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New Financing Mechanisms:
Sustainable Conservation Dairy Summit – Modesto, CA – May 10, 2013 Dick Kempka, VP of Business Development │ Peter Weisberg, Sr. Program Analyst
Environmental Credits & Their Applicability in CA
2
Outline
• Introduction
• Carbon Markets
• Renewable Identification
Numbers (RINs)
• Low Carbon Fuel Standard (LCFS)
• Summary
3
Mission: To provide expertise, financing, and inspiration to accelerate innovative climate solutions that endure
• Managed financing of over $20M
• Ten (10) diverse project sectors
• Projects in (9) states and (2) countries
• Compliance program examples
– OR, WA, MT, MA, CA
• Voluntary program examples
– NW Natural Smart Energy
– Colorado Carbon Fund
4
• Carbon Management – Expand investment in project types anticipated in policies
– Pilot new methodologies
– Effectively aggregate projects
– Remove upfront financing & other barriers
– Develop compliance portfolios for utilities
• Climate Services – Design, finance and implement climate action plans
– Assist project developers to finance business models that endure
• Policies & Standards – Share tangible
lessons learned and experience to help improve policies, rules and standards
Carbon Management
Policies & Standards
Climate Services
Areas of Service
5
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
An
nu
al N
et
Re
ven
ue
Environmental Markets
Environmental Markets - Low Price (IRR = 15.30%)
Baseline - No Environmental Markets (IRR = 7.83%)
Low Carbon Fuel Standard Credits
Renewable Identification Numbers
Carbon Credits
European Carbon Price
7
Start 2013: regulations will cover GHG emissions from electric generation facilities, industrial emitters, and fuel suppliers. Reduce emissions to 1990 levels by 2020.
3 compliance periods: 2013-2014 (Phase I); 2015-2017 (Phase II); 2018-2020 (Phase III)
CA Carbon Allowances (CCA): AB32 Allowances for 2013 Delivery
• Current Value: $14-$14.50/ton
AB32 CAR Approved CRTs: One of the approved CAR offset protocols
• Livestock Methane, ODS, Forestry
• Risk with CAR CRT’s is they may need re-verification by CARB
• OWC/OWD being evaluated
CA Carbon Offsets (CCO): AB32 Guaranteed Offsets for 2013 Delivery
• CCOs are CARB issued offsets
• Falls under the 8% of allowable offset usage limit
California Program Overview
8
CA Carbon Market Key Insights
• Buyers = large greenhouse gas emitters in California
• Project Types: – Livestock manure – (Post-consumer food waste = voluntary, not yet
accepted by California)
• Sunset: 2020
Offsets generated and owned by the digester
10
California Carbon Offset Livestock CRT Prices
17,500
Baseline - No Environmental Markets (IRR = 7.83%)
Carbon - Price Floor (IRR = 9.50%)
Carbon - ARB Modeling (IRR = 11.23%)
12
CA Carbon Market Uncertainty
• February auction results
– 2013 – 100% allowances sold, $13.62 clearing
– 2016 – 46% allowances sold, $10.71 floor
13
Anticipated Offset Supply Shortage with Additional Protocols
Source: Stevenson, Sam et al. American Carbon Registry. Compliance Offset Supply Forecast. September 2012
14
RINs Key Insights
• Buyer: Transportation fuel refiners and importers • Project types: Biogas from:
– Dairies – Waste water treatment plants – Landfills – (EPA currently considering food waste pathway)
• Sunset: 2022
RINs generated and owned by the fueling station
16
RIN Prices
• 77,000 BTUs = 1 Advanced Biofuel RIN
• Prices (May 2012 – March 2013):
$/RIN $/MMBTU
Low $0.29 $3.77
Average $0.52 $6.75
High $1.07 $13.90
Current $0.955 $12.40 Price data aggregated from the Oil Price Information Service and the Eco Engineers RIN Price Index.
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
$2,000,000
$2,200,000
$2,400,000
$2,600,000
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
RIN Market Uncertainty
•Fraud ̶ 5-10% of issued RINs found to be fraudulent
•Volatility •Annual adjustment of required RIN retirement No long term buyers
19
Low Carbon Fuel Standard Key Insights
• Buyer = Transportation fuel refiners and importers
• Project types: – Dairy biogas to CNG – High solids digestion food yard waste – Landfill gas to CNG
• Sunset: 2020 – (2020 target applies until legislation is modified)
Low Carbon Fuel Standard Credits
LCFS credits generated and owned by the digester.
*Must report data from fueling station
22
Low Carbon Fuel Standard Uncertainty
• Commerce clause violation
– US District Court – Unconstitutional
– Ninth Circuit – Stay of preliminary injunction
• Cost of commercializing advanced biofuel unknown price of LCFS credits unknown
LCFS Credit Prices - 2012
Graph taken from Yeh, Sonia, et al.“Status Review of California’s Low Carbon Fuel Standard – Spring 2013.” April 2013. Available online at http://info.argusmedia.com/uslib/ArgusWebinar_CaliforniasLCFS_Economicsandtradeprospects.pdf
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
25
The Climate Trust
• Carbon market buyer – Existing funds to purchase
• California carbon credits from dairy digesters • Voluntary carbon credits from food waste
digesters – Project manager
• Data and verification management • Commercialization
• Environmental market advisory services
26
Summary
•Environmental markets (under “likely” price scenarios) could make up 25%-30% of revenues from dairy biogas transportation fuel project.
• Political and price uncertainty mean these revenue streams are not bankable.
27
Questions
Thank you for your interest
Please visit us at www.ClimateTrust.org
Dick Kempka (901)755-8705
Pete Weisberg (503)238-1915 x207