Chicago Climate Exchange ®, Inc. © CCX ODS Destruction Offsets Projects: Overview, Lessons Learned & Future Opportunities June 14, 2010 Stephen J. Donofrio Economist Chicago Climate Exchange Prepared for the United Nations Environment Program Seminar on the environmentally sound management of banks of ozone-depleting substances (decision XXI/2)

Chicago Climate Exchange ®, Inc. © 2010 Climate Exchange Plc is an AIM listed company (CLE.L) which owns the European Climate Exchange (ECX) and the Chicago Climate Exchange (CCX) Chicago Climate Exchange (CCX) is North America's only and the world's first global marketplace for integrating voluntary legally binding emissions reductions with emissions trading and offsets for all six greenhouse gases. Chicago Climate Futures Exchange ® (CCFE), a wholly owned subsidiary of CCX, is a CFTC designated contract market that offers derivative products for emission allowances and other environmentally based markets European Climate Exchange (ECX) is the most liquid, pan-European platform for trading carbon emissions under the EU ETS, offering futures and options contracts. ECX commands over 80% market share of the exchange traded volume for EU ETS carbon credits The Montréal Climate Exchange is a joint venture between the Montréal Exchange (MX) and the Chicago Climate Exchange® (CCX). MCeX operates the first regulated environmental derivatives market in Canada. Tianjin Climate Exchange (TCX) is a joint venture between CNPC, CCX and City of Tianjin. TCX is first integrated exchange for trading environmental financial products in China. Envex is a joint venture between CCX and Macquarie bank of Australia. Envex develops exchange- traded and OTC climate and environmental products for the emerging Australian markets. Climate Exchange PLC Family Globally Operating Six Exchanges in Five Countries across Four Continents

Chicago Climate Exchange ®, Inc. © 2010 CCX Market Architecture ( ) Chicago Climate Exchange (CCX ®) is the worlds first and North Americas only active voluntary, legally binding integrated trading system to reduce emissions of all six greenhouse gases, with offset projects in North America and worldwide CCX has 400+ members worldwide with a registered emission baseline of 600 MMT CO 2 e CCX has 330+ registered GHG emission reduction projects totaling 83 MMT CO 2 e

Chicago Climate Exchange ®, Inc. © 2010 CCX Comprehensive Market Structure Web Electronic Trading Platform Electronic Market Registries Emitting Members: Standard baseline, multi-year allowance stream = to reduction targets Offset Aggregators/Providers: GHG project protocols Liquidity Providers Associate Members Emitting Members: Standard baseline, multi-year allowance stream = to reduction targets Offset Aggregators/Providers: GHG project protocols Liquidity Providers Associate Members Comprehensive Rules System

Chicago Climate Exchange ®, Inc. © CCX Offset Project Types Verified Offset projects sequester or eliminate GHGs to earn Carbon Financial Instruments (CFI) sold on CCX electronic platform to CCX membership Current pre-defined Offset Categories Agricultural Methane Collection & Combustion Agricultural Best Management Practices - Continuous Conservation Tillage and Conversion to Grassland Soil Carbon Sequestration Agricultural Best Management Practices - Sustainably Managed Rangeland Soil Carbon Sequestration Avoided Emissions from Organic Waste Disposal Coal Mine Methane Collection and Combustion Forestry Carbon Sequestration Landfill Methane Collection and Combustion Ozone Depleting Substances Destruction Renewable Energy Systems Small Scale Renewable Biogas Ozone Depleting Substances Destruction 14 ODS Destruction Projects Registered 787,300 Mt CO 2 e issued

Chicago Climate Exchange ®, Inc. © 2010 ODS have significant Global Warming Potentials (GWP) ranging between 500 and 10,000+ Mt CO 2 e when emitted from ODS banks Represents a liability, destruction creates an asset While Montreal Protocol phased out production and consumption, not much regulatory or economic incentive for recovery and destruction Little recovery and destruction occurring Magnitude of GHG problem from ODS is significant GHG emissions 2007 US Bank of eligible ODS 330 MMT CO2e 2007 accessible quantity of ODS contained in equipment is over 1400 MMT CO 2 e US EPA est. that 13% of eligible ODS will be emitted by 2010 if not recovered and destroyed IPCC/TEAP est. 6 Gt CO2e will be released to the atmosphere from the most easily accessible and destroyable ODS banks in refrigeration and air conditioning ( ); total Kyoto reductions is 4.3 Gt CO 2 e Venting is regulated, BUT, enforcement is difficult Key Details of ODS Destruction Protocol: Rationale and Premise

