Carbon Transactions Karen Haugen-Kozyra, M.Sc. P.Ag. Principal, KHK Consulting June 17, 2010 Agriculture and Carbon Markets: Making Carbon Count Washington, DC

The Session The goal is to negotiate a transaction, not for anyone to necessarily reach compliance or sell all their offsets This is realistic, not real Profiles, term sheet, and negotiated worksheets are applicable only to what we are doing today.

Parties who May be Involved Project Developer – The person responsible for the project activity Aggregator – can also be the project developer; aggregates numerous small projects to sell at volume Registry – market infrastructure for tracking projects and serializing tonnes Broker – matchmaker for sellers and buyers

Parties Who May be Involved Validator – a third party professional hired to assure the project has a high likelihood of success Verifier – a third party professional hired to check that the project achieved what it said it would Buyer – party that purchases potential offsets from project developer/aggregator Program Administrator for submission of potential offsets

Supply Side Ag Projects Each group is assigned a profile outlining their emissions, reduction/removal opportunities and the costs associated with developing those opportunities. ◦ Aggies Co-op ◦ Angus’s Beef ◦ Annie’s Anaerobic Digester Goal: To evaluate the profile and arrive at a position for negotiations. Negotiate transactions, based on position, for the highest price possible with an acceptable risk profile.

Considerations for Negotiations Sellers : ◦ Understand your Project and what you have to sell (which years, all your acres, some of the acres. Look at options. ◦ Do we invest in the science to develop custom coefficients – how does that affect costs? ◦ Transaction terms – who pays for validation, who pays for verification? ◦ Defaults – will you use reserve holdbacks? How are they allocated if 100% delivery?

Buy Side Buyers Buyers are regulated entities… ◦ Sonny’s O&G ◦ Enercorp Chemicals ◦ Ferty’s Fertilizer ◦ Power You Power Company Goal: To transact with Ag Producers. To acquire carbon offsets at the lowest cost possible

Considerations for Negotiations Buyers : ◦ Know the rules -assume projects have rules and qualify generically for the programs ◦ What about future tonnes – do you secure them with an option? ◦ Transaction terms – who pays for validation, who pays for verification? ◦ Addressing Risk of a Default on Delivery – will you use reserve holdbacks? How are they allocated if 100% delivery?

Price Price usually last negotiation item Price Collar on price = $15/tonne Some selling for below this Price reflects risk in terms/contract and value

Session Process Devise a strategy for how your group will approach project development, selling and/or acquisition By the end of this task, the group should have a clear understanding of the basic price and negotiating terms for approaching other parties in the workshop. ◦ 15 Minutes

Session Process Then approach other parties and work to negotiate a favorable transaction. ◦ Use the knowledge gathered from presentations and apply them to the negotiations ◦ Each group will receive worksheets to record negotiations and transactions 15 Minutes

Session Rules  Enjoy the process. This is an interactive event. It is hoped in addition to learning about negotiating carbon transactions, each participant will also build relationships.  Testing learnings of the day  Participants are limited in their transactions only by the potential offsets available.

Have Fun!

Wrap-up What issues/problems did you experience? Were you able to overcome them? If so how? Did you come to an agreement? Describe agreement – terms, price, unique aspects