1. 2007 ARIPPA Annual Tech Convention Managing Greenhouse Gas Emissions Arun Kanchan Principal Consultant Trinity Consultants – Somerset, New Jersey akanchan@trinityconsultants.com August 29, 2007 Harrisburg, Pennsylvania trinityconsultants.com

2. Presentation Objective  Brief Background on Greenhouse Gas (GhG) emissions  Domestic and international policy developments regarding global climate change  Best practices in greenhouse gas inventorying

3. Background

4. Assumed Advances In Fossil Fuels Energy intensity Nuclear Renewables The “Gap” Gap technologies E.g. CCS Source: Jae Edmonds, PNNL/Univ MD Stabilizing CO2 Base Case and “Gap” Technologies

5. 1.9  20552005 1414 7 Billion of Tons of Carbon Emitted per Year 1955 0 Currently projected path Flat path Historical emissions 2105 14 GtC/y 7 GtC/y Seven “wedges” O Source: Robert Socolw, www.princeton.edu/~cmi “Wedges”

6. Adapted from: Robert Socolw, www.princeton.edu/~cmi Energy Efficiency Coal-based Synfuels with CCS Wind power Reforestation Mass transit Stabilization Triangle 20042054 7 GtC/y 14 GtC/y Carbon Capture & Storage Biofuels Fill the Stabilization Triangle with Seven Wedges

7. Sources of Greenhouse Gases

8. Climate Change Basics: The “Greenhouse Gases” (per the Second Assessment Report)

9. Calculating CO 2 e  CO 2 e is carbon dioxide equivalent  CO 2 e reflects the global warming potential of each greenhouse gas relative to carbon dioxide, which has a GWP of 1 Emission rate = 400 tpy CH 4 CH 4 GWP = 21 400 tpy CH 4 x 21=8,400 tpy CO 2 e

10. 10,000 metric tons of CO 2 e  Energy Source QuantityHeat Equivalent Assumption Electricity3,000 MWh- - - Natural gas38,000,000 scf38,000 MMBtu 1,000 Btu/scf Diesel fuel200,000 gallons27,700 MMBtu 140,000 Btu/gal Coal1,100 tons 27,500 MMBtu 12,500 Btu/lb All info from The New Zealand Herald, 11/1/03, quoting the New Zealand Climate Change Office

11. How do the U.S. and China Compare with Other Countries on GhG Emissions

12. Climate Change Basics: Emissions per Capita (2003) From Energy Information Administration, World Population, 1980-2003 2005 Metric Tons CO2 Equivalent

14. Domestic and International Policy

15. Bush Administration Report (2004)  CO 2 “is the largest single forcing agent of climate change”  CO 2 and CH 4 “have been increasing for about two centuries as a result of human activities”  “approximately three-quarters of present-day anthropogenic [carbon dioxide] emissions are due to fossil fuel combustion.”

16. The Kyoto Protocol: Early Backlash in the United States  Senate Resolution 98 (1998):  Developing countries must be included  Must not harm the U.S. economy  Passed by a vote of 95-0

17. Emission Trends in the United States: Moving Opposite Kyoto Targets Million Metric Tons CO2 Equivalent Kyoto Allocation: 5,699 MMT CO 2 Equivalent per Year 2000 Gap: 1,295 MMT CO 2 Equivalent – 18.5% of Emissions

18. Domestic Legislation S280 - Climate Stewardship and Innovation Act of 2007  Limit GHG sources with emissions of greater than 10,000 tCO 2 e per year from the following sectors:  Power generation  Transportation  Refiners  Producers or importers of HFCs, PFCs, SF6  “Other industry”  Emission targets:  Decrease to 2004 levels in 2012  Decrease to 1990 levels by 2020  Decrease to 1/3 of 2000 levels by 2050 John McCain, R-AZ Joseph Lieberman I-CT