Chicago Climate Exchange ®, Inc. © 2010 Protocol Rationale and Premise: U.S. ODS Lost Opportunity – MMt CO 2 e Today Quick action is needed since opportunity is all but lost within 10 years

Chicago Climate Exchange ®, Inc. © 2010 ODS Protocol History: Peer Review and Committee Approval Process Concept Proposed by DuPont (Dec. 19, 2006) Concept Proposed by DuPont (Dec. 19, 2006) Discussions, Consultation, Research - CCX, DuPont and U.S.EPA Research and technical work performed by U.S.EPA and ICF Discussions, Consultation - CCX, DuPont and U.S.EPA CCX Offsets Committee Review (May 15, 2007) Further Research - CCX, DuPont, U.S.EPA CCX Offsets Committee Approval (June 19, 2007) Draft protocol development by CCX, DuPont (Mack McFarland) and U.S. EPA (Jeff Cohen) began on December 19, 2006 Originally submitted to CCX Committee on Offsets on May 15, 2007 Approved by the CCX Committee on Offsets on June 19, 2007 Six months process of research, proposal, consideration, revisions and approval Ongoing Committee Review and Protocol Development – last update 8/20/2009

Chicago Climate Exchange ®, Inc. © 2010 CCX Offsets Committee Membership Committee MemberMember Organization Scott Subler (Chair)Environmental Credit Corp Bill HamlinManitoba Hydro Annabeth ReitterNewPage Corporation Amy Van Kolken BanisterWaste Management Bob FleddermanMead Westvaco Larry MerrittFord Motors Dave MillerIowa Farm Bureau Lisa ShpritzBank of America David SkoleMichigan State University Tod DelaneyFirst Environment Scott WeaverAmerican Electric Power Ben ConteEcoSecurities

Chicago Climate Exchange ®, Inc. © 2010 Peer Reviewers and Commenter's Coolgas Delta Institute EcoSecurities Reclamation Technologies (RemTec) Environmental Credit Corp. Hudson Technologies Iowa Farm Bureau American Electric Power Bank of America Dow Corning DuPont Ford Motors Mead Westvaco Michigan State University Waste Management CCX Offset Aggregators / Providers CCX Members CCX-approved Verification Bodies Other California Air Resources Board NewPage Corporation Polar Refrigerant PureChem U.S. Environmental Protection Agency (EPA) Air Compliance Testing First Environment, Inc. ICF International Discussions, Consultation, Research and Technical Work

Chicago Climate Exchange ®, Inc. © 2010 CCX ODS Destruction Offset Project Cycle: Converting Liabilities into Assets OWNER Aggregator confirms project eligibility, prepares destruction plan & proposes project implementation plan for CCX Validation Third-party conducts verification Weight and samples taken. Owner transports ODS to destruction facility. CCX issues to Aggregator credits for verified destruction in form of Carbon Financial Instruments (CFI) VERIFIER AGGREGATOR CCX DESTRUCTION FACILITY Weight and samples taken. Facility destroys ODS according to CCX protocol

Chicago Climate Exchange ®, Inc. © 2010 CCX ODS Destruction Protocol CCX ODS Destruction protocol credits verified destruction of eligible ODS at a destruction facility that meets the eligibility requirements ISO Format Project Definition General Eligibility Requirements Project Boundary Monitoring and Sampling Requirements Quantification Methodology Verification Guidance Aggregator confirms project eligibility, prepares destruction plan & proposes project implementation plan for CCX Validation Third-party conducts verification Weight and samples taken. Owner transports ODS to destruction facility. CCX issues to Aggregator credits for verified destruction in form of Carbon Financial Instruments (CFI) Weight and samples taken. Facility destroys ODS according to CCX protocol.

