An Introduction to Two ARB-Approved CAR Protocols:

Livestock Methane Destruction

and

Ozone Depleting Substance Destruction

CAR Offsets Workshop, NYC, July 26, 2011

Environmental Credit Corp. (ECC) is the #1 US Offset Project Developer (Point Carbon, 2010). Since 2004, ECC has been developing emission reduction projects and providing greenhouse gas services to projects throughout the US, as well as in Mexico, Brazil, and India.

ECC has 65 projects listed through programs including the Climate Action Reserve (CAR), the Clean Development Mechanism (CDM), and the Chicago Climate Exchange (CCX).

ECC has registered credits for a wide variety of project types:

•Ozone Depleting Substance Destruction

•Livestock Methane Destruction

•Composting

•Landfill Methane Destruction

•Renewable Energy

ECC Projects in the USECC Projects in the US

•Livestock methane capture

•Landfill methane capture

•Composting

•Destruction of Ozone Depleting Substances

Presentation OverviewPresentation OverviewI. Livestock Methane Destruction

General Characteristics of the Project Type Utilization of the CAR protocol to date Project process, Crediting issues, and Risks Outlook for Livestock Methane Projects

II. Ozone Depleting Substance destruction (ODS) General Characteristics of the Project Type Utilization of the CAR protocol to date Project process, Crediting issues, and Risks Outlook for ODS Projects

Livestock- General CharacteristicsLivestock- General Characteristics

Livestock Agricultural Methane Destruction projects prevent the release of methane into the atmosphere.

Manure from dairy cows, swine, and other farm animals often decomposes anaerobically- a process which creates methane.

Rather than allowing the methane to escape, Livestock projects capture the methane. Once captured, the methane can be flared; used to create heat or electricity on-site; or cleaned and transported for use as renewable natural gas.

•Case Study: Fessenden Family DairyCase Study: Fessenden Family Dairy King Ferry, New York (Finger Lakes Region) 1,100 dairy cows Liquid manure management (flush system) Open-air anaerobic manure lagoon

•manure lagoon

•dairy barns

•Animal manure storage is a widespread Animal manure storage is a widespread source of methane emissionssource of methane emissions

•anaerobic decomposition•(bacteria)

•VOC, NH3, H2S, N2O, CO2, CH4

•Odor •Greenhouse gases

•Open-air manure lagoon

•Air Quality Concerns:• Greenhouse gas emissions (Fessenden Farm ~200 metric tons methane/year)• Odor• Ammonia

•Manure collectionManure collection

•Photos: USEPA AgStar

•Covered manure lagoon

•Biogas collection system

•Generator/flare

•Benefits:

• Reduced GHG emissions (Fessenden Farm > 4,000 metric tons CO2e/year)

• Reduced odor• Improved stormwater management• Potential for biogas use (renewable electricity, heat)

•Air-tight membrane cover

•anaerobic digestion

•biogas

•CH4

•Simple covers can capture methane from Simple covers can capture methane from lagoons and reduce GHG emissionslagoons and reduce GHG emissions

Simple, low-cost technology U.S. supplier, local jobs Rapid installation Reliable operation Farmer friendly

•Lagoon Cover Design & Lagoon Cover Design & ImplementationImplementation

•Methane Emission ReductionsMethane Emission Reductions

• Established protocolsEstablished protocols

• Independently auditedIndependently audited

• Formal registrationFormal registration

•Renewable Energy Production

•Methane Combustion

•22ndnd Stage Effluent Storage Stage Effluent Storage

•11stst Stage Heated Stage Heated Covered Lagoon Digester Covered Lagoon Digester

•Genset & Heat ExchangeGenset & Heat Exchange

•Manure &Manure &Food wasteFood waste

•Fessenden Dairy -- Anaerobic Digestion to EnergyFessenden Dairy -- Anaerobic Digestion to Energy

Anaerobic digesters in US (livestock)

•Number of operating digesters (Nov. 2010): AgStar Database

•Source: USEPA AgStar

•(129 Dairy)

Common TechnologiesCommon Technologies Ambient Temperature

“Lagoon Covers”

Plug Flow/Mixed Plug Flow

Complete Mix

Other…

•Photo: RCM International

•Photo: Fair Oaks Farms

•Plug Flow Manure DigesterPlug Flow Manure Digester

•Mixed Plug Flow Manure DigesterMixed Plug Flow Manure Digester

•Huckabay Ridge, TexasHuckabay Ridge, Texas

•Centralized Complete Mix DigesterCentralized Complete Mix Digester

Ag Methane- General CharacteristicsAg Methane- General Characteristics

Duration of Project Long- 10-30 years

Relative Credit Yield Low- 500-25k per year

Total Available Market Large, stable

Capital Requirements High

Associated Revenues Energy Sales, Manure Management Cost Savings

Ag Meth- Utilization of the CAR ProtocolAg Meth- Utilization of the CAR Protocol

# of Issuances: 2007- 2

2008- 7

2009- 14

2010- 11

2011- 0

Average Issuance Size:

2007- 18,000

2008- 4,700

2009- 7,600

2010- 11,100

2011-

*As of July 14, 2011

Ag Methane Process, Issues, and RisksAg Methane Process, Issues, and Risks

General Process of an Agricultural Methane Project:

1.Identification of a candidate dairy or swine farm

2.Selection of digester technology and design

3.Electricity? Flaring? Thermal? Decision is largely dependent on the availability, on a state by state basis, of incentives, RECs, feed-in tariffs, etc.

