>l( Y Keystone Environmental€¦ · i, P.Eng. rcy, EIT co Perelló, P i, P.Eng. 2017 – Augu, 2017 ber 15, 2017 d (Keyston erify greenh ffset Projec el of assura n of Biom documentat

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KeystoneEnvironmentalKnowledge-Driven Results

September 15,2017

Ms. Kelly ParkerSenior Carbon AnalystBlue Source CanadaSuite 700, 717 - 7th Avenue SWCalgary, AB T2P 023

Dear Ms. Parker:

Re: verification Report - Tolko slave Lake Biomass offset projectfor Emission Reduction Credits in 2016Slave Lake, ABProject No. 12885 (r0B)

Please find enclosed the report titled Verification Report for Totko S/ave Lake Biomass OffsefProiect for Emission Reduction Credits in 2016. We are pleased to submit this report that youwill submit to Alberta Emission Offset Registry, along with the Tolko Slave Lake Biomass OfisetProject Report and the corresponding Greenhouse Gas Emission Reduction Assertion.we appreciate the opportunity in providing the service regarding this project.

lf you have any questions, please contact the undersigned.

Sincerely,

Keystone ronmental Ltd.oç É.s s,

- r.,

fJ,2q f

Judy

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EngLead Ve

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vices

PROJ1.

Pr

Project

Project

Project Credit S

Credit D

Expectethe Proj

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JECT SUMM

roject Title

Description

Location

Start Date Start Date

Duration Peri

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MARY

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roject is expeted to be far iJanuary 1, 20n dioxide equiJanuary 1, 20n dioxide equiification Protoss Waste (Venment (AERSroject is not genvironmentaare no oppor

egistered withroject offset cRegistry (AE

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016 – Decembivalents (t COocol for Energersion 2.0, ApSD) generating Real benefits/attrrtunities for poh the AEOR. redits will be OR) which tra

ed and operat

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ke Biomass Os to generate tSB mills’ dryeportunity for gctions of GHGThe project wifill.

Lake, AB T0

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ate for the lifethe credit duraber 31, 2015:

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Verification Report – Tolko Slave Lake Biomass Offset Project

for Emission Reduction Credits in 2016 Slave Lake, AB

2 Project 12885 / September 2017

Project Title Tolko Slave Lake Biomass Offset Project

Project Activity This project meets the requirements for offset eligibility as outlined in section 3.1. of the Technical Guidance for Offset Project Developers (version 4.0, February 2013). In particular: 1. The project occurs in AB: as outlined above; 2. The project results from actions not otherwise required by law and

beyond business and sector common practices: Offsets being claimed under this project originate from a voluntary action. The project activity (i.e. conversion of biomass to energy) occurs at a non-regulated facility and is not required by law. The protocol uses a government approved quantification protocol, which indicates that the activity is undertaken by less than 40% of the industry and is therefore not considered to be a sector common practice;

3. The project result from actions taken on or after January 1, 2002: as outlined above

4. The project reductions/approvals are real, demonstrable, quantifiable and verifiable: the project is creating real reductions that are not a result of shutdown, cessation of activity or drop in production levels. The emission reductions are demonstrable, quantifiable and verifiable as outlined in the remainder of this plan.

5. The project has clearly established ownership: Tolko Industries Ltd. owns and operates the Athabasca Engineered Wood Plant. As such, direct emission reductions generated by the project, from the production of thermal energy from biomass, are owned solely by the proponent. Credits created from the specified reduction activity have not been created, recorded or registered in more than one trading registry for the same time period.

6. The project will be counted once for compliance purposes: The project credits will be registered with the Alberta Emissions Offset Registry (AEOR) which tracks the creation, sale and retirement of credits. Credits created from the specified reduction activity have not been, and will not be, created, recorded, or registered in more than one trading registry for the same time period.

Project Contact Authorized Project Contact Kelly Parker, P.Eng. Engineer, Carbon Solutions Blue Source Canada ULC Suite 700 717 – 7th Avenue SW Calgary, AB T2P 0Z3 p: (403) 262-3026 e: [email protected]

Project Proponent Michael Towers Manager, Tolko Energy Supply and Systems Tolko Industries Ltd. PO Box 39 2000 – 28th Street Vernon, BC V1T 6M1 p: (250) 550-2550 e: [email protected]

VERI2.

