Carbon trading and market oversight issues

CARBON TRADING AND

MARKET OVERSIGHT ISSUES

Carbon Trade Ex, Chicago, ILSeptember 28, 2010

The Panel

• Jason Patrick, BAML

• Lenny Hochschild, Evolution Markets

• Randy Lack, Element Markets

• Jane Lloyd, Markit

• Moderator, Jeffrey Fort, Sonnenschein Nath & Rosenthal LLP; (SNR-Denton, US, LLP effective September 30, 2010)

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GHG Markets and Regulatory Oversight

Carbon Trade Ex – Carbon Trading and Market Oversight Panel

Chicago – September, 2010

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Evolution Markets Inc. – Proprietary & Confidential

Evolution Markets is a market leading commodities brokerage firm focused on all environmental and clean energy markets

Award Winning Brokerage Platform

• Carbon Credits & Allowances• Renewable Energy Credits • SO2 Emissions Allowances• NOX Emissions Allowances

o Houston/Galveston NOX

o RECLAIM (L.A. NOX & SO2)• Weather Derivatives

• Green Power Transactions• Biofuelso Ethanolo Biodiesel

• OTC Physical Coal• OTC Coal Derivatives• Natural Gas• Nuclear Fuels

ENERGY MARKETSENVIRONMENTAL MARKETS

Evolution Markets has pioneered many of the first carbon transactions in the various global carbon markets inclusive of the first EUA, Indexed CER, CER option and AAU transactions

Evolution Markets Inc. – Proprietary & Confidential

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Magazine Customer Survey

Top SO2 Allowance Broker

Top NOx Allowance Broker

Top EU GHG Allowance Broker

Top U.S. GHG Credit Broker

Top U.S. Renewables Broker

Top RECLAIM NOx Allowance Broker

Top U.S. Emission Reduction Credit Broker

Top Kyoto Credits Broker

Top Weather Derivatives Broker

*category runner-up

Best Broker, US Physical Forwards (Coal)

Best Broker, Europe ETS Carbon Credits

Best Broker, U.S. Environmental Products

Best Broker, Western U.S. Nat Gas Short-term

Best Broker, Western U.S. Nat Gas Long-term

Best Broker, U.S. Weather Swaps Brokerage

Best Broker, European Weather Derivatives Brokerage *

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2000 2001 2002 2003 2004 20072005 2006

Best Specialist Broker (‘08)

House of the Year:

European Emissions (‘07)

Weather / Emissions (‘04)

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2008

Carbon Market Awards 2005: Best Broker

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Leadership in the Markets We Serve

Evolution Markets Inc. – Proprietary & Confidential

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Magazine Customer Survey

Best Broker, Options

Best Broker, Secondary Market (i.e. issued CERS/ERUs)

Best Broker, North American Mandatory Markets (e.g. RGGI)

Best Broker, Offsets

Best Broker, SO2

Best Broker, NOx (Reclaim)

Best Broker ERCs

Best Broker, Renewable Energy Markets

Best Broker, Weather Risk Management, North America

Best Broker, Catastrophe Risk

Best Broker, NOx

Best Broker, Weather Risk Management, Europe

Best Broker, Weather Risk Management, Asia

*category runner-up

Best Broker, U.S. Coal

Best Broker, U.S. Renewable Energy Certificates

Best Broker, CERs , Primary

Best Broker, CERs, Secondary

Best Broker, U.S. Voluntary Emission Reductions

Best Broker, U.S. Weather Derivatives

Leadership in the Markets We Serve

2009

Specialist Broker of the Year (2008)

House of the Year: European Emissions (2007)

House of the Year: Weather / Emissions (2004)

Since Evolution Markets was founded in 2000, we have received 109 awards for excellence in brokerage from Environmental Finance and Energy Risk Magazines. Below you will find a sample of our most recent awards from 2009. For the full list our awards, please visit www.evomarkets.com

2009

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Magazine Annual Ranking

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Carbon Market Awards 2005: Best Broker

ELEMENT MARKETS US Emissions House of the Year - 2010

Launched in 2005, Element Markets has become the largest integrated project development and environmental credit marketing company in North America

