Chicago Climate Exchange ®, Inc. © 2010 1 CCX ODS Destruction Offsets Projects: Overview, Lessons Learned & Future Opportunities June 14, 2010 Stephen.

Chicago Climate Exchange®, Inc.© 2010 1

CCX ODS Destruction Offsets Projects: Overview, Lessons Learned & Future Opportunities

June 14, 2010

Stephen J. DonofrioEconomistChicago Climate Exchange

Prepared for the United Nations Environment Program Seminar on the environmentally sound management of banks of ozone-depleting substances (decision XXI/2)

Chicago Climate Exchange®, Inc.© 2010

Climate Exchange Plc is an AIM listed company (CLE.L) which owns the European Climate Exchange (ECX) and the Chicago Climate Exchange (CCX)

Chicago Climate Exchange (CCX) is North America's only and the world's first global marketplace for integrating voluntary legally binding emissions reductions with emissions trading and offsets for all six greenhouse gases.

Chicago Climate Futures Exchange® (CCFE), a wholly owned subsidiary of CCX, is a CFTC designated contract market that offers derivative products for emission allowances and other environmentally based markets

European Climate Exchange (ECX) is the most liquid, pan-European platform for trading carbon emissions under the EU ETS, offering futures and options contracts. ECX commands over 80% market share of the exchange traded volume for EU ETS carbon credits

The Montréal Climate Exchange is a joint venture between the Montréal Exchange (MX) and the Chicago Climate Exchange® (CCX). MCeX operates the first regulated environmental derivatives market in Canada.

Tianjin Climate Exchange (TCX) is a joint venture between CNPC, CCX and City of Tianjin. TCX is first integrated exchange for trading environmental financial products in China.

Envex is a joint venture between CCX and Macquarie bank of Australia. Envex develops exchange-traded and OTC climate and environmental products for the emerging Australian markets.

Climate Exchange PLC FamilyGlobally Operating Six Exchanges in Five Countries across Four Continents


CCX Market Architecture (2003-2010) Chicago Climate Exchange (CCX ®) is the world’s first and North America’s only active

voluntary, legally binding integrated trading system to reduce emissions of all six greenhouse gases, with offset projects in North America and worldwide

CCX has 400+ members worldwide with a registered emission baseline of 600 MMT CO2e

CCX has 330+ registered GHG emission reduction projects totaling 83 MMT CO2e


CCX Comprehensive Market Structure

Web Electronic Trading Platform

Electronic Market Registries

Emitting Members: Standard baseline, multi-year allowance stream = to reduction targets

Offset Aggregators/Providers: GHG project protocols

Liquidity Providers

Associate Members

Emitting Members: Standard baseline, multi-year allowance stream = to reduction targets

Offset Aggregators/Providers: GHG project protocols

Liquidity Providers

Associate Members

Comprehensive Rules System


CCX Offset Project TypesVerified Offset projects sequester or eliminate GHGs to earn Carbon Financial

Instruments (CFI) sold on CCX electronic platform to CCX membership

Current pre-defined Offset Categories

Agricultural Methane Collection & Combustion

Agricultural Best Management Practices - Continuous Conservation Tillage and Conversion to Grassland Soil Carbon Sequestration

Agricultural Best Management Practices - Sustainably Managed Rangeland Soil Carbon Sequestration

Avoided Emissions from Organic Waste Disposal

Coal Mine Methane Collection and Combustion

Forestry Carbon Sequestration

Landfill Methane Collection and Combustion

Ozone Depleting Substances Destruction

Renewable Energy Systems

Small Scale Renewable Biogas

Ozone Depleting Substances Destruction

14 ODS Destruction Projects Registered787,300 Mt CO2e issued


ODS have significant Global Warming Potentials (GWP) ranging between 500 and 10,000+ Mt CO2e when emitted from ODS banks Represents a liability, destruction creates an asset

While Montreal Protocol phased out production and consumption, not much regulatory or economic incentive for recovery and destruction Little recovery and destruction occurring

Magnitude of GHG problem from ODS is significant GHG emissions 2007 US Bank of eligible ODS 330 MMT CO2e 2007 accessible quantity of ODS contained in equipment is over 1400 MMT

CO2e US EPA est. that 13% of eligible ODS will be emitted by 2010 if not recovered

and destroyed IPCC/TEAP est. 6 Gt CO2e will be released to the atmosphere from the most

easily accessible and destroyable ODS banks in refrigeration and air conditioning (2011-2015); total Kyoto reductions is 4.3 Gt CO2e 2008-2012

Venting is regulated, BUT, enforcement is difficult

Key Details of ODS Destruction Protocol: Rationale and Premise


Protocol Rationale and Premise:U.S. ODS Lost Opportunity – MMt CO2e

Today

Quick action is needed since opportunity is all but lost within 10 years


ODS Protocol History: Peer Review and Committee Approval Process

Concept Proposed by

DuPont(Dec. 19, 2006)