19. Domestic Legislation S280 - Climate Stewardship and Innovation Act of 2007  Compliance achieved by cap and trade  6 GHGs  30% of reduction requirements can be satisfied by submitting allowances from another nation’s market or by a net increase in sequestration  Penalty for noncompliance is 3x the market value of a ton of GHG per ton of excess GHG emissions  In 2003, defeated 53 to 45  Reintroduced in 109 th Congress, defeated 60- 38  Introduced in 110 th Congress

20. Domestic Legislation S.1766 The Low Carbon Economy Act of 2007  Formally introduced to 110 th Congress on July 11, 2007  Emission Targets  Reduce emissions to 2006 levels by 2020  Reduce emissions to 1990 levels by 2030  60% reduction of emissions from 2006 levels by 2050  Regulated entities include:  Regulated fuel distributors (natural gas pipelines, petroleum refineries, regulated coal facilities, natural gas processing plants, and fuel importers)  Non-fuel regulated entities (producers or importers of HFCs, PFCs, SF 6, or N 2 O; adipic and nitric acid manufacturers; aluminum smelters; HCFC-22 producers, and various other non-fuel-related emitters)

21. Domestic Legislation S.1766 The Low Carbon Economy Act of 2007  Cost reducing features  Safety valve mechanisms set at $12/metric tonne of CO 2 e  14% of allowances auctioned for technology, adaptation, and assistance programs  53% of allowances allocated to various industrial sectors  23% of allowances will be reserved for a set-aside program supporting agricultural sequestration, early reduction, carbon sequestration, and individual state reduction

22. Domestic Legislation S.1766 The Low Carbon Economy Act of 2007  Initial allocation period set to start on January 1, 2012  In January 2007, the Energy Information Administration (EIA) released an analysis of a similar proposal by Bingaman, finding that it would cost 0.1% of GDP through 2030

24. Other Domestic Legislation Suggested byTypeScopeTarget LevelPrice CapOffset BoxerCap and TradeN/A1990 levels by 2020 and 80 percent below 1990 levels by 2050 N/A Bingaman/Specte r Intensity target with trading mechanisms Fuel producers, manufacturers, importers, and emitters of non-fuel GHGs 2013 levels by 2020 (2.4 percent below business as usual intensity) $7/ton (+5 percent annually) Domestic credits, including sequestration, up to 3 percent international credits Feinstein/CarperCap and TradeLarge stationary sources, including utilities, oil and gas and transportation facilities 2006 levels in 2010, 92.75 percent of 2006 levels in 2020 N/A25 percent, domestic and international, including farming and afforestation Waxman (Safe Climate Act of 2006) Cap and TradeLarge emittersStabilization at 2000 levels, 2 percent annual reduction from 2010 to 2020 N/A Source: Point Carbon, Carbon Market Analyst, “Carbon Trading in the US: The Hibernating Giant,” September 13, 2006

25. Domestic Legislation Source: Wall Street Journal, June 20, 2005 and National Center on Energy Policy

26. State/EPA Litigation  Lawsuit filed against EPA in June 2003 for failure to regulate carbon dioxide under the Clean Air Act  Litigants:  Commonwealth of Massachusetts  State of Connecticut  State of Maine

27. State/EPA Litigation  No indication that Congress intended to regulate in the area of climate change in the 1990 CAAA  CAA is missing a regulatory regime for addressing climate change (as exists for stratospheric ozone depletion)  Cites FDA v. Brown & Williamson Tobacco Corp. (2000) which states that an administrative agency awaits congressional direction on a fundamental policy issue such as climate change instead of searching for authority in existing statutes, which were not designed to deal with the issue

29. Regional Greenhouse Gas Initiative

30. Regional Greenhouse Gas Initiative (RGGI)  8 Northeastern and Mid-Atlantic States (CT, DE, ME, NH, NJ, NY, VT, and recently MD)  Mandatory CO 2 cap and trade program to reach state-specific targets  For CO 2 only, from utilities (electric generating units with a nameplate capacity 25 MW)  Program will begin January 1, 2009 and will cap regional GHG emissions at 1990 levels by 2014, 10% below 1990 levels by 2018  Memorandum of Understanding (MOU) issued on December 20, 2005  Draft model rule issued on March 23, 2006  Final model rule issued August 15, 2006, and will be basis for state legislation