Chicago Climate Exchange ®, Inc. © 2010 CCX has established the following set of general eligibility requirements that are applicable to all ODS destruction offset projects. CCX Membership: Registered CCX member Ownership Status: Attestations, contracts Project Start Date: January 1, 2007 Project Location: Destruction U.S.-only, imported ODS permitted ODS Materials: (1) Refrigerants and ODS that is entrained in foam; (2) Must be phased out under MP and CAAA Title VI Performance Benchmark: Two criteria: (1) Regulatory; (2) Common Practice CCX ODS Destruction Protocol: General Eligibility Requirements Aggregator confirms project eligibility, prepares destruction plan & proposes project implementation plan for CCX Validation Third-party conducts verification Weight and samples taken. Owner transports ODS to destruction facility. CCX issues to Aggregator credits for verified destruction in form of Carbon Financial Instruments (CFI) Weight and samples taken. Facility destroys ODS according to CCX protocol

Chicago Climate Exchange ®, Inc. © 2010 Projects must not be considered common practice or required by law or other legally binding framework to be considered for offset issuance: Regulatory Criteria: No regulation that requires destruction of ODS No regulation that requires dismantling refrigerators/freezers and removal and incineration of ODS entrained in the foam CCX Project Owner Attestation Common Practice Criteria: No voluntary destruction of ODS No voluntary dismantling refrigerators/freezers and removal and incineration of ODS entrained in the foam Assumes voluntary ODS destruction is not common practice; all projects that destroy ODS comply with this requirement CCX ODS Destruction Protocol: General Eligibility Requirements Aggregator confirms project eligibility, prepares destruction plan & proposes project implementation plan for CCX Validation Third-party conducts verification Weight and samples taken. Owner transports ODS to destruction facility. CCX issues to Aggregator credits for verified destruction in form of Carbon Financial Instruments (CFI) Weight and samples taken. Facility destroys ODS according to CCX protocol

Chicago Climate Exchange ®, Inc. © 2010 CCX identified that for both gaseous or liquid ODS and ODS entrained in foam, the baseline scenario is the fugitive emissions of ODS gas: Gaseous or Liquid ODS: In the absence of regulation or requirements mandating destruction fugitive emissions ODS Entrained in Foam: Shredding baseline scenario protocol assumes a conservative release of 24% of ODS Not significant enough research to support any greater amount of ODS release during shredding or release in the landfill CCX ODS Destruction Protocol: Baseline Scenario Aggregator confirms project eligibility, prepares destruction plan & proposes project implementation plan for CCX Validation Third-party conducts verification Weight and samples taken. Owner transports ODS to destruction facility. CCX issues to Aggregator credits for verified destruction in form of Carbon Financial Instruments (CFI) Weight and samples taken. Facility destroys ODS according to CCX protocol

Chicago Climate Exchange ®, Inc. © 2010 Aggregator confirms project eligibility, prepares destruction plan & proposes project implementation plan for CCX Validation Third-party conducts verification Weight and samples taken. Owner transports ODS to destruction facility. CCX issues to Aggregator credits for verified destruction in form of Carbon Financial Instruments (CFI) Weight and samples taken. Facility destroys ODS according to CCX protocol Boundary of a project includes the ODS destruction, monitoring and recording equipment, and relevant project-based emission sources. ODS Destruction Process: (1) CO2 as byproduct of destruction; and, (2) CO2 emitted from fossil fuel usage in process Other Project-based Emissions: CO2 emitted from transportation of ODS to destruction facility Monitoring and Recording Equipment: ODS emissions from periods that the destruction equipment not functioning to protocol requirements. CCX ODS Destruction Protocol: Project Boundary

Chicago Climate Exchange ®, Inc. © 2010 Key Details of the Protocol: Monitoring and Sampling Must develop a monitoring plan with procedures to obtain, record, compile and analyze data for quantifying and reporting GHG ERs Determining Total Quantity of ODS Gaseous or Liquid Weight: Reconcile pre- and post- destruction ODS container weights using calibrated scales / flow meters as per manufacturer specs Composition: Pure ODS (at least 95%) and mixed ODS composition is determined using protocol specified sampling procedures and gas chromatography analysis of sample at certified lab (twice tested, 99% confidence). Foams Weight/Composition: Project Proponents must propose a sampling procedure with project documentation to CCX. Composition: Track serial #s, manufacturer data, sample Aggregator confirms project eligibility, prepares destruction plan & proposes project implementation plan for CCX Validation Third-party conducts verification Weight and samples taken. Owner transports ODS to destruction facility. Weight and samples taken. Facility destroys ODS according to CCX protocol CCX issues to Aggregator credits for verified destruction in form of Carbon Financial Instruments (CFI)