Discussions, Consultation,

Research - CCX, DuPont and

U.S.EPA

Research and technical work performed by

U.S.EPA and ICF

Discussions, Consultation -

CCX, DuPont and U.S.EPA

CCX Offsets Committee

Review(May 15, 2007)

Further Research - CCX, DuPont,

U.S.EPA

CCX Offsets Committee Approval

(June 19, 2007)

Draft protocol development by CCX, DuPont (Mack McFarland) and U.S. EPA (Jeff Cohen) began on December 19, 2006

Originally submitted to CCX Committee on Offsets on May 15, 2007 Approved by the CCX Committee on Offsets on June 19, 2007 Six months process of research, proposal, consideration, revisions and

approval

Ongoing Committee Review and Protocol Development – last update 8/20/2009


CCX Offsets Committee Membership

Committee Member Member Organization

Scott Subler (Chair) Environmental Credit Corp

Bill Hamlin Manitoba Hydro

Annabeth Reitter NewPage Corporation

Amy Van Kolken Banister Waste Management

Bob Fledderman Mead Westvaco

Larry Merritt Ford Motors

Dave Miller Iowa Farm Bureau

Lisa Shpritz Bank of America

David Skole Michigan State University

Tod Delaney First Environment

Scott Weaver American Electric Power

Ben Conte EcoSecurities


Peer Reviewers and Commenter's

CoolgasDelta Institute EcoSecuritiesReclamation Technologies (RemTec) Environmental Credit Corp.Hudson Technologies Iowa Farm Bureau

American Electric PowerBank of AmericaDow CorningDuPontFord Motors Mead WestvacoMichigan State UniversityWaste Management

CCX Offset Aggregators / Providers CCX Members

CCX-approved Verification Bodies OtherCalifornia Air Resources BoardNewPage CorporationPolar Refrigerant PureChem U.S. Environmental

Protection Agency (EPA)

Air Compliance TestingFirst Environment, Inc.ICF International

Discussions, Consultation, Research and

Technical Work


CCX ODS Destruction Offset Project Cycle: Converting Liabilities into Assets

OWNER Aggregator confirms project eligibility, prepares

destruction plan & proposes project implementation plan

for CCX Validation

Third-party conducts verification

Weight and samples taken. Owner transports ODS to

destruction facility.

CCX issues to Aggregator credits for verified

destruction in form of Carbon Financial Instruments (CFI)

VERIFIER

AGGREGATOR

CCX

DESTRUCTION FACILITY Weight and samples taken. Facility destroys ODS

according to CCX protocol


CCX ODS Destruction Protocol

CCX ODS Destruction protocol credits verified destruction of eligible ODS at a destruction facility that meets the eligibility requirements

ISO 14064-2 Format

Project Definition

General Eligibility Requirements

Project Boundary

Monitoring and Sampling Requirements

Quantification Methodology

Verification Guidance

Aggregator confirms project eligibility, prepares


for CCX Validation






Weight and samples taken. Facility destroys ODS

according to CCX protocol.


CCX has established the following set of general eligibility requirements that are applicable to all ODS destruction offset projects.

CCX Membership: Registered CCX member

Ownership Status: Attestations, contracts

Project Start Date: January 1, 2007

Project Location: Destruction U.S.-only, imported ODS permitted

ODS Materials: (1) Refrigerants and ODS that is entrained in foam; (2) Must be phased out under MP and CAAA Title VI

Performance Benchmark: Two criteria: (1) Regulatory; (2) Common Practice

CCX ODS Destruction Protocol: General Eligibility Requirements



for CCX Validation









Projects must not be considered common practice or required by law or other legally binding framework to be considered for offset issuance:

Regulatory Criteria: No regulation that requires destruction of ODS No regulation that requires dismantling

refrigerators/freezers and removal and incineration of ODS entrained in the foam

CCX Project Owner Attestation

Common Practice Criteria: No voluntary destruction of ODS No voluntary dismantling refrigerators/freezers

and removal and incineration of ODS entrained in the foam

Assumes voluntary ODS destruction is not common practice; all projects that destroy ODS comply with this requirement

CCX ODS Destruction Protocol: General Eligibility Requirements



for CCX Validation









CCX identified that for both gaseous or liquid ODS and ODS entrained in foam, the baseline scenario is the fugitive emissions of ODS gas:

Gaseous or Liquid ODS: In the absence of regulation or requirements

mandating destruction fugitive emissions

ODS Entrained in Foam: Shredding baseline scenario protocol

assumes a conservative release of 24% of ODS Not significant enough research to support any

greater amount of ODS release during shredding or release in the landfill

CCX ODS Destruction Protocol: Baseline Scenario



for CCX Validation











for CCX Validation








Boundary of a project includes the ODS destruction, monitoring and recording equipment, and relevant project-based emission sources.