ProObjectiv

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INTR3.

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3.1 S

The baseWood Plapress, log

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IFICATION S

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ko Slave Laklevel assuransion reductioncorrespondingSpecified Gas

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3.2 Project Boundary

Tolko Athabasca Plant is an oriented strand board (OSB) mill located 10 km southeast of Slave Lake, Alberta. It is owned and operated by Tolko. The Project uses waste mill residues to produce heat for energy. In 2007, Tolko purchased two 57 MMBtu/hr GTS Energy Reciprocating Grate Combustion systems, consisting of two gasifiers from GTS Energy. The units convert wood residues into renewable syngas. The syngas is subsequently used to displace natural gas used to produce heat for dryers and thermal oil for the heating of the press, log ponds building and steam generator. The opportunity for generating carbon offsets arises from direct reductions of GHG emissions by displacing fossil fuel usage with wood residues (biomass).

3.3 Project Variance

Changes to the original Offset Project Plan and variance from the Protocol were made for the 2016 credit period.

1. For the 2016 year, primarily due to the biomass combustion emissions from the energy system, the total direct specified gas emissions from the Project exceeded 100,000 t CO2e. The Project has received an exemption from the compliance obligation under the Specified Gas Emitters Regulation (SGER) for the 2016 compliance year. The Project has also received permission to create vintage 2016 offsets. The exemption approval letter from AEP is included in Appendix F.

2. The Project does not directly meter steam output from the energy system. As such, baseline emissions from fuel combustion are calculated using energy generation data, as described by SS P15. The project has received a protocol deviation approval allowing for the use of this methodology. The protocol deviation approval letter from AEP is included in Appendix G.

3. Emissions from electricity usage under SS B12 facility operations previously excluded in the Offset Project Plan are included to maintain conservativeness. Electricity usage associated with the hog fuel material handling system and the heat energy system are included under SS P6 Off-site Heat and Electricity not displaced in the project.

4. The Project used three different sources of biomass in 2016. These were: Hog – hog fuel consumption used for the furnaces were measured using a weigh-belt; Wet Fines – wet fines are mixed with hog fuel and were measured using a separate

weigh-belt; Trimmings – wood trimmings off of the press for finish product dimension

were estimated. 5. Onsite energy requirements include only propane and diesel, no natural gas is used onsite.

Propane is used for mobile equipment and upset conditions for the GTS systems. Diesel is used for compressors, motors and diesel trucks.

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Statistical, strategic, systematic, or stratified sampling (or a combination thereof) was conducted on primary documentation (i.e., third party documentation, invoices) to confirm the processes resulting in GHG assertions.

Original data sources and calculations were evaluated.

Controls reliance is used rarely, and only in supporting the substantive approach as described above.

7.2 Verification Plan

A verification plan was developed by Keystone Environmental to provide a basis for the procedures to be conducted during the verification. The verification plan establishes and outlines the terms of engagement, level of assurance, objective, criteria, scope, materiality threshold and risk assessment. A copy of the Verification Plan is included in Appendix C.

This process was iterative in nature and involved considerable communication with the project proponent team and subsequent revisions to their calculations, report and plan.

Table 2 Verification Plan Information

Level of Assurance

The verification was conducted to a reasonable level of assurance, satisfying requirements in SGER.

Verification Criteria

Alberta’s Climate Change and Emissions Management (CCEM) Act, 2003. SGER, 2007, under the CCEM Act, 2003. SGER, Technical Guidance Document for Offset Project Developers

(Version 4.0, February 2013)

SGER, Technical Guidance for Greenhouse Gas Verification at Reasonable Assurance, Version 1.0, January, 2013;

Quantification Protocol for Energy Generation from the Combustion of Biomass Waste, Version 2.0, April 2014.

