1. M-AGG Phase 2 Report: Agriculture Sector Greenhouse Gas Quantification Protocol Benchmarking Davis, California Keith Driver, V.P. Operations Blue Source Canada ULC June 2010

2. Outline About Blue Source M-AGG Phase 2 Objectives Activities and Deliverables Protocol Basics Applicable Programs and Markets Protocol Listing Criteria for Benchmarking Protocol Evaluation 2 | Blue Source | A Leading Climate Change Portfolio

3. About Blue Source 3 | Blue Source | A Leading Climate Change Portfolio

4. ‹#› | Blue Source | A Leading Climate Change Portfolio C About Blue Source  Two primary businesses Carbon Credit Portfolio  100-200M tonne portfolio  Over 20 project types in 48 states and Canada  Federal and state carbon advocacy leadership  Developed the first protocols in numerous carbon categories Carbon Infrastructure Investment  $500 million of dollars project equity (additional $500 million callable)  Management team has developed, owned and/or operated all of the anthropogenic CO2 pipelines in North America  Blended engineering, finance and transactional skills Blue Source has built the largest portfolio of North American emission reduction credits and projects.

5. About Blue Source In addition we have a staff of North America’s foremost experts on carbon reduction and sequestration project 5 | Blue Source | A Leading Climate Change Portfolio Market Infrastructure Development Protocols / Methodologies Alberta Federal Fast Track Federal NOQT Ontario Technical Seed Documents System Guidance Documents Protocol and Project Related Markets Intelligence Potential Offset Supply Forecasts Offset Demand Analysis Renewable Electricity Market in the Carbon Context Carbon Pricing Analysis Project Opportunity/ Feasibility Assessments Policy Development/ Advocacy Methodology Level GIF Adjusted Baseline Methane Avoidance Carbon Capture & Storage Systems Design Level Alberta Ontario WCI US Federal

6. M-AGG Phase 2 Objectives Activities and Deliverables 6 | Blue Source | A Leading Climate Change Portfolio

7. M-AGG Phase 2 Objectives Build on recognition of agriculture sector role in carbon markets Acknowledge that protocols are key market access infrastructure Drive early action and market development Benchmarking exercise to take stock of current protocols Draw attention to the breadth and depth of current works Share learnings from historic protocol development efforts Highlight key issues for agriculture sector protocol development Provide some guidance for what is market-ready This is not designed to be critical review. Pioneers get the arrows. Settlers get the land. 7 | Blue Source | A Leading Climate Change Portfolio

8. Activities and Deliverables Develop criteria for benchmarking C-AGG Principles and others (Offset Quality Initiative) Regulatory and programmatic guidance Review each of the protocols from M-AGG phase 1 Limited to work in the public domain Compilation into benchmarking matrix Communicate results and follow discussion M-AGG Workshops Upcoming communication events Revisions to draft report prior to final publication 8 | Blue Source | A Leading Climate Change Portfolio

9. Protocol Basics 9 | Blue Source | A Leading Climate Change Portfolio

10. Making Carbon a Commodity 10 | Blue Source | A Leading Climate Change Portfolio Project Documentation Project Documentation Validation and Registration Validation and Registration Monitoring and Verification Monitoring and Verification Offset Issuance Project / Baseline Description Monitoring Plan and Methodology GHG emission calculation Project / Baseline Description Monitoring Plan and Methodology GHG emission calculation Review Approve Registration Review Approve Registration Implement Monitor Verify Implement Monitor Verify Issuance of tradable units Driven by Reporting Guidance Transparency Market Oversight 3 rd Party Verification Monitoring Requirements Tradable Commodity Quantification Protocols

11. Protocol Essential Elements Protocol Standards and Approaches Move toward ISO 14064 pt II Streamlined life cycle assessment (project/baseline) Evaluation of all potential baseline scenarios Identification of controlled, related and affected GHG emissions Deciding which GHG sources and sinks are material Scientific Rigour Grounding in peer-reviewed literature Building on national / international best practice guidance Particular challenge for areas of emerging science 11 | Blue Source | A Leading Climate Change Portfolio

12. Stakeholder Consultation (eg, communication with interested parties) Relevant Legislation (eg, regulatory requirements) Quantification Protocols: identifying preferred methodologies to quantify GHG reductions/removals Part 2 of ISO 14064 (ie, auditable standard general process requirements) Relevant Standards (eg, recognized criteria, rules, methodologies, equipment) Applicable GHG Program (eg, additional requirements, criteria, rules and policies) Good Practice Guidance (eg, recognized criteria, methodologies, tools and guidance on how to do it) Markets for GHG Units Protocol Development Requires….. Considered Technical Review Within the context of the ISO Standard National Emissions Inventory Tier II Quantification Science

