Alliance to Save EnergyBrownbag on OffsetsMarch 12, 2010

Megan CeronskyVan Ness Feldman, P.C.

Offsets: Current Issues

1050 Thomas Jefferson Street, NWSeventh FloorWashington, DC 20007(202) 298-1800

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Coalition for Emission ReductionProjects (CERP) Alpha Natural Resources American Electric Power Blue Source Camco C-Quest Capital C-Trade Deutsche Bank Dominion DTE Energy Duke Energy EcoSecurities

Element Markets El Paso Corporation Environmental Credit Corp Equator LLC John Deere Leaf Clean Energy Company Macquarie Bank Natsource Noble Carbon Credits PG&EVerdeo Group

Offsets in U.S. climate legislation In Lieberman-Warner, Dingell-Boucher,

Waxman-Markey, Kerry-Boxer efficiency; cost savings EPA: without international offsets, allowance

prices in Waxman-Markey increase 89% CBO: offsets in Waxman-Markey save ~

70%/year

Stabenow (S. 2729) Cantwell-Collins (S. 2877)

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Key Offsets Provisions in ACES 2 billion ton ceiling on use of offset credits

Translates into per-entity limit Split between domestic and international Ability to use up to 1.5 billion tons of international credits

Banking permitted Early offset supply Domestic

Overlapping authority of EPA and USDA

International Emphasizes shift to sectoral crediting Provisions for international forestry

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Positive Elements of ACES Provisions on OffsetsWell-constructed project approval

processElimination of unnecessary penalty on

use of domestic offsetsRecognition of early action, need to

generate early supplyHowever, significant unfinished

business . . .

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Ceiling Does not Equal SupplySupply constraints

EPA: Domestic offsets will not exceed 200 million tons until after 2020

Total CDM credits issued to date: 310 million Uncertainties about international forestry

Government requirement to acquire “supplemental reductions”

CERP: Avoid unnecessary policy barriers to supply

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Early Offset Supply (Sec. 740) ACES credits early projects only for reductions

starting in 2009-2012 Period is too short to encourage investment CERP: Provide 5-10 year crediting period Stabenow: Crediting period starting as early as 2001;

includes provisions for REDD early offsets

ACES provides a long list of project types that agency should “consider” making eligible More certainty needed about what will count CERP: Provide an initial eligible list, and a 1 year deadline

for promulgating methodologies Stabenow: List of eligible projects

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International OffsetsStarting in 2018, 5:4 penalty on use of

credits CERP: Remove penalty

Requirement for bilateral agreement with each country supplying credits CERP: Remove requirement for credits issued by

international body under UN

Unclear whether JI credits can be used CERP: Allow use of JI credits

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International Offsets, cont.Phase-out of CDM credits from “identified

sectors” by 2016 Sectoral crediting systems will not be established

by 2016 CERP: Extend phase-out to 2020

International forestry Rapid phase-out of projects in favor of national

baselines CERP: Extend period for project-based crediting Stabenow: Crediting period starting as early as

2001

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Forestry: Accounting for ReversalsOffsets Reserve

Establishes insurance system for forestry projects

In event of reversal, credits cancelled in reserve

For unintentional reversal, ACES still requires compensation to reserve CERP: Eliminate requirement Stabenow: Eliminates requirement

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Forestry: Accounting for ReversalsAgriculture sequestration

Required to receive “term offset credits” CERP: Allow project developer to opt for regular

credits and offset reserve Stabenow: Gives USDA flexibility

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ConclusionsOn offsets, ACES is a good starting pointStabenow is an excellent framework for

domestic offsetsUnfinished business … passing a climate bill

Integrate Stabenow bill into Senate legislation Remove unnecessary constraints on supply; ensure

that program rules for international offsets can work Continue to educate policy-makers, general public

about offsets (especially international offsets) & the real-life benefits of market mechanisms

For more information

For weekly news and analysis about climate change policy and business developments, go to:

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Megan Ceronsky202-298-1874mmc@vnf.com

Alliance to Save Energy Brownbag on OffsetsMarch 12, 2010