An Introduction to Two ARB-Approved CAR Protocols: Livestock Methane Destruction and Ozone Depleting Substance Destruction CAR Offsets Workshop, NYC, July 26, 2011 1

Environmental Credit Corp 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 2

ECC Projects in the US When we started ECC, about six years ago, we were one of the first offset aggregators to join in the Chicago Climate Exchange. Last year, we were ranked as the #1 offset project developer in the US. We focus primarily on agricultural projects, but also do a number of landfill methane capture, composting and refrigerant gas destruction projects. These projects have so far formally registered close to one and a half million tons of CO2 emission reductions, and are on track to reduce about a million tons a year or more. These projects also represent many millions of dollars of investment by ECC and our partners. Livestock methane capture Landfill methane capture Composting Destruction of Ozone Depleting Substances

Presentation Overview I. 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) Outlook for ODS Projects 4

Livestock- 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. 5

Case Study: Fessenden Family Dairy manure lagoon King Ferry, New York (Finger Lakes Region) 1,100 dairy cows Liquid manure management (flush system) Open-air anaerobic manure lagoon dairy barns I’d like to quickly give you an idea of what a offset project looks like, and who’s involved. Here’s a family photo of Tim and Rhonda Fessenden of King Ferry, New York (on the far right) and their extended family. They milk about 1100 dairy cows. As is common for mid-sized to large dairies, the manure from the cows is stored in a treatment lagoon before being returned to the field as fertilizer.

anaerobic decomposition Animal manure storage is a widespread source of methane emissions VOC, NH3, H2S, N2O, CO2, CH4 Odor Greenhouse gases The liquid manure in these lagoons decomposes to produce a biogas that is about half methane, a potent greenhouse gas. You can see the biogas bubbling up to the surface in this slide. anaerobic decomposition (bacteria) Air Quality Concerns: Greenhouse gas emissions (Fessenden Farm ~200 metric tons methane/year) Odor Ammonia Open-air manure lagoon

Manure collection Photos: USEPA AgStar

Simple covers can capture methane from lagoons and reduce GHG emissions Air-tight membrane cover Biogas collection system anaerobic digestion biogas CH4 Generator/flare By simply covering the lagoon with what is essentially a very large pool tarp, Tim and Rhonda are now capturing and collecting the biogas for combustion, which destroys the methane. In this case, Environmental Credit Corp. paid for the cover in exchange for a share of the carbon credits that are generated by the methane emission reductions, which amount to about 4,000 metric tons of CO2 equivalents per year. Enough to offset the CO2 emissions from about 20 rail cars full of coal. Benefits: Reduced GHG emissions (Fessenden Farm > 4,000 metric tons CO2e/year) Reduced odor Improved stormwater management Potential for biogas use (renewable electricity, heat) Covered manure lagoon

Lagoon Cover Design & Implementation Simple, low-cost technology U.S. supplier, local jobs Rapid installation Reliable operation Farmer friendly The construction of these covers is done by a US fabricator, often using local labor. It takes a crew of a half dozen several weeks to weld the cover together, accordion style, and pull it over the lagoon with an air tight seal.

Renewable Energy Production Methane Emission Reductions Methane Combustion Established protocols Independently audited Formal registration The biogas is monitored and piped to a flare or to a generator to produce renewable electricity that can be used on the farm or sold to the grid. Methane emission reductions are carefully quantified using established protocols required by offset programs such as the CCX. Monitoring reports are independently audited before they can be formally registered as carbon credits. Renewable Energy Production

Fessenden Dairy -- Anaerobic Digestion to Energy 2nd Stage Effluent Storage Manure & Food waste 1st Stage Heated Covered Lagoon Digester Genset & Heat Exchange

Anaerobic digesters in US (livestock) Number of operating digesters (Nov. 2010): AgStar Database (129 Dairy) Source: USEPA AgStar

Common Technologies Ambient Temperature “Lagoon Covers” Plug Flow/Mixed Plug Flow Complete Mix Other… Photo: RCM International Photo: Fair Oaks Farms

Plug Flow Manure Digester

Mixed Plug Flow Manure Digester

Centralized Complete Mix Digester Huckabay Ridge, Texas

Ag 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 19

Ag 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 20

Ag Methane Process, Issues, and Risks General Process of an Agricultural Methane Project: Identification of a candidate dairy or swine farm Selection of digester technology and design Electricity? Flaring? Thermal? Decision is largely dependent on the availability, on a state by state basis, of incentives, RECs, feed-in tariffs, etc. Installation of the monitoring equipment necessary to comply with CAR protocol Accumulation of a year of activity- CRTs are only granted to emission reductions which have already occurred 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 21

Ag Methane Process, Issues, and Risks Ag Methane Projects face some unique challenges: The CRT value tends to be relatively smaller compared to other revenues and cost savings associated with the project 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 22

Ag Methane- Outlook The 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 23

Ag Methane- Outlook 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 - 2 - 24

Presentation Overview I. 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) Outlook for ODS Projects 25

ODS- 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). 26

ODS- General Characteristics ODS gases are primarily sourced from four main stockpiles: Gases used as refrigerants in older (pre-1996) household appliances, commercial HVAC units, and industrial chillers Gases used as coolants in older vehicle air conditioning systems Gases used as blowing agents in foam appliance insulation 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 27

Climate Smart PG&E ECC ARCA Video- Appliance Recycling

ODS- General Characteristics 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): 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 US EPA Vintaging Model 2007 29

ODS- 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 30

ODS- 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 31

ODS Process, Issues, and Risks General Process of an ODS Destruction Project 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 Tanks are taken to one of six destruction facilities in the United States which use EPA-approved incineration methods to destroy the gases Inbound and outbound weights are measured, along with chemical composition analysis of the shipment 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 32

ODS Process, Issues, and Risks ODS Projects face some unique challenges: Declining opportunity- as stockpiles are destroyed, they will never be replaced 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 Limited destruction facilities in US- capacity constraints 33

ODS 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 34

Portfolio Manager and CFO Derek Six, Portfolio Manager and CFO dsix@envcc.com (607) 288-4045