1. The State and Trends in the Voluntary Carbon Market Dan Barry, Arreon Carbon November 19, 2007 dan.barry@arreon.com

2. Voluntary Market The voluntary market is the trading of carbon credits outside of compliance schemes (i.e. Kyoto’s CDM, EU ETS etc.) Desire to participate in the absence of a formal framework

3. Voluntary Market at A Glance Demand generally fueled by; – CSR, – voluntarily reducing carbon footprints, or – preemption of a compliance market Based almost exclusively on project-based credits No umbrella regulator – Many standards – Higher quality standard = higher price In comparison with compliance markets, voluntary markets are less mature and trade in lower volumes

4. Key Market Statistics By end of Q3 2007, traded approx. 55 million tonnes of CO2e – More than double the volume traded in all of 2006 U.S. markets represents approx. 60% of all traded volumes Prices range from 2-16 USD per tonne of CO 2

5. Historically Traded Volumes Source: New Energy Finance/Point Carbon

6. Voluntary Transactions by Project Type Energy Efficiency 5% Forestry 33% Renewables 33% Industrial Gas 20% Methane 3% Mixed/Other 3% Source: New Carbon Finance

7. The Traded Commodity More flexible than Kyoto-based markets – Demand for credits, not regulatory policy, creates the commodity Most commonly traded voluntary credit is the “Verified Emission Reduction” or VER – Credit that has already been generated – Verified by a third party standards body – Similar to CER, but does not require UN certification Other types – UN certified CERs – Prospective Emission Reductions (PERs) Transaction settled before ERs are delivered (not in forward contracts) Typically used for forestry projects – Emission Reductions (ERs) Credits that have been generated but have not been verified

8. VER vs. CER CER is CER, VER is not a VER – There is one type of CER, assessed and certified by the UN – There are many types of VERs, assessed and verified by different bodies VER requires marketing and packaging – a CER is generally used for Kyoto compliance, VERs are used for other reasons

9. The Link Between Quality & Price Wide price range: $2-16 USD Credits that are assessed according to more stringent standards are sold for higher prices Credits that are better marketed are sold for higher prices What determines quality of projects? – Project Type – Project Location – Additionality – Transparency – Environmental co-benefits – Social co-benefits – Reputation of Seller

10. Prices By Project Type The Chicago Climate Exchange, the largest voluntary climate exchange – Historical price range $1.50 - $ 4.00 – Nov 15 price: $2.05

11. Registries and Standards Under CDM, UN acts as standard and registry Role of a standard – Sets assessment guidelines/regulations Role of a registry – Manages the movement of credits – Assures that one credit is not sold to two owners For VERs, without UN regulation, different standards and registries have been created to fill this role – Each has different regulations

12. Creating the Commodity: Key Market Standards Standard Name SponsorVolume Certified Project Types Additionality Requirement Registry Gold StandardGold Standard Organiz. 350,000Renewable energy, Energy efficiency Same as UNGold Standard database VER+TUV SUD383,932Any except nuclear and large hydro Same as UNBlue Registry Voluntary Carbon Standard (VCS) IETA, Climate Group, World Economic Forum 1,860,00015 specific categories Includes performance standards, barrier analysis TBD Voluntary 0ffset Standard (VOS) Int’l Carbon Investor Services Not availableAny except nuclear, HFC-23, large hydro Same as UNn/a Community Climate Biodiversity (CCBA) CARE, Nature Conservatory, Rainforest Alliance, others 45,695Land use, land use change, forestry Various, financial, political barriers, common practice, etc CCBA database Carbon Financial Instrument Chicago Climate Exchange (CCX) 15,000,000Methane, soil, forestry, renewables Performance standards, barrier analysis CCX Source: Point Carbon

13. Gold Standard Markets itself has most stringent VER standard Similar to EB CDM guidance Requires additional environmental and stakeholder assessment screens Explicitly bans certain project types (i.e. forestry) Most projects cannot meet these standards

14. VER+ Sponsored by TÜV SÜD Additionality/baseline requirements set according to CDM methodologies Projects after 2000 qualify Credits are recorded in TÜV SÜD’s Blue Registry

15. Voluntary Carbon Standard (VCS) Sponsored by the Climate Group, IETA, World Economic Forum Version 1+2 guidelines have been released (final version expected to be published this week) Credits must be “real, quantifiable, additional and permanent project-based emission reductions” Credits are placed into VCS registry

16. The Chicago Climate Exchange Based in Chicago, Illinois, U.S.A. Voluntary, legally binding cap and trade system – Members pledge to reduce emissions – Trades “CFI” Allocated to members Project based projects can become CFIs Current Price around $2 USD End of Q2 07, CCX traded 26.3 million tonnes of CO2e

17. Preferred Standards/ Certification Procedures Source: Ecosystem Marketplace and NCF Survey

18. Voluntary Market: Opportunities for Project Owners Provides alternative revenue source for emissions reducing projects when… – CDM projects start generating electricity before they are registered – Projects do not have an approved CDM methodology – Projects are otherwise not eligible for CDM

19. Voluntary Market: Opportunities for Project Owners Source: Ecosystem Marketplace and NCF Survey

20. Voluntary Market: Opportunities for Project Owners Increase awareness and understanding; – When VERs are relevant to their project – How to maximise the value of their VERs Early stage development Price expectations Project packaging – How the voluntary market differs from the Kyoto market What drives the voluntary market?

21. Voluntary Market: Interaction with the Aggregators More so than CDM, need aggregators to access the tailored transaction market – Forward purchasing contracts – Brokerage agreements Source: Ecosystem Marketplace and NCF Survey

22. Benefits of Voluntary Markets? Desire to participate in the absence of a formal framework Source: Ecosystem Marketplace and NCF Survey

23. Benefits of Voluntary Markets Sectors which practically can’t be capped – Services sectors, individuals etc. Prior to an obligatory scheme – Experience / capacity building (Gov. and industry) – Early action credit – Hybrid markets (e.g. Japan)

24. Arreon Carbon Specialises in the origination and delivery of Chinese VERs and CERs Over one hundred emission reduction projects in a variety of technology areas Financially backed by Credit Suisse International and Mandra Group

25. Thank You dan.barry@arreon.com