31.  Program Adoption  Launch date of January 1, 2009  State-level implementing legislation must be in place by December 31, 2008  Regional emissions cap  Annual budget of 121,253,550 short tons  For 2009 to 2014, annual budget remains static; in 2015, budget will decline 2.5% per year Regional Greenhouse Gas Initiative (RGGI)

32.  Landfill gas capture/combustion  SF6 capture and recycling  Afforestation  End-use efficiency for natural gas, propane and heating oil  Methane capture from farming operations  Projects to reduce fugitive methane emissions from natural gas transmission and distribution (deleted from final model rule) Types of Offset Projects: Regional Greenhouse Gas Initiative (RGGI)

33.  Offset Projects  Reductions realized on or after the date of the MOU  One allowance per ton of CO 2 e reductions inside signatory states  One allowance per two tons CO 2 e reductions outside signatory states  Source may only cover up to 3.3% of reported emission with offset allowances Regional Greenhouse Gas Initiative (RGGI)

34.  Offset Trigger and Reset  If after market settling period, average regional spot price exceeds $7.00 (2005$) per ton for twelve months on rolling average  Offsets may be awarded to projects located anywhere in North America  Offset allowances will be awarded on 1:1 basis  Offset allowance coverage will be increased to up to 5% of reported emissions for compliance period Regional Greenhouse Gas Initiative (RGGI)

35.  Safety Valve Offsets Trigger  If a Safety Valve Trigger Event occurs twice in two consecutive 12-month periods  Offsets may be awarded to projects located anywhere in North America or from international trading programs  Offset allowances will be awarded on 1:1 basis  Coverage will be increased to up to 5% of reported emissions for first three years of compliance period and 20% of reported emissions for fourth year of compliance period Regional Greenhouse Gas Initiative (RGGI)

36.  Allocation of Allowances  Each state may allocate allowances from their budget  25% of allowances will be allocated for consumer benefit or strategic energy purposes  Promote energy efficiency, mitigate ratepayer impacts, promote renewables, stimulate investment in carbon abatement technologies, and/or to fund program administration Regional Greenhouse Gas Initiative (RGGI)

37. PA Energy Department Authority Funding  Governor Rendell is making $10 million in grants available for the fourth round of Pennsylvania Energy Development Authority funding.  PEDA was brought back to life by the governor after years of inactivity and it has directed $21 million in grants and loans for 57 clean energy projects that are leveraging another $240 million in private investment. The projects will create 975 permanent and construction jobs.  Applicants for PEDA financing can seek grant assistance for capital costs for a variety of innovative, advanced energy projects. Eligible PEDA projects may include solar energy; wind; low-impact hydropower; geothermal; biologically derived methane gas, including landfill gas; biomass; fuel cells; coal-mine methane; waste coal; integrated gasification combined cycle; demand management measures, including recycled energy and energy recovery, energy efficiency and load management; and clean, alternative fuels for transportation. PEDA particularly encourages applicants with projects related to distributed generation for critical public infrastructure to apply.  PEDA financing is available to organizations operating in Pennsylvania and to those businesses interested in locating their advanced energy operations in Pennsylvania.

38. US EPA / DOE Programs:  Energy Star (DOE)  Energy efficient products  Energy efficient homes  Energy efficient buildings  http://www.energystar.gov/ http://www.energystar.gov/  Natural Gas Star (EPA)  Reduce methane emissions  Focus on profitable investments  90 partner companies  http://www.epa.gov/gasstar/ http://www.epa.gov/gasstar/ Other Voluntary Initiatives

39.  EPA Climate Leaders’ Program  Company Commitments:  Inventory corporate-wide GHG emissions  Set aggressive emissions reduction goal  Annually report emissions and progress toward goal  Publicize their participation  EPA Commitments:  Technical assistance for GHG inventories  GHG Protocol  http://climatebiz.com/ http://climatebiz.com/

