canadian GDP. U.S. Partner jurisdictions comprise 19% of the total US population and 20% of the U.S. GDP

10. Environmental Innovation Solutions 10 Renewable Energy Focus What Are RECs (Renewable Energy Credits)?

11. Environmental Innovation Solutions 11 Renewable Energy Focus State RPS Standards NOTE: *Five states, North Dakota, South Dakota, Utah, Virginia, and Vermont, have set voluntary goals for adopting renewable energy instead of portfolio standards with binding targets. Renewable Portfolio Standards (RPS) are legislated requirements imposed on electricity producers to generate a minimum amount of their output from renewable sources. In lieu of generating from renewable sources the producers can purchase Renewable Energy Credits (RECs).

12. Environmental Innovation Solutions 12 Renewable Energy Focus Renewable Portfolio Policies Renewable portfolio standard Renewable portfolio goal Solar water heating eligible * † Extra credit for solar or customer-sited renewables Includes non-renewable alternative resources WA: 15% x 2020* CA: 33% x 2020 NV : 25% x 2025* AZ: 15% x 2025 NM: 20% x 2020 (IOUs) 10% x 2020 (co-ops) HI: 40% x 2030 Minimum solar or customer-sited requirement TX: 5,880 MW x 2015 UT: 20% by 2025* CO: 30% by 2020 (IOUs) 10% by 2020 (co-ops & large munis)* MT: 15% x 2015 ND: 10% x 2015 SD: 10% x 2015 IA: 105 MW MN: 25% x 2025 (Xcel: 30% x 2020) MO: 15% x 2021 WI : Varies by utility; 10% x 2015 statewide MI: 10% + 1,100 MW x 2015* OH : 25% x 2025 † ME: 30% x 2000 New RE: 10% x 2017 NH: 23.8% x 2025 MA: 22.1% x 2020 New RE: 15% x 2020 (+1% annually thereafter) RI: 16% x 2020 CT: 23% x 2020 NY: 29% x 2015 NJ: 22.5% x 2021 PA: ~ 18% x 2021 † MD: 20% x 2022 DE: 25% x 2026* DC: 20% x 2020 VA: 15% x 2025* NC : 12.5% x 2021 (IOUs) 10% x 2018 (co-ops & munis) VT: (1) RE meets any increase in retail sales x 2012; (2) 20% RE & CHP x 2017 KS: 20% x 2020 OR : 25% x 2025 (large utilities )* 5% - 10% x 2025 (smaller utilities) IL: 25% x 2025 WV: 25% x 2025* † 29 states + DC and PR have an RPS (7 states have goals) 29 states + DC and PR have an RPS (7 states have goals) DC OK: 15% x 2015 PR: 20% x 2035 Source: DSIRE

13. Environmental Innovation Solutions 13 Different Regions of The Country Use Different Fuel Mixes To Generate Electricity

14. Environmental Innovation Solutions 14 Water Focus A Deeper Dive On Water Programs By cutting federal funding states, counties and cities will be under greater pressure to consider creative methods to pay for sustainable infrastructure Federal government continues to call for steep cuts in the Clean Water State Revolving Fund (CWSRF)  Good News: Low Interest Rates, Flexible Terms—Nationally, interest rates for CWSRF loans average 2.3 percent, compared to market rates that average 5 percent. Potential 22 percent financing cost reduction.  Bad News: $4 billion in 2009 to $1.5 billion in 2011 Increase in market based programs  Total number of programs identified: 10  Total number of active programs: 10  Total value of payments in 2008: US$1.35 billion

15. Environmental Innovation Solutions 15 Water Focus A Deeper Dive On Water Programs Tools For Investigating Market Based Clean Water Programs EPA Financing Alternatives Comparison Tool (FACT)  Analysis tool that helps identify the most cost-effective method to fund a wastewater or drinking water management project >http://water.epa.gov/grants_funding/cwsrf/fact.cfmhttp://water.epa.gov/grants_funding/cwsrf/fact.cfm Handbook on design and implementation of market based clean water programs  http://water.epa.gov/type/watersheds/trading/handbook_index.cfm Grants are available for program design / launch  EPA’s Targeted Watersheds Grant (TWG)  Natural Resource Conservation Service’s Conservation Innovation Grant (CIG), a program under the US Department of Agriculture

16. Environmental Innovation Solutions 16 Additional Resources EPA Write-Up on Cap & Trade and Renewable Energy http://www.epa.gov/capandtrade/ http://www.epa.gov/chp/state-policy/renewable_fs.html Carbon Disclosure Project reports https://www.cdproject.net/CDPResults/CDP%202009%20SandP500%20Report.pdf BNY Mellon Environmental web-page http://www.bnymellon.com/eis Database of State Incentives For Renewable Energy http://www.dsireusa.org/ Union of Concerned Scientists Data http://www.ucsusa.org/clean_energy/res/overviewadoption.html Western Climate Initiative http://westernclimateinitiative.org/ Regional Greenhouse Gas Initiative http://www.rggi.org/home State of Watershed Payments – An Emerging Marketplace http://www.forest-trends.org/documents/files/doc_2438.pdf

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