Carbon Offset Demystified

Carbon Trading
Mark Chadwick, CEO
Carbon Clear Limited

Agenda
• Introduction to Carbon Clear
• Background to carbon trading
– What is carbon trading?
– Why trade carbon credits?
– How are they made?
• Carbon trading in your organisation
• Clinic: Q&A about trading in your organisation

Introduction to Carbon Clear
• Mark Chadwick
– CEO, Carbon Clear Limited
• Carbon Clear Limited
1. Corporate climate change strategy
2. Carbon footprint measurement
3. Internal emission reductions
4. Carbon trading
5. Legislative compliance

Background to carbon trading
… what, why and how

What is carbon trading?
• Carbon trading is the buying and selling of carbon credits
• Definition: Carbon Credit
– An instrument representing a reduction in greenhouse
gas emissions, usually denominated in metric tonnes
• Primarily found in the compliance markets such as the
European Emissions Trading Scheme or Carbon Reduction
Commitment
• Increasingly used by other businesses to achieve reduction
goals or demonstrate their green credentials

Why trade carbon credits?

Why trade carbon credits?
60
50
40
30
20
10
0
-10
-20
-30
Performance of highlighted countries
Spain Italy UK Norway
Under performance
Over performance
Achieved
Promised

Why are they needed?
• Offsets allow countries or companies who are targeted to
reduce their emissions to trade between each other
• GOAL: Achieve compliance at lowest cost by using
market forces to allocate capital
• Why I like it
– Use market forces to price an externality; in this case
greenhouse gas pollution

How are they made?
• Permits to pollute
– Issued by a regulating
body to place a cap on
emissions
– Emission reduction
performance impacts
supply
– Allocations usually
reduced year on year
– Permits have limited
use outside of the
compliance sphere
– E.g. EUA
• Emission reduction projects
– Derived from projects that lie
outside of the compliance
sphere
– Based on emission reductions
from projects, e.g. wind farms
or industrial efficiency
improvements
– Issued based on the reduced
emissions after a project versus
emissions prior to the project
– E.g. CER, ERU, VER

How are they made?
60
50
40
30
20
10
0
With project emissions versus baseline
2007 2008 2009 2010 2011 2012
Baseline With Project
Carbon Credits

Carbon trading in your organisation
… where and how will you encounter carbon trading

Climate Change Act
• Climate Change Bill introduced in November 2007 and
signed into law on 26 th November 2008… thus becoming the
Climate Change Act
• DEFRA: “…world’s first long term legally binding framework
to tackle the dangers of climate change”
• Key points; long term & legally binding
• Government set 5 year legally binding “carbon budgets”
• Budgets for 2008-2012, 2013-2017 and 2018-2022 have
been set requiring a reduction in emissions of 31% from
2005 levels
• Equal to a reduction in emissions of 175 MtCO 2e
• Commitment to reduce emission 80% from 1990 levels to be
achieved by 2050 (41 years time)

Existing UK climate policy levers
Carbon
Reduction
Commitment
Carbon
Neutral
Commitment
DEC
CCL
Legislation
EPC
CCA
ETS
Building
Regulations

Carbon trading in your organisation
• EU Emissions Trading Scheme
– Large emitters
– Single source such as power stations, incinerators, CHP
installations
• Carbon Reduction Commitment
– Large non-energy intensive businesses
– Trading CRC permits representing 1 tonne of CO2
• Voluntary Schemes
– Carbon neutral organisations

Cinic: Questions and comments about carbon
trading in your organisation

Concluding thoughts

Lifecycle of a carbon credit
… a real life example

Carbon credit projects
•At Carbon Clear we invest in projects that improve living
standards in developing countries, while providing global
climate benefits.
•Verifiable emissions reductions
• ISO 14064-2 reporting
• Third-party verification
•Additionality
• CDM measurement rules
•Sustainable livelihoods
• DfID evaluation criteria
•Materiality
• Client’s contribution makes a real
difference
•Diverse portfolio
• Minimum 80% clean energy

Saving more than the environment:
Mini-Taxi Engine Retrofits in the Philippines
•Size: 100K tCO2e
•Providing support to a local business that converts
two-stroke mini-taxi engines to modern fuel-injection
technology. More efficient engines reduce carbon
emissions and ambient air pollution.
•Monitoring: Project created and managed by our local partner Envirofit. Project
will be submitted to the CDM Executive Board with independent verification by a
UN Designated Operational Entity.
•Why we like it:
– High climate change reduction potential
– New business opportunities for local entrepreneurs
– Improving air quality in cities
– Reduced fuel costs for taxi drivers

Carbon Credit Development
How are they made?
Sale
Verification
Monitoring
Validation
Start
Contract
Concept
Compliance Market
•Trades CERs / EUAs
•European trading scheme
•700m tonnes per annum
•€23 per tonne
Voluntary Market
•Trades CERs / VERs
•23m tonnes
worldwide in 2006
• €8-10 per tonne

Monitoring
• Each retrofit includes an engine management computer
which monitors fuel flow
• Lower levels of fuel consumption mean lower carbon
emissions
• Quarterly reports are submitted to Carbon Clear
• Annual 3 rd party verification of emissions reductions
provides actual carbon credit numbers