13. Protocol Essential Elements Scoping and Applicability Acknowledge variety of scales of Ag sector projects Standardization of quantification approaches Define baseline condition Project specific Performance standard Functional equivalence of project and baseline conditions Quantification Element Requirements Address inherent variability across landscapes Manage the measurement vs. modeling balance Ensure rigour of emission reduction assessment False positives/false negatives and accuracy/precision 13 | Blue Source | A Leading Climate Change Portfolio

14. Protocol Essential Elements Regulatory and Programmatic Guidance Scope of the review/system Regulatory coverage Additionality criteria Permanence rules Leakage assessments Guidance for Validation and Verification Streamline and de-risk these processes Protocol Development and Review Processes Program specific with little overlap Stakeholder engagement key (technical and constituency) 14 | Blue Source | A Leading Climate Change Portfolio

15. Applicable Programs and Markets 15 | Blue Source | A Leading Climate Change Portfolio

16. Key North American Climate Change Initiatives 16 | Blue Source | A Leading Climate Change Portfolio NB Western Climate Initiative Regional GHG Initiative Midwestern GHG Reduction Accord AB Specified Gas Emitters Regulation SK Bill 126 Canada’s Regulatory Framework Senate Bill (American Power Act)

17. Available Protocol Review and Approval Programs Climate Action Reserve Voluntary Carbon Standard Alberta Offset System Western Climate Initiative Regional Greenhouse Gas Initiative Clean Development Mechanism Private (i.e. GHGS) Chicago Climate Exchange EPA Climate Leaders 17 | Blue Source | A Leading Climate Change Portfolio Some programs are industry-led Some programs are regulatory-based Cross-pollination and acceptance is possible Differences in approval processes Differences in scope Diversity in scope, coverage, timeline, cost and outcome.

18. Protocol Listing 18 | Blue Source | A Leading Climate Change Portfolio

19. Reviewed Protocols Climate Action Reserve Greenhouse Gas Services Regional Greenhouse Gas Initiative 19 | Blue Source | A Leading Climate Change Portfolio Forest Project Protocol Livestock Project Protocol Livestock Manure Afforestation Manure Management

20. Reviewed Protocols Chicago Climate Exchange Voluntary Carbon Standard Clean Development Mechanism 20 | Blue Source | A Leading Climate Change Portfolio Forestry Carbon Agricultural Methane Afforestation/ Reforestation Manure Management Offset Fertilizer with Legumes Tillage and Grassland Rangeland Soil Carbon Sustainable Agriculture Land Mgmt

21. Reviewed Protocols Alberta Offset System 21 | Blue Source | A Leading Climate Change Portfolio Days on Feed for Beef Dairy Operations Edible Oils for Beef Tillage Management Nitrogen Emission Reduction* Energy Efficiency Pork Feed and Manure Management Beef LifecycleBiogas

22. Criteria for Benchmarking (Building from Phase 1) 22 | Blue Source | A Leading Climate Change Portfolio

23. Protocol Review Criteria 23 | Blue Source | A Leading Climate Change Portfolio Science Based Does the protocol/methodology use relevant, current best practice guidance from widely accepted sources relevant to the project? Is the quantification method grounded in peer-reviewed science or based on disciplined scientific review? Quantifiable, Verifiable and Results Based Does the protocol give quantification procedures for measuring/estimating all GHGs for each relevant SSR? Does the protocol provide suitable guidance for data capture and management, in sufficient detail to understand what specific proof is required? Does the protocol optimize the number of project-level inputs required for quantification?

24. Protocol Review Criteria 24 | Blue Source | A Leading Climate Change Portfolio Additionality Does the protocol use a project-specific baseline? If yes, is there supplemental guidance for assessing additionality? Does the protocol use a performance standard baseline? If yes, is the justification and documentation of the baseline available? Permanence Does the protocol take a risk or market-based approach to addressing permanence in sequestration projects? Does the permanence approach take into account the need to maintain sequestered carbon for a period of time relevant to the life-span of the GHG in the atmosphere?

25. Protocol Review Criteria 25 | Blue Source | A Leading Climate Change Portfolio Comprehensive GHG Accounting Was the protocol baseline scenario selected through a structured and well-justified process? Does the baseline scenario take into account all relevant existing and proposed regulatory requirements? Does the protocol address leakage? Are there consistent and conservative criteria and procedures established for selecting relevant SSRs for monitoring or estimation? Does the protocol, where warranted, set a well-justified threshold for exclusion of a greenhouse gas (i.e. a de minimus threshold)? Does the protocol use functional equivalence (common base metrics) when calculating the difference in emissions between the project and the baseline?