The review criteria against which the GHG Assertion and supporting evidence were evaluated include, but are not limited to, the following: Conformance with the requirements and principles of the above regulation and

associated guidance documents

The data supporting the GHG calculations have sufficient controls to be considered fair and accurate and without material discrepancy

The calculations supporting the GHG Report are sufficiently accurate to be considered fair and accurate and without material discrepancy

Any assumptions or approximations made to bridge data gaps are conservative.

Material

Risk Assessm

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8.1 General Procedures

Assess independence between the Verification Team and the Project Proponent; address conflicts of interest as required.

Obtain an understanding of the management systems, processes and the relevant controls used to generate, aggregate and report the emission reduction.

Assess project and facility boundaries. Assess the information collected for accuracy, consistency, completeness, relevance,

and transparency. Identify potential inherent, detection, and control risks, as well as material misstatements in

net emissions calculations.

8.2 Emissions Data and Reporting Procedures

Assess baseline conditions, calculations, and emissions. Interview relevant emission data management and staff responsible for data collection

and reporting. Review relevant documents and records on a sample basis. Review calculations and methodologies used to calculate net emissions. Assess the use of emission factors and conversions, where applicable. Test and re-calculate information related to the data on a sample basis. Assess the types of information collected for accuracy, consistency, completeness,

relevance, and transparency. Assess the individual data collected for accuracy, consistency, completeness, relevance,

and transparency.

8.3 Data Management and Control Procedures

Assess the organization of management systems and controls. Assess the types of information collected and corresponding methods of collection. Review the back-up procedures of management systems and controls.

8.4 Site Visit

The on-site visit was conducted on July 20, 2017 by Ms. Judy Tai, the Lead Verifier. The following lists the individual who participated in the site visit:




Names Title Company Marc Fillion SBB Controller/ Analyst Tolko Industries Ltd. Darrell Trevors Health Safety Coordinator Tolko Industries Ltd. Mike Leach Operations Manager Tolko Industries Ltd. Kelly Parker Senior Carbon Analyst Blue Source Canada Judy Tai Lead Verifier Keystone Environmental Ltd.

The purpose of the site visit was to review the Project operations and physical boundaries, and inspect the relevant GHG emission sources and sinks identified in the Project Report. The data management procedures, such as data collection control devices and record retention practices were also observed. Activities on-site can be summarized as follows:

8.4.1 On-Site Tour

Ms. Tai was accompanied by Mr. Marc Fillion and Mr. Mike Leach of Tolko, and Ms. Kelly Parker of Blue Source during the site tour. Mr. Leach provided Ms. Tai a general overview of the biomass combustion operation and the offset project. The tour enabled Ms. Tai to become familiar with the on-site operation and to verify whether there is discrepancy in the emission sources identified in the Project Plan. The following areas of operation were visited:

Biomass waste combustion system (GTS Energy Reciprocating Grade Combustion systems)

Biomass storage and transfer areas Biomass waste conveying systems Weigh scale house and log storage area Log debarking process Project monitoring and metering Two rotary drum dryers and thermal oil heaters Onsite mobile equipment Propane and diesel tanks Process control room Press operations

During the tour, Ms. Tai observed the transfer of biomass waste from the storage area to the combustion system through conveyors. Ms. Tai located the meters monitoring the transfer of biomass displaying the flow rate and total amount fed to the combustion system. The combustion system was operating at time of the site visit. Ms. Tai also toured the press operation and finish products area.




8.4.2 Interviews

Interviews were conducted to gain understanding of the specify processes relevant to the Project. Mr. Leach explained the data collection process for the log consumption and data transfer process, control activities and data management procedures. He also explained the log sampling procedures prescribed by AEP to estimate the conversion from weight to volume. He explained the general procedures that were taken to compile the propane and diesel consumption data. He explained the quality control procedure for verifying the accuracy of the data.

Mr. Leach described the sources of biomass waste feeding to the combustion system, biomass waste collection and monitoring process. He provided a general overall of the data collection system.

