1. Greenhouse Gas GREENHOUSE GAS REDUCTION BUYERS POOL NATSOURCE ASSET MANAGEMENT 1 Introduction to Emissions Trading Paul Vickers Managing Director Natsource

2. Greenhouse Gas GREENHOUSE GAS REDUCTION BUYERS POOL NATSOURCE ASSET MANAGEMENT 2 Background…Government and Business leaders in Canada have done much GERT and PERT…establishing standards for project based reductions VCR…establishing reporting process…could evolve into registry GEMCo…driving supply and innovative contract structures Leading companies have built portfolios of emission reduction credits Buyers are building legal, due diligence and other skills Leading suppliers are also building skills and financing needed

3. Greenhouse Gas GREENHOUSE GAS REDUCTION BUYERS POOL NATSOURCE ASSET MANAGEMENT 3 Why emissions trading? The driver is regulation ! Why emissions trading? The driver is regulation ! GHG Canada: – Kyoto: non zero obligation, compliance not strategic, duty of care obligation, ‘covenant ‘ negotiations beginning – Covenants will differentiate amongst sectors and subsectors – BAU efficiency gains will be built into targets - will likely be larger than 15% reduction GHG Provincial : new power faces GHG permit requirements in Quebec, Alberta, BC; Bill 32 discussions beginning with other sectors GHG USA: state by state regulations on new power and existing power. Permit negotiations at local siting Boards. Federal regulations on reporting. Federal proposals for cap-and-trade. “Mandatory-Voluntary” agreements in Oil, Chemicals and Power sectors RPS requirements in USA; likely in Canada USA Clear skies: new reductions in So2 and Nox etc…applies to most emitting sources across the USA Importers of commodities in Europe and Japan beginning to seek concessions and / or ‘bundled’ product

4. Greenhouse Gas GREENHOUSE GAS REDUCTION BUYERS POOL NATSOURCE ASSET MANAGEMENT 4 CementPowerChemicalsPulp & Paper Steel Co2 Intensity (t / unit of product) 0.81.00.70.31.8 BAT Intensity0.530.780.560.21.2 Production (t or other per year) 1,000,000 Target Reduction (%) 15 Emissions (t)800,0001,000,000700,000300,0001,800,000 Allocation (t)450,000663,000476,000170,0001,020,000 Shortfall (t)350,000337,000224,000130,000780,000 An Example of possible regulatory Obligations

5. Greenhouse Gas GREENHOUSE GAS REDUCTION BUYERS POOL NATSOURCE ASSET MANAGEMENT 5 There are two distinct markets emerging world wide…what will Canada do ? Emission allowances and / or credits Renewable energy and demand side management credits

6. Greenhouse Gas GREENHOUSE GAS REDUCTION BUYERS POOL NATSOURCE ASSET MANAGEMENT 6 From the World Bank- emissions markets Project-based Emission Reduction purchases Allowance Trading National trading systems Intra-Firm trading Retail UK DK Shell BP “Pre-Compliance” From voluntary To Kyoto Pre-Compliance

7. Greenhouse Gas GREENHOUSE GAS REDUCTION BUYERS POOL NATSOURCE ASSET MANAGEMENT 7 Data show emissions market is growing ( From the World Bank) The past year has been the most active GHG market to date – volume traded in first half of 2002 already exceeds overall 2001 volume (24 MtCo2e transacted, 103 deals). Based on closed and pending deals, total 2002 volume could be in the range of 60-70 MtCo2e. – Conservatively, this could represent a manifold increase in volume over the previous year’s volume of 12 MtCo2e. This is significant compared to 157 MtCO2e transacted overall since 1996 (190 MtCO2e if post-2012 vintages are counted).

8. Greenhouse Gas GREENHOUSE GAS REDUCTION BUYERS POOL NATSOURCE ASSET MANAGEMENT 8 From the World Bank: Evolution of buyers’ shares of market (in % of total volume purchased through projects ) 1996-20002001-2002 Other Europe

9. Greenhouse Gas GREENHOUSE GAS REDUCTION BUYERS POOL NATSOURCE ASSET MANAGEMENT 9 GHG instrument2002 Prices ($ CAN/mt CO 2 e) Project-based reductions that could be converted to Kyoto compliance instruments Developing country VERs, vintage years 2000-12 (candidate CERs)$4.00 - $5.00 (current bid-ask spread; one transaction reported in 2002 for $3.82) Developed country project-based VERs, vintage years 2008-12 (candidate ERUs) No transactions reported, see also Dutch ERUPT anticipated prices. Project-based reductions that could be converted to domestic compliance instruments Developed country emission reductions, vintage years 2002-12$2.88 - $3.88 Developed country emission reductions, vintage years before 2002$0.73 - $3.88 Other Kyoto compliance instruments AAUs of vintage year 20052007 (for future delivery)2 transactions with prices undisclosed National and regional compliance instruments UK allowances$10.50 - $30 Danish allowances$2.73 - $4.33 Other ghg instruments Dutch ERUPT candidate ERUs and CER’s$6.91 (anticipated) Renewable Energy Credits (REC’s) $1.50-$ 7.00 / Mw-Hr Current GHG / REC market prices

10. Greenhouse Gas GREENHOUSE GAS REDUCTION BUYERS POOL NATSOURCE ASSET MANAGEMENT 10 Emission / REC Sales Issues RISKS Supplier Default Risk – Project Delivery Supplier Default Risk – Credit Risk Price Risk Validity Risk – Quality of Reductions Validity Risk – Regulatory Certainty Risk of Fraud

11. Greenhouse Gas GREENHOUSE GAS REDUCTION BUYERS POOL NATSOURCE ASSET MANAGEMENT 11 Further Information www.natsource.comwww.gcsi.ca Ottawa Doug Russell 150 Isabella Street, Suite 305, Ottawa, Ontario, Canada K1S 1V7 1 613 232 7979 1 613 232 3993 fax Email;:doug.russell@cgsi.ca Calgary Paul Vickers 615 3rd Avenue, S. W. Suite 300 Calgary, Alberta, Canada T2P 0G6 1 403 215 5587 1 403 215 5510 fax Email:pvickers@natsource.ca Washington D.C. Rich Rosenzweig 1120 19th Street, NW Suite 730 Washington D.C., U.S.A. 20036 1 202 496 1423 1 202 496 1416 fax Email:rrosenzweig@natsource.com With offices in Vancouver, Edmonton, Toronto, Tokyo and London