1. The Pathway to Market for Agricultural Carbon Offsets: Science – Policy - Commodity Karen Haugen-Kozyra, M.Sc. P.Ag. Principal, KHK Consulting June 17, 2010 Agriculture and Carbon Markets: Making Carbon Count Washington, DC

2. Alberta Market Performance

3. It’s All About Carbon….Why? 3 | KHK Consulting | Making Your Carbon Count

4. Global Carbon Pricing Policies Alberta US Fed Voluntary Carbon Standard

5. $126B in 2009* 2 Main Commodities *Point Carbon 2010

6. North American Climate Change Initiatives Western Climate Initiative Regional GHG Initiative Midwestern GHG Reduction Accord AB Specified Gas Emitters Regulation SK Bill 95 Canada’s Regulatory Framework The American Clean Energy Security Act American Power Act Discussion Bill l

7. Carbon Accounting Frameworks 7 | KHK Consulting | Making Your Carbon Count

8. Quantifying Greenhouse Gases Two Major International Enablers: 1.Intergovernmental Panel on Climate Change  Science-based Guidance on GHG quantification  Different Tiers of customization (Tier 1,2,3 – Country level accounting) 1.Project-Level (Offset) Accounting Standards  WRI GHG Protocol/ISO 14064-2  Promotes consistency and transparency in GHG quantification, monitoring, reporting and verification Similarities: ◦Quantification, assessment, fidelity and truthfulness stressed in both ◦Principles - completeness, accuracy, consistency, transparency and documentation

9. Project Based Accounting Frameworks– The Carbon Market Access Mechanisms 9 | KHK Consulting | Making Your Carbon Count

10. Projects Accounting – Relative Quantification above andbeyond Fundamental Principle: Activities and emission reductions must be above and beyond Business as Usual practices Project Condition ◦ What happens (GHGs) with the improved practice/new technology? Baseline Condition ◦ What was happening (GHGs) in the old practice, or common industry practice before the change? ◦ Are they comparable (same level of activity, product, service) to base calculation on Evidence – Document it: ◦ Quantification and Monitoring Plan ◦ Data Management System and Data Controls Amount of Offsets = Baseline - Project. Need to quantify both!

11. Standards for Protocols are Harmonizing Ease of UsePolicy Neutral, Flexible ISO 14064-2 Accounting Rigor CCX CDM Others? WRI GHG Protocol Standardizing means making policy decisions! AB/CDN VCS CAR

12. Stakeholder Consultation (eg, communication with interested parties) Relevant Legislation (eg, regulatory requirements) Quantification Protocols: identifying preferred methodologies to quantify GHG reductions/removals Streamlined Life Cycle Assessment Part 2 of ISO 14064 (ie, auditable standard general process requirements) Relevant Standards (eg, recognized criteria, rules, methodologies, equipment) Applicable GHG Program (eg, additional requirements, criteria, rules and policies) Good Practice Guidance (eg, IPCC, recognized criteria, methodologies, tools and guidance on how to do it) Best Available Science Considered Technical Review Within the discipline of the ISO Standard National Emissions Inventory Tier 2/3 Quantification Science ISO 14064:2 - Standards Development Process

13. Quantification Protocols Approved Protocols: ◦ Streamlined use ◦ Transparency and consistency ◦ Reduced costs and administration ◦ Scientifically sound (expert/scientific review) ◦ Reduces cost and risk for Project Developers ◦ Provides certainty for investors – GHG tonnes reduced ◦ Done right – can address scale, risk and transaction cost issues.

14. We have to Identify All GHGs 14 | KHK Consulting | Making Your Carbon Count

15. Completeness Principle: ◦Knowledge and Scientific Judgment  Substitute for direct evidence where lacking  Models and conversion factors  Estimate uncertainty Conservativeness Principle ◦Applied as a risk-based approach where science is less synthesized, but uncertainties are known ◦Strive to underestimate baseline emissions  Use the 80:20 rule; collective decisions through expert peer review (IPCC style)  “Serves as a moderator to accuracy” ISO 14064:2 Principles

16. Science – Policy - Commodity State of Science of GHG-Management Links Commercializable Commodity = Carbon Offset

17. Criteria are Harmonizing Additional/Incremental ◦beyond business as usual practices (needs a valid and defensible baseline at the project start); surplus to regulations/received incentives) Measurable, Quantifiable ◦agreement on best available science and activity data – develop a Protocol. Must stand up to a Review Process; account for all 6 GHGs. Verifiable ◦carbon accounting, and tracking process must be clear, defensible, and have good QA/QC procedures; verified by qualified 3 rd party. Permanent ◦must protect against carbon reversals; account and replace mechanisms Functionally Equivalent – Consistent Metrics ◦same level of quantity or service between baseline and project  A common base for calculating emission reductions

18. Relative Quantification Example – Land Fill Gas (LFG); Identifying Relevant Emission Sources, Sinks and Reservoirs

19. April 28, 2006 Slid e 19 LFG – ID Project SSRs

20. April 28, 2006Slide 20 LFG -ID Baseline SSRs

21. April 28, 2006Slide 21 Site preparation, installation and commissioning Exclusion of SSRs that are not within the scope of the protocol Exclusion of SSRs that are related to the manufacturing of materials Exclusion of SSRs that are unchanged between the baseline and project scenarios Exclusion of SSRs that do not significantly changed from the baseline to the project scenario

22. The C Commodity Pathway Project Documentation Project Documentation Validation and Registration Validation and Registration Monitoring and Verification Monitoring and Verification Offset Issuance Project / Baseline Description Monitoring Plan and Methodology GHG emission calculation Project / Baseline Description Monitoring Plan and Methodology GHG emission calculation Review Approve Registration Review Approve Registration Implement Monitor Verify Implement Monitor Verify Issuance of tradable units Driven by Reporting Guidance Transparency Market Oversight 3 rd Party Verification Monitoring Requirements Tradable Commodity Quantification Protocols

23. Alberta – almost 4 Mt of No Till Offsets (2.5 years) Farms A A A A A Aggregator Verifier Firm Buyer Verified Tonnes Potential Tonnes Compliance Report Registry ✔✔ ✔