8.5 Calculation Used

The emissions factors used in this verification are as follows:

Table 3 Emission Factors

Type CO2 CH4 N2O CO2e Natural Gas Combustion (kg/m3) 1.918 0.000037 0.000033

AESRD Carbon Offset Emission Factor Handbook 2015

Natural gas Extraction & Processing (kg/m3)

0.133 0.0026 0.000007 AESRD Carbon Offset Emission Factor Handbook 2015

Wood Waste (g/Kg) - 0.00009 0.00006 National Inventory (2016), Table A4-2

Diesel Production (kg/L) 0.138 0.0109 0.000004


Diesel Combustion (Kg/L) 2.663 0.000133 0.0004


Propane Combustion (kg/L) 1.507 0.000024 0.000108





The calculations used in this verification are as follows:

Table 4 Baseline and Project Emissions

Baseline Emissions 66,123 tonnes CO2e in 2016

Major Sources of Emissions

Emission from Displaced On-site Heat Generation (B18) Emission from Fuel Extraction and Processing (B4)

Calculations Used EmissionReduction = EmissionBaseline - EmissionProject EmissionBaseline = EmissionsDisplaced On-site Heat Generation (B18) + EmissionsFuel Extraction and Processing (B4)

Project Emissions 9,620 tonnes CO2e in 2016

Major Sources of Emissions

Emissions Facility Operation = emissions under SS (P12) Emissions Combustion of Biomass and Fossil Fuels = emission under SS (P15) Emissions Fuel Extraction and Processing = emission under SS (P4) Emissions Offsite Heat and Electricity Not Displaced in the Project = emission under SS (P6)

Calculations

EmissionReduction = EmissionBaseline - EmissionProject EmissionProject = EmissionsFacility Operation (P12) + EmissionsCombustion of Biomass and Fossil Fuels (P15) + EmissionsFuel Extraction and Processing (P4) + EmissionsOffsite Heat and Electricity Not Displaced in the Project (P6)

8.6 Desktop Review

The following relevant supporting documents and records, provided by Blue Source, were reviewed to assess the supporting data, and select areas of data flow from the custom calculator was retraced back to the source measurement, or estimation:

Proof of ownership of the project Site layout figure Meter calibration documents Monthly diesel and propane invoices for January to December 2016 Summary of diesel and propane consumption spreadsheet for 2016 GTS Heat Energy System Efficiency document Panel weight through press

Data was then extracted to independently compute the emission reduction to corroborate Tolko’s GHG calculation. Keystone Environmental’s GHG calculation was compared to the reported emission reductions to identify any discrepancy, if present, resulting from compilation error of source data. Assessment of the emission data integrity was conducted by reviewing the primary records such as invoices, meter calibrations, and manual logs.

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Verification Report - Tolko Slave Lake Biomass Offset Projectfor Emission Reduction Credits in 2016

Slave Lake, AB

14. LIMITATIONS

Findings and conclusions documented in this report have been prepared in a manner consistentwith that level of care and skill normally exercised by other members of the environmentalconsulting profession practising under similar circumstances ¡n the area at the time of theperformance of the work. This report is not intended nor is it able to provide a totallycomprehensive review of the proposed project.

This report has been prepared solely for the internal use of Blue Source Canada ULC andTolko lndustries Ltd., and for review by Alberta Environment and Parks pursuant to theagreement between Keystone Environmental Ltd. and Blue Source Canada ULC. A copy of thegeneral terms and conditions associated with this agreement is attached in Attachment H. Byusing this report, Blue Source Canada ULC, Tolko lndustries Ltd., and Alberta Environment andParks agree that they will review and use the report in its entirety. Any use which other partiesmake of this report, or any reliance on or decisions made based on it, are the responsibility ofsuch parties. Keystone Environmental Ltd. accepts no responsibility for damages, if any,suffered by other parties as a result of decisions made or actions based on this report.

We are available to address questions that Alberta Environment and Sustainable ResourceDevelopment might pose after their review of this submission.