4.Installation of the monitoring equipment necessary to comply with CAR protocol

5.Accumulation of a year of activity- CRTs are only granted to emission reductions which have already occurred

6.CAR Project Developers like ECC monitor and quantify the emission reductions, and hire independent third-party verifiers to assess the accuracy of our emission reduction claims

Ag Methane Process, Issues, and RisksAg Methane Process, Issues, and Risks

Ag Methane Projects face some unique challenges:

1.The CRT value tends to be relatively smaller compared to other revenues and cost savings associated with the project

2.Relatively small quantity of emission reductions per project means that CAR listing and verification expenses, along with required monitoring and sampling costs, tend to exceed the value of the CRTs for all but the largest farms

Ag Methane- OutlookAg Methane- OutlookThe implementation of new projects will likely be influenced more by Federal and State energy policy than by GHG programs.

However, changes which act to reduce fixed GHG-program related project expenses could spur new project development.

Possible cost-saving mechanisms that could spur investment:•Bundling of projects •Allowing conservative defaults in place of direct measurements•Use of electrical production data in lieu of gas flows and gas composition•CDM-style “small scale” project designation with different requirements and costs

Ag Methane- OutlookAg Methane- Outlook

- 2 -

For their upcoming compliance program, CARB has thus far treated CAR Ag Methane CRTs favorably, but there are risks:

• Initial proposal discounted CAR CRTs on a 1 CRT for .87 ARBs basis, but ARB appears to have corrected this in its recent drafts

• A “desk review” may be possible for some project verification transitions, but the cost of even a “desk review” is likely to be substantial on a per-credit basis

Presentation OverviewPresentation OverviewI. Livestock Methane Destruction

General Characteristics of the Project Type Utilization of the CAR protocol to date Project process, Crediting issues, and Risks Outlook for Livestock Methane Projects

II. Ozone Depleting Substance destruction (ODS) General Characteristics of the Project Type Utilization of the CAR protocol to date Project process, Crediting issues, and Risks Outlook for ODS Projects

ODS- General CharacteristicsODS- General Characteristics

The destruction, usually by high-heat incineration, of high GWP CFC gases including R-11, R-12, R-114, and R-115. These are gases whose production has been banned internationally by the Montreal protocol.

This project type should not be confused with CDM projects which involve the destruction of HFC-23 (HFC-23 is a by-product of the production of HCFC-22).

ODS- General CharacteristicsODS- General CharacteristicsODS gases are primarily sourced from four main stockpiles:

1.Gases used as refrigerants in older (pre-1996) household appliances, commercial HVAC units, and industrial chillers

2.Gases used as coolants in older vehicle air conditioning systems

3.Gases used as blowing agents in foam appliance insulation

4.Gases used as blowing agents in building insulation (1960-1996 constructions)

ODS gases have extremely high Global Warming Potential (GWP):

Gas GWP (CO2 equivalent)

R-11 4,750

R-12 10,900

R-114 10,000

R-115 7,370

In other words, one pound of R-12 is has the same climate change impact as 10,900 pounds of Carbon Dioxide

Climate Smart PG&E ECC ARCA Video- Appliance Recycling

ODS- General CharacteristicsODS- General Characteristics

Year CFC-11 CFC-12 CFC-115 Total (MMTCO2e)

2005 44 290 15 349

2010 31 146 6 182

2015 9 32 1 41

2020 0 0 0 0

US EPA Vintaging Model 2007

Accessible Banks of CFCs in Refrigeration/AC Equipment in the United States will decrease rapidly as CFCs leak (chart assumes no intervention of carbon market- no destructions):

ODS- General CharacteristicsODS- General Characteristics

Duration of Project Short- 0-3 months

Relative Credit Yield Extremely High- 50k-180k per destruction

Total Available Market Large, finite, rapidly declining

Capital Requirements High

Associated Revenues None

ODS- Utilization of the CAR ProtocolODS- Utilization of the CAR Protocol

# of Issuances: 2010- 9

2011- 6

Average Issuance Size:

2010- 133,000

2011- 87,325

*As of July 14, 2011

ODS Process, Issues, and RisksODS Process, Issues, and Risks

General Process of an ODS Destruction Project

1.Refrigerants are aggregated together, often in what the industry calls an “ISO”- a large transportation tank which can hold 30-35,000 pounds of gas

2.Tanks are taken to one of six destruction facilities in the United States which use EPA-approved incineration methods to destroy the gases

3.Inbound and outbound weights are measured, along with chemical composition analysis of the shipment

4.CAR Project Developers like ECC monitor and quantify the emission reductions, and hire independent third-party verifiers to assess the accuracy of our emission reduction claims

ODS Process, Issues, and RisksODS Process, Issues, and Risks

ODS Projects face some unique challenges:

1.Declining opportunity- as stockpiles are destroyed, they will never be replaced

2.Increasing cost/ diminishing returns:• low hanging fruit has been grabbed first- eligible gases

which were sitting around in large quantities have been destroyed (Note- US government stockpiles are not eligible)

• Accessing some stockpiles, for example gases used as blowing agent in building insulation, is possible, but very expensive and logistically challenging

• The success of the program causes the market value of the gas to increase- socially desirable outcome, but limits offset supply

3.Limited destruction facilities in US- capacity constraints

ODS OutlookODS Outlook

While ODS projects are not likely to grow substantially over the next few years, these projects should be a significant and stable supply of offset credits for 5-10 years.

For their upcoming compliance program, the CA Air Resource Board (CARB) has offered CAR ODS CRTs fairly favorable treatment-

•1 for 1 exchange of CAR CRTs for ARBs•Most ODS verifications will be subject to only a “desk review” by an ARB-approved verifier in order to transition•Cost of “desk review” process should be relatively insignificant per project, given the large size of typical ODS verifications

Derek Six,

Portfolio Manager and CFO

dsix@envcc.com

(607) 288-4045