1. Future of Carbon Markets: U.S. and Post-2012 Regime Future of Carbon Markets: U.S. and Post-2012 Regime Joe Nation, Ph.D. March 13, 2007

2. U.S. Move Led by State, Local Governments AB 32 (California) and Schwarzenegger executive orders most comprehensive, aggressive effort —1990 emissions levels by 2020 —80% below 1990 levels by 2050 —multi-sectoral approach —Market Advisory Committee (MAC) report due June 30, 2007 —trading to begin Jan. 1, 2012 —seek “linkages” with ETS, others Numerous local governments setting targets

3. Other U.S. States Engaged Regional Greenhouse Gas Initiative (RGGI) in northeast —limited to utilities New Jersey target 1990 levels by 2020, 80 percent below 2006 levels by 2050 Western Regional Climate Action Initiative requires regional target in 6 months Total of more than 40 states with emissions targets or pending legislation

4. Federal (In)Action 106 bills introduced on climate, emissions in last Congress Numerous bills introduced —only Bingaman (D-NM), which contains price safety valves, likely to survive veto Unlikely any significant federal action before 2009 Some suggest adopting law “like” California

5. Action Post-2012 Highly Speculative Assume California, other states’ markets Motivation at state level to force federal action Climate unlikely to emerge as major issue in 2008 Presidential campaign, but new law likely during 2009-2012 period Action limited by U.S. voter support for emissions reductions, although three in four now view climate change as “serious” issue

6. Observations Voluntary market likely to grow significantly pending certainty of state, federal actions —colleges, governments, businesses taking unilateral actions Business increasingly supportive of emissions reductions Market, voters will lead political leaders —”pain” associated with steep reductions

7. Contact Information Joe Nation, Ph.D. P.O. Box 9374 San Rafael, CA 94912 USA +1 415.453.0388 Fax: + 1 415.453.0488 joe@joenation.com