Sincerely,

Keystone Environmental Ltd.

c

SZJ, S >.¡tf

Judy ngLead V

l:\12800-12899\12885\Phase 10 B\Report\Finat\1288s 17091s FINAL Verlfìcation Report.docx

ATTACHMENTS:. Appendix A: Statement of Qualification. Appendix B: Conflict of lnterest Checklisto Appendix C: Verification Plan and Sampling Plan. Appendix D: Risk Assessment. Appendix E: Statement of Verificationo Appendix F:AEP Exemption Lettero Appendix G: AEP Protocol Deviation Approval Letter. Appendix H: General Terms and Conditions for Services

.J.YW.T

KeystoneEnvironmentalKnowledge-Driven Results


ær#

ATTACHMENT A

STATEMENT OF QUALIFICATION

Statement of Qualification Tolko Slave Lake GHG Offset Project


Page 1 of 2 Project 12885 / September 2017

STATEMENT OF QUALIFICATION

This Statement of Qualification states that the Verifier meets or exceeds the qualifications of third party verifier as stated in section 18 of the SGER, and the Offset Credit Verification Guidance Document. A signed SoQ must be submitted to Alberta Environment, along with the Project report to complete the verification receive emission offsets.

Keystone Environmental has completed the verification of emission reductions generated from Tolko Slave Lake Biomass Offset Project for the period of January 1, 2016 to December 31, 2016. Keystone Environmental’s verification team meets the requirements of Section 18 of the Alberta SGER. This signed statement of qualifications is submitted in conjunction with Tolko Slave Lake Biomass Offset Project under the Alberta Environment and Parks (AEP) Specified Gas Emitters Regulation (SGER).

VERIFICATION TEAM QUALIFICATIONS 1.

Table 1 below lists the verification team members and their roles.

Name Role

Judy Tai, P.Eng. Lead Verifier & Designated Signing Authority

Francisco A. Perelló, PhD, P.Eng Independent Peer Reviewer

Eva Marcy, E.I.T. Verifier

Judy Tai, M.A.Sc., P.Eng. – Lead Verifier

Ms. Tai is a Professional Engineer registered with APEGBC under the Engineering and Geoscience professions Act, with technical expertise related to the project sector.

Ms. Tai has led multiple GHG offset credit verification projects. She has completed successful verification projects, for submission to Alberta Environment at both reasonable and limited levels of assurance. She has detailed technical knowledge of GHG emission quantification methodologies, the Alberta GHG Offset Credit System, SGER reporting system and verification experience in fuel switching, energy efficiency, and landfill gas capture projects for both regulatory and voluntary offset systems.

Ms. Tai has completed the three-day training course for the CSA GHG Verification and Validation using ISO 14064 and received her Certificate of Completion. She supervised the progress of the verification, conducted the on-site verification and prepared the Verification Report. She also signed the required verification documentations as the designated signing authority.

Francisco A. Perelló, PhD, P.Eng. – Independent Peer Reviewer

Dr. Perelló completed the peer review of this Verification Report, Verification Statement, Verification Plan, and verification activities, to provide an independent review.

Statement of QualificationTolko Slave Lake GHG Offset Project

for Emission Reduction Credits in 2016Slave Lake, AB

Dr. Perelló's provides senior-level expertise in client and regulatory liaison, permitting, processengineer¡ng, equ¡pment selection, process optimization, and commissioning of watei, stormwater and wastewater treatment facilities. He also assists clients during the-development andevaluation of remedial solutions for landfills, contaminated sites, hãzardous wastes andindustrial effluents.

Dr. Perelló has conducted many on-site verification visits and meetings. He has also completedpeer review of verification activities and provided independent review to the project team.Dr. Perelló has led GHG Offset project verifications for fuel switching (biomass) projects, energyefficiency projects. He has also led the team for the verification of compliance report at-ãreasonable level assurance for the pulp mill with an anaerobic lagoon in Alberta.

Dr. Perelló leads the Quality Assurance and Quality Control on Keystone Environmental and isresponsible for developing long-term energy and emission strategies for many industrialprocesses and regional economies. Dr. Perelló is a Professional Engineer, registered in BritishColumbia and Alberta.

