The Pathway to Market for Agricultural Carbon Offsets:

Science – Policy - CommodityKaren Haugen-Kozyra, M.Sc. P.Ag.

Principal, KHK Consulting

June 17, 2010

Agriculture and Carbon Markets: Making Carbon CountWashington, DC

Alberta Market Performance

It’s All About Carbon….Why?3 | KHK Consulting | Making Your Carbon Count

Global Carbon Pricing Policies

Alberta

US Fed

Voluntary CarbonStandard

$126B in 2009* 2 Main Commodities*Point Carbon 2010

North American Climate Change Initiatives

NBNB

Western Climate Initiative

Regional GHG Initiative

Midwestern GHG Reduction Accord

AB Specified Gas Emitters Regulation

SK Bill 95

Canada’s Regulatory Framework

The American Clean Energy Security Act

American Power Act Discussion Billl

Carbon Accounting Frameworks

7 | KHK Consulting | Making Your Carbon Count

Quantifying Greenhouse Gases

Two Major International Enablers:

1. Intergovernmental Panel on Climate Change Science-based Guidance on GHG quantification Different Tiers of customization (Tier 1,2,3 –

Country level accounting)

2. Project-Level (Offset) Accounting Standards WRI GHG Protocol/ISO 14064-2 Promotes consistency and transparency in GHG

quantification, monitoring, reporting and verification

Similarities:◦ Quantification, assessment, fidelity and

truthfulness stressed in both◦ Principles - completeness, accuracy, consistency,

transparency and documentation

Project Based Accounting Frameworks– The Carbon Market Access Mechanisms

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Projects Accounting – Relative Quantification

Fundamental Principle: Activities and emission reductions must be above and beyond Business as Usual practices

Project Condition◦What happens (GHGs) with the improved practice/new

technology?Baseline Condition

◦What was happening (GHGs) in the old practice, or common industry practice before the change?

◦Are they comparable (same level of activity, product, service) to base calculation on

Evidence – Document it:◦Quantification and Monitoring Plan◦Data Management System and Data Controls

Amount of Offsets = Baseline - Project. Need to quantify both!

Standards for Protocols are Harmonizing

Ease of Use

Policy Neutral, Flexible

ISO 14064-2

Accounting Rigor

CCX

CDM

Others?

WRI GHG Protocol

Standardizing means making policy decisions!

AB/CDN

VCSCAR

Stakeholder Consultation (eg,

communication with interested parties)

Relevant Legislation (eg, regulatory requirements)

Quantification Protocols:

identifying preferred methodologies to

quantify GHG reductions/removals

Streamlined Life Cycle Assessment

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, IPCC, recognized

criteria, methodologies, tools and guidance on

how to do it)

Best Available Science

Considered Technical Review

Within the discipline of the ISO Standard

National Emissions Inventory

Tier 2/3 Quantification Science

ISO 14064:2 - Standards Development Process

Quantification Protocols

Approved Protocols:◦Streamlined use

◦Transparency and consistency

◦Reduced costs and administration

◦Scientifically sound (expert/scientific review)

◦Reduces cost and risk for Project Developers

◦Provides certainty for investors – GHG tonnes reduced

◦Done right – can address scale, risk and transaction cost issues.

We have to Identify All GHGs14 | KHK Consulting | Making Your Carbon Count

Completeness Principle:◦Knowledge and Scientific Judgment

Substitute for direct evidence where lacking Models and conversion factors Estimate uncertainty

Conservativeness Principle◦Applied as a risk-based approach where

science is less synthesized, but uncertainties are known

◦Strive to underestimate baseline emissions Use the 80:20 rule; collective decisions through

expert peer review (IPCC style) “Serves as a moderator to accuracy”

ISO 14064:2 Principles

Science – Policy - Commodity

State of Science of GHG-Management Links

Commercializable Commodity = Carbon Offset

Criteria are Harmonizing

Additional/Incremental◦beyond business as usual practices (needs a valid and

defensible baseline at the project start); surplus to regulations/received incentives)

Measurable, Quantifiable◦agreement on best available science and activity data –

develop a Protocol. Must stand up to a Review Process; account for all 6 GHGs.