Chicago Climate Exchange ®, Inc. © 2010 Aggregator confirms project eligibility, prepares destruction plan & proposes project implementation plan for CCX Validation Third-party conducts verification Weight and samples taken. Owner transports ODS to destruction facility. CCX issues to Aggregator credits for verified destruction in form of Carbon Financial Instruments (CFI) Weight and samples taken. Facility destroys ODS according to CCX protocol Key Details of the Protocol: Quantification of Avoided GHG Emissions Avoided GHG Emissions = Total quantity ODS destroyed net project based emissions, leakage. Total Quantity of ODS Destroyed (Mt CO2e) = (Quantity of ODS Waste * Concentration of ODS * ODS GWP * Min EPA DE) / Mt Conversion Factor ODS Project Emissions = sum of CO2e from ODS destroyed and fossil fuel use CO2 from ODS Destroyed = ((Quantity of ODS Waste * Concentration of ODS * Min EPA DE) / Mt Conversion Factor ODS) * ODS specific emission factor CO2 from Fossil Fuels (Stationary and Transportation) = Quantity of fuels * Fuel-Specific Emission factor Note: Transportation MAY be calculated by using the product of distance traveled and transportation type emission factor Leakage: Protocol assumes no leakage

Chicago Climate Exchange ®, Inc. © 2010 Aggregator confirms project eligibility, prepares destruction plan & proposes project implementation plan for CCX Validation Third-party conducts verification Weight and samples taken. Owner transports ODS to destruction facility. CCX issues to Aggregator credits for verified destruction in form of Carbon Financial Instruments (CFI) Weight and samples taken. Facility destroys ODS according to CCX protocol Verification guidance provided in CCX Protocol and general verification guidance document All projects must be verified by a independent third party verification agency approved for ODS verification by CCX All verification reports undergo a quality assurance review by Financial Regulatory Authority (FINRA) before being registered in CCX Electronic registry CCX issues the amount of verified emission reductions into the CCX Offset Aggregator/Providers registry holdings account. Key Details of the Protocol: Verification

Chicago Climate Exchange ®, Inc. © 2010 CCX ODS Destruction Project Scenarios Hospital collects to destroy ODS, on-site replacement Easy to track and identify substitute Aggregator purchases stockpile of unusable refrigerant ODS Easy to track, no substitution Municipality led refrigerant collection program, ODS destruction secondary ODS destruction can serve as initial incentive, e.g. rebates ODS imported from Article 5 country (India), high cost Need strong market value to incent destruction

Chicago Climate Exchange ®, Inc. © 2010 CCX ODS Program Achievements Pioneer of protocol development - CCX developed the first standardized ODS Destruction Offset Project Protocol draft for voluntary carbon market, adopted July ODS Destruction Projects Registered - 787,300 tons issued R-11, R12, R-13, R-113, R-114, R-115, Halon 1211, Halon 1301, etc 12 participants 1 producer, 7 carbon offset project aggregators, 4 refrigerant reclaimers CCX Validated the first ever refrigerator foam ODS destruction project CCX-approved Verification agencies First Environment ICF International

Chicago Climate Exchange ®, Inc. © 2010 CCX ODS Destruction Offset Projects: Lessons Learned Despite a clear opportunity to destroy ODS, there are barriers. CDM HFC has created negative sentiment for destruction offsets In Article 5 countries, there is too much ODS that recycling is not viable – must encourage destruction of ODS Critical to build/link institutional framework to market; Communication with project participants given verification requirements Projects need to know why they are required to provide particular data items, given the cost of data acquisition Technology exists, but is expensive

Chicago Climate Exchange ®, Inc. © 2010 Project registration is market price dependent Utilize best practice standards when possible (EPA, ISO, etc) Cost to destroy ODS varies by country, technology, capacity and type Market factors are important, potential to oversupply Voluntary ODS destruction is not a windfall market; does not supply upfront funding High level of price volatility of voluntary carbon markets ODS project registrations indicate high market interest CCX ODS Destruction Offset Projects: Lessons Learned

Chicago Climate Exchange ®, Inc. © 2010 Ongoing Market Development: Future Opportunities Further Developments to Existing Protocol Requirements Expanding eligible project location to include countries other than the U.S. New technologies (e.g. mobile destruction facilities) – U.S. EPA dependent Importation requirements – U.S. EPA dependent Phase down of production and consumption of ozone-friendly, super GHGs Montreal Protocol EPA CAAA revision U.S. Climate and Energy Cap-and-Trade Legislation Project funding opportunities – Institutional, national, regional Developing country pilot programs 24

Chicago Climate Exchange ®, Inc. © 2010 End Contact information: Stephen Donofrio, Economist Chicago Climate Exchange, Inc , direct , main , fax