Element Markets Business Units

Greenhouse Gas (GHG) and Emissions Services

Credit MarketingGHG Offset Projects

• Asset Management

• Credit Aggregation

• Credit Monetization

• Methane (Landfills, Coal Mines, Agriculture)

• Solar

• Wind

Renewable Energy Group

Credit MarketingWind/Solar/Biomass

Marketing Compliance SolutionsProject Types

• Experienced in developing wind, solar, and methane projects

• Current renewable pipeline represents >17,000 MMBtus / day of methane and ~100 MWs of solar PV (rooftop and utility scale)

• Partnered with International Power to advance Texas and Midwest wind assets

• Manage 18 projects on Climate Action Reserve, including the first listed Organic Waste project

GREENHOUSE GAS AND EMISSIONS GROUP

GHG and Emissions Marketing

Awards and Distinctions

Development Projects

• All North American GHG Markets

• All Regional and federal emissions markets

GHG and Emissions Markets

• Methane (Landfills, Organic Waste)

• Composting and Organic Waste Digestion

• Coal Mine Methane

• Other GHG Mitigation

• #1 Mandatory GHG Credit Dealer (2009) - Energy Risk

• #1 Voluntary GHG Credit Dealer (2008, 2009) – Energy Risk

• Runner-Up, Best Trading Company, N.A. Mandatory GHG (2009) – Env. Finance

• Top 5 Developer, North American Voluntary Greenhouse Gas Markets (2009) – Point Carbon

• #1 SO2 Dealer (2009) – Energy Risk

• #1 NOx Dealer (2009) – Energy Risk

• Best Trading Company, SO2 Emissions Credits (2008, 2009) – Environmental Finance

EM Project Pipeline Locations

RENEWABLE ENERGY GROUP

Renewable Energy Marketing

• All compliance and voluntary markets

• All Energy Efficiency markets

• Transacted ~19 million RECs to date

State RPS and Goals

Awards and Distinctions

• #1 US Renewable Energy Credit Dealer (2008, 2009) – Energy Risk

• Best Trading Company, North American RECs (2009) – Environmental Finance

• # 2 Best Solar Power Investor (2009) - Energy Risk

• # 3 Best Wind Power Investor (2009) – Energy Risk

Project Development

• Solar Photovoltaic

• Biomethane to Energy

• Wind

EM Project Pipeline

Randy Lack, Chief Marketing OfficerElement Markets, LLC

3555 Timmons Lane, Suite 900Houston, TX 77027

Office: 281-207-7213Fax: 281-207-7211

rlack@elementmarkets.comwww.elementmarkets.com

CONTACT INFORMATION

EMA Activities

• Market Oversight committee formed

• Outreach to EMA members and others: webinar held on July 7, featuring EMA members, IETA member and 2 Senate Ag Committee staffers

• Recording available on-line at www.environmentalmarkets.org/

• Added representatives from IETA, CERP and ABA to Committee

• Outreach to CFTC staff• Dialog on regulatory issues• Expect to be a resource for section 750 inter-agency report on carbon markets

• Submitted comments on ANPR by CFTC and SEC on Dodd-Frank bill and follow-on definitions of what constituted a SWAP [copy available]

• Allowances, RECs and offsets addressed• Not a “security”• Not, in and of themselves, a SWAP• Support for “end-user exemption”

• Oversight Committee open for further participation.

• Further information available by contacting Llemunyan@environmentalmarkets.org or at Sonnenschein exhibit area

The Issues for the Panel

• What has been the EU experience with respect to volatility and efficiency of carbon markets?

• What will role of auctioning be on rice discovery?

• How does further market oversight play a role? Will WCI criteria impede or advance CFTC rules?

• Will new US and EU provisions eliminate carbon trading or just push everything onto exchanges?

• Are the likely volumes efficiently put onto exchanges?

• How will international offsets trade in relation to domestic offsets? Will REDD offsets be at a premium, or a discount?

Conclusion

• “Markets” viewed with suspicion – by right and left• Any better alternative?• Tax grants and lobby?• Command and control?

• Many activities now underway in Congress

• Become engaged and participate