40. Other Voluntary Initiatives American Electric Power (AEP) Baxter International Inc. City of Chicago DuPont Equity Office Properties Trust Ford Motor Company International Paper Manitoba Hydro MeadWestvaco Corporation Motorola, Inc. STMicroelectronics Stora Enso North America Temple-Inland Inc. Waste Management, Inc.  Chicago Climate Exchange Chicago Climate Exchange  Voluntary cap-and-trade program for reducing and trading greenhouse gas emissions.  Phase I - 1% GHG reduction each year for 4 years: 2003 through 2006 (baseline is determined from average of 1998-2001 emissions)  Phase II - 6% below baseline through 2012  Trading approximately 2.5 million metric tons/month (~$3.50/ton)  Now approximately $4 to $4.20/ton  US, Canada, Mexico, Brazil

41. Other Voluntary Initiatives  State registries are being developed for “baseline protection”  California Climate Action Registry  Eastern Climate Registry  LADCO Registry  WRAP Registry  …..Multi-State Registry

42. US and Kyoto?  US reductions cannot be transacted under Kyoto mechanisms, as the US has not ratified the Kyoto Protocol  Under Kyoto rules, US companies can participate in CDM projects in both developing country parties (through unilateral CDM) and Annex B parties (through JI)

43. Los Angeles Price and volume ECX CFI Futures Contracts 606 million tons (Mt) traded YTD 2007 Source: European Climate Exchange August 27, 2007 Conversion, I Euro = 1.3645 USD

44. Iron and Steel also shows advantage in options costing less than 10$ Emission Reduction Achieved by Options costing less than 5 US$ in 2020 (MMT) Share in Sectoral Emission Reduction Potential Emission Reduction Achieved by Options costing less than 10 US$ in 2020 (MMT) Share in Sectoral Emission Reduction Potential Electricity43.710%98.522% Iron and Steel12.79%80.958% Cement192.482%231.298% Transport205.595%205.595% TOTAL454.3 616.1 Share in Total Reduction Potential In Advanced Options Scenario in 2020 44% 59%

45. GHG Inventory Best Practices

46. Overview of Sources Source: The Greenhouse Gas Protocol – A corporate reporting and accounting standard (revised edition), www.ghgprotocol.orgwww.ghgprotocol.org

47. Calculating Emissions  Step 1: Identify GHG Source  Scope 1: Direct emissions from stationary combustion, mobile combustion, processing and fugitives  Scope 2: Indirect emissions from purchased electricity, heat, or steam  Scope 3: Indirect emissions from transportation, contract manufacturing, and product use

48. Emissions Sources – Power Utility  Direct Emissions  Stack CO 2, CH 4, N 2 O emissions from fuel combustion  SF 6 from transmission and distribution equipment  SO 2 Scrubbers - CO 2 released from the reaction of calcium carbonate with sulfur dioxide  SNCR/SCR - Potential N 2 O emissions from the control of NO X through SNCR/SCR.  Fugitive CH 4 from coal storage piles  Blackstart engines  Cogeneration

49. Example – Power Utility  Indirect Emissions  System losses from transmission and distribution (T&D) – the amount that is truly “consumed” by the system (difference between amount produced at facility and amount delivered to user)  Electricity usage for office buildings

50. Strategies for Streamlining GHG Inventories 1. Set a deminimis threshold for sources and document 2. Establish a base year or baseline 3. Set a threshold for adjusting the baseline and document 4. Calculate and document distinct GHG emission reduction projects 5. Pursue third party verification Items for consideration for an internal GHG protocol

51. US Developments and Crystal Ball  Strong possibility that the US may have mandatory CO 2 limits in the near future (3 to 5 years) – highly dependent on political climate  State (and regional) initiatives/mandates will increase (will companies pressure EPA for federal regulation if states are too active?)  EPA/DOE will continue to pursue voluntary initiatives (Climate Leaders, Natural Gas Star, 1605b, etc.)  Domestic litigation will continue  Shareholder pressures will escalate  Pressure will mount for US to address climate change with Kyoto entry into force and EU ETS maturation  Northeast and CA will have carbon caps on electric generating units and CA will have emission caps on additional sources

52. Questions?