Eva Marcy, B.A.Sc., EIT - Verifier

Ms. Marcy reviewed and checked the data supporting the GHG emission reduction creditsclaimed. She has been a member of the Keystone Environmental verification team for GHGoffset and SGER compliance project related to fuel switching projects in Alberta. She hascompleted the National Pollutant Release lnventory for various forestry-based facilities.

The verification team is eligible to conduct a verification review for the offset project and candemonstrate freedom from any conflict of interest to the Proponent and owner of the project asdocumented in the Conflict of lnterest Checklist in Appendix B.


Sincerely,

ronmental Ltd

J.YtÇ,zt:tT

Judy ï ngLead Verifier

l:\12800-12899\12885\Phase 10 B\Report\Final\12885 12091s Qualification statement.docx

KeystoneEnvironmentalKnowledge-Dr¡ven Resulta

¡?Þr#Page 2 of 2 Project 12885 i September 2017

ATTACHMENT B

CONFLICT OF INTEREST CHECKLIST

Conflict of Interest Checklist Tolko Slave Lake Biomass Offset Project



CONFLICT OF INTEREST CHECKLIST

Please note that a signed original Conflict of Interest Checklist must be submitted along with Project information in any Offsets used for Compliance in the Alberta system.

Question Yes No

1. Can the verifying organization or the verification team members directly benefit from a financial interest in the Project Developer or the Project Developer’s Project?

For example:

Owning shares of the Project Developer

Having a close business relationship with the Project Developer

Contingent fees relating to the results of the engagement

Potential employment with the Project Developer

Undue concern about the possibility of losing the verification or other fees from the Project Developer

2. Can the verifying organization or verification team members be in a position of assessing their own work?

For example:

Involvement of the verification organization in the compilation of the data contained in the GHG assertion

Involvement of the verification organization in the development of a quantification protocol other than protocol recognized or recommended by the regulatory authority

A verification organization member performing non-verification services that directly impinge on the client’s GHG assertion, such as implementing the GHG data management system, or having performed validation services on the project being reviewed

A member of the verification engagement team having previously been a GHG data compiler of the Project Developer or who was employed by the Project Developer in a position to exert direct and significant influence over the Project Developer's GHG assertion being verified

3. Does the verifying organization or a member of the verification team, or a person in the chain of command for the verification, promote or be perceived to promote, a Project Developer's position or opinion to the point that objectivity may, or may be perceived to be, compromised?

For example:

Dealing in, or being a promoter of, GHG credits on behalf of a Project Developer

Acting as an advocate on behalf of the Project Developer in litigation or in resolving disputes with third parties.

Conflict of lnterest ChecklistTolko Slave Lake Biomass Offset Project

for Emission Reduction Credits in 2016Slave Lake, AB

Question Yes No4. ls one or more of the verification team too sympathetic to the Project Developer's

interests by virtue of a close relationship with a Project Developer, its directors,officer or employees?

For example:. A person on the verification team has a close personal retationship with a

person who is in a senior GHG compilation role at the project Developer¡ The verification team or a person of influence on the verification team has

or from thels a member of the verification team or a person in the chain of command isdeterred from acting objectively and exercising professional scepticism by threats,actual or perceived, from the directors, officers or employees of the projectDeveloper.

5

For example:o The threat of being replaced as a third party verifier due to a disagreement

with the application of an GHG quantification protocol¡ Fees from the Proiect Developer represent a targe percentage of the overall

revenues of the verifying organizationo The application of pressure to inappropriately reduce the extent of work

performed in order to reduce or limit feesa Threats of from the

Keystone Environmental Ltd.

aj

J,YW

ilvJudy Tai, Eng. Date : September 15,2017Lead VerifierBurnaby, British Columbia

1112800-12899\12885\Phase 10 B\Report\Finat\l2BB5 17091S COt Checktist.docx

KeystoneEnvironmentalKnowledge-Driven Rssults

¡ü)fÉ

Yx Page 2 of 2 Project 1 2885 / September 201 7

ATTACHMENT C

VERIFICATION PLAN, SAMPLING PLAN

Verification Plan Tolko Slave Lake Biomass Offset Project



VERIFICATION PLAN

OBJECTIVE

The objective