ODS Destruction Process: (1) CO2 as byproduct of destruction; and, (2) CO2 emitted from fossil fuel usage in process

Other Project-based Emissions: CO2 emitted from transportation of ODS to destruction facility

Monitoring and Recording Equipment: ODS emissions from periods that the destruction equipment not functioning to protocol requirements.

CCX ODS Destruction Protocol: Project Boundary


Key Details of the Protocol: Monitoring and Sampling

Must develop a monitoring plan with procedures to obtain, record, compile and analyze data for quantifying and reporting GHG ERs

Determining Total Quantity of ODS Gaseous or Liquid

Weight: Reconcile pre- and post- destruction ODS container weights using calibrated scales / flow meters as per manufacturer specs

Composition: Pure ODS (at least 95%) and mixed ODS composition is determined using protocol specified sampling procedures and gas chromatography analysis of sample at certified lab (twice tested, 99% confidence).

Foams Weight/Composition: Project Proponents must propose a

sampling procedure with project documentation to CCX. Composition: Track serial #’s, manufacturer data, sample



for CCX Validation











for CCX Validation








Key Details of the Protocol: Quantification of Avoided GHG Emissions

Avoided GHG Emissions = Total quantity ODS destroyed net project based emissions, leakage.

Total Quantity of ODS Destroyed (Mt CO2e)= (Quantity of ODS Waste * Concentration of ODS * ODS GWP * Min EPA DE) / Mt Conversion Factor ODS

Project Emissions = sum of CO2e from ODS destroyed and fossil fuel use CO2 from ODS Destroyed

= ((Quantity of ODS Waste * Concentration of ODS * Min EPA DE) / Mt Conversion Factor ODS) * ODS specific emission factor

CO2 from Fossil Fuels (Stationary and Transportation)= Quantity of fuels * Fuel-Specific Emission factor

Note: Transportation MAY be calculated by using the product of distance traveled and transportation type emission factor

Leakage: Protocol assumes no leakage




for CCX Validation








Verification guidance provided in CCX Protocol and general verification guidance document

All projects must be verified by a independent third party verification agency approved for ODS verification by CCX

All verification reports undergo a quality assurance review by Financial Regulatory Authority (FINRA) before being registered in CCX Electronic registry

CCX issues the amount of verified emission reductions into the CCX Offset Aggregator/Provider’s registry holdings account.

Key Details of the Protocol: Verification


CCX ODS Destruction Project Scenarios

Hospital collects to destroy ODS, on-site replacement Easy to track and identify substitute

Aggregator purchases stockpile of unusable refrigerant ODS Easy to track, no substitution

Municipality led refrigerant collection program, ODS destruction secondary ODS destruction can serve as initial incentive, e.g. rebates

ODS imported from Article 5 country (India), high cost Need strong market value to incent destruction


CCX ODS Program Achievements

Pioneer of protocol development - CCX developed the first standardized ODS Destruction Offset Project Protocol draft for voluntary carbon market, adopted July 2007

14 ODS Destruction Projects Registered - 787,300 tons issued R-11, R12, R-13, R-113, R-114, R-115, Halon 1211, Halon 1301, etc

12 participants 1 producer, 7 carbon offset project aggregators, 4 refrigerant reclaimers

CCX Validated the first ever refrigerator foam ODS destruction project

CCX-approved Verification agencies First Environment ICF International


CCX ODS Destruction Offset Projects:Lessons Learned

Despite a clear opportunity to destroy ODS, there are barriers.

CDM HFC has created negative sentiment for destruction offsets

In Article 5 countries, there is too much ODS that recycling is not viable – must encourage destruction of ODS

Critical to build/link institutional framework to market; Communication with project participants given verification requirements

Projects need to know why they are required to provide particular data items, given the cost of data acquisition

Technology exists, but is expensive


Project registration is market price dependent

Utilize best practice standards when possible (EPA, ISO, etc)

Cost to destroy ODS varies by country, technology, capacity and type

Market factors are important, potential to oversupply

Voluntary ODS destruction is not a windfall market; does not supply upfront funding

High level of price volatility of voluntary carbon markets

ODS project registrations indicate high market interest

CCX ODS Destruction Offset Projects:Lessons Learned


Ongoing Market Development:Future Opportunities

Further Developments to Existing Protocol Requirements Expanding eligible project location to include countries other than the U.S. New technologies (e.g. mobile destruction facilities) – U.S. EPA dependent Importation requirements – U.S. EPA dependent

Phase down of production and consumption of ozone-friendly, super GHGs Montreal Protocol EPA CAAA revision U.S. Climate and Energy Cap-and-Trade Legislation

Project funding opportunities – Institutional, national, regional Developing country pilot programs

24


End

Contact information:

Stephen Donofrio, Economist Chicago Climate Exchange, Inc.312 554 7012, direct312 554 3350, main312 554 3373, [email protected]

Chicago Climate Exchange ®, Inc. © 2010 1 CCX ODS Destruction Offsets Projects: Overview, Lessons Learned & Future Opportunities June 14, 2010 Stephen.

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