Verifiable◦carbon accounting, and tracking process must be clear,

defensible, and have good QA/QC procedures; verified by qualified 3rd party.

Permanent◦must protect against carbon reversals; account and replace

mechanismsFunctionally Equivalent – Consistent Metrics

◦same level of quantity or service between baseline and project A common base for calculating emission reductions

Relative Quantification Example – Land Fill Gas (LFG); Identifying Relevant Emission Sources, Sinks and Reservoirs

April 28, 2006Slid

e 19LFG – ID Project SSRs

Time Decommissioning and site restoration

Waste management

Downstream SSRs after Project Termination

Post-closure care

Upstream SSRs during Project Operation

Collection and transportation of

waste to the landfill

Transportation of consumables to the landfill

Production of consumable inputs

(electricity, propane, natural gas, diesel…)

Combusted CH4 portion of LFG

Onsite SSRs during Project Operation

Maintenance

Fugitive CH4 portion of LFG

Use of consumables

Upstream SSRs before Project Operation

Site preparation, installation and commissioning

Production of materials,

components and equipment

Waste production (household, commercial)

Transportation of materials,

components, and equipment to site

Downstream SSRs during Project Operation

Biogas end use (i.e. electricity production)

Biogas storage/transfer

Offsite leachate treatment

Waste transportation

April 28, 2006 Slide 20

Time Decommissioning and site restoration

Waste management

Downstream SSRs after Baseline Termination

Post-closure care

Upstream SSRs during Baseline Operation

Collection and transportation of

waste to the landfill

Transportation of consumables to the landfill

Production of consumable inputs

(electricity, propane, natural gas, diesel…)

Onsite SSRs during Baseline Operation

Maintenance

Fugitive CH4 portion of LFG

Use of consumables

Upstream SSRs before Baseline Operation

Site preparation, installation and commissioning

Production of materials,

components and equipment

Waste production (household, commercial)

Transportation of materials,

components, and equipment to site

Downstream SSRs during Baseline Operation

Offsite leachate treatment

Waste transportation

LFG -ID Baseline SSRs

April 28, 2006 Slide 21

Onsite SSRs during Baseline and Project Operation

Upstream SSRs during Baseline and Project Operation

Downstream SSRs during Baseline and Project Operation

Downstream SSRs after Baseline and Project Termination

Upstream SSRs before Baseline and Project Operation

Production of materials,

components and equipment

Transportation of consumables to the landfill

Post-closure care

Production of consumable inputs

(electricity, propane, natural gas, diesel…)

Waste management

Decommissioning and site restoration

Collection and transportation of

waste to the landfill

Site preparation, installation and commissioning

Fugitive CH4 portion of LFG

Waste production (household, commercial)

Combusted CH4 portion of LFG

Offsite leachate treatment

Transportation of materials,

components, and equipment to site

Use of consumables

Maintenance

Waste transportation

Biogas storage/transfer

Biogas end use (i.e. electricity production)

Exclusion of SSRs that are not within the scope of the protocol

Exclusion of SSRs that are related to the manufacturing of materials

Exclusion of SSRs that are unchanged between the baseline and project scenarios

Exclusion of SSRs that do not significantly changed from the baseline to the project scenario

The C Commodity Pathway

Project Documentation

Project Documentation

Validation and Registration

Validation and Registration

Monitoring and Verification

Monitoring and Verification Offset IssuanceOffset 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

• Issuance of tradable units

Driven by Reporting Guidance

TransparencyMarket

Oversight

3rd Party VerificationMonitoring

Requirements

Tradable Commodity

Qua

ntifi

catio

n P

roto

cols

Alberta – almost 4 Mt of No Till Offsets (2.5 years)

Farms

A

A

A

A

A

Aggregator VerifierFirm

Buyer

VerifiedTonnesPotential

Tonnes

Compliance Report

Registry

✔ ✔

✔