26. Protocol Review Criteria 26 | Blue Source | A Leading Climate Change Portfolio Scalability Can the protocol and/or quantification method be implemented across all applicable regions of the U.S. (i.e. how scalable is the protocol)? Does the format/structure of the protocol enable the application of more than one protocol, without double counting, where multiple emission reduction/sequestration activities occur at the same site? Engagement and Review Is the background information on the protocol development and review process recorded and available? Is there a broad representation of the key technical and scientific experts involved in the review? Has a government or government-mandated body approved the protocol (or its foundation document) for use in the GHG program?

27. Results of Benchmarking 27 | Blue Source | A Leading Climate Change Portfolio

28. Results of Benchmarking - CAR 28 | Blue Source | A Leading Climate Change Portfolio Science Based Quantifiable Additionality Performance-based approach Permanence Mandated approach GHG Accounting De-minimus exclusion of GHG in livestock Scalability Limited disclosure on SSR interrelationships Engagement and Review Transparency of process Broad vs. technical stakeholder coverage CARB oversight or otherwise Forest Project Protocol Livestock Project Protocol

29. Results of Benchmarking - GHGs 29 | Blue Source | A Leading Climate Change Portfolio Science Based Quantifiable Exclusion of N 2 O Additionality Permanence GHG Accounting De-minimus exclusion of GHG Scalability Engagement and Review Private protocol Only final version of protocol is available Livestock Manure

30. Results of Benchmarking - RGGI 30 | Blue Source | A Leading Climate Change Portfolio Science Based Limited transparency as short-form Quantifiable Limit guidance provided Additionality Limited transparency on performance standard Permanence Partial for afforestation – conservation easement GHG Accounting Limited detail and transparency given short-form Scalability Limited disclosure of SSRs and inter-linkages Engagement and Review Only final version published Standard is codified as part of program Afforestation Manure Management

31. Results of Benchmarking - CCX 31 | Blue Source | A Leading Climate Change Portfolio Science Based Uncertain – lack of transparency Quantifiable Limited coverage of GHGs Additionality Tillage / Rangeland can be continuation of practice Permanence Limited term to liability – where applicable GHG Accounting Limited guidance and transparency at times Scalability Limited disclosure of SSRs and inter-linkages Engagement and Review Voluntary program Only final version available Limited transparency to review process Forestry Carbon Agricultural Methane Tillage and Grassland Rangeland Soil Carbon

32. Results of Benchmarking - VCS 32 | Blue Source | A Leading Climate Change Portfolio Science Based Quantifiable Additionality Permanence Programmatic guidance GHG Accounting Reliance on models to address in SALM Scalability Limited disclosure of SSRs and inter-linkages Engagement and Review Only final version published / under review Double validation process - limited pool of experts CDM / CAR approval possible Afforestation/ Reforestation Sustainable Agriculture Land Mgmt

33. Results of Benchmarking - CDM 33 | Blue Source | A Leading Climate Change Portfolio Science Based Quantifiable Additionality Permanence GHG Accounting Scalability Limited disclosure of SSRs and inter-linkages Engagement and Review Only final version published Manure Management Offset Fertilizer with Legumes

34. Results of Benchmarking - AOS 34 | Blue Source | A Leading Climate Change Portfolio Science Based Quantifiable EE Protocol provides limited guidance Additionality Permanence GHG Accounting Leakage not always documented Scalability Emission factors and baselines need adjustment for regional factors Engagement and Review NERP still undergoing review (with others) Days on Feed for Beef Dairy Operations Edible Oils for Beef Tillage Management Nitrogen Emission Reduction* Energy Efficiency Pork Feed and Manure Management Beef Lifecycle Biogas

35. Conclusions and Next Steps Protocol benchmarking process ‘Lessons-learned’ from all programs / systems Gaps across the range of agriculture operations and activities Significant opportunities for coalescing efforts Need to integrate science Seeking input on criteria, review results, documentation Revise documentation to incorporate stakeholder views Further stakeholder engagement Highlight opportunities for further protocol development Bring together groups working on similar project types Encourage follow-on work in the public domain 35 | Blue Source | A Leading Climate Change Portfolio

36. Moving to Three Streams of Activity Pilot Projects Development of Protocols Compilation of Science 36 | Blue Source | A Leading Climate Change Portfolio Path to Carbon Market Informing Policy Development T-AGG M-AGG P-AGG? C-AGG

37. Contact Information Keith Driver, M.Sc., P.Eng., MBA VP, Operations Blue Source Canada ULC KeithD@BlueSourceCan.com www.BlueSourceCan.com 403.262.3026 37 | Blue Source | A Leading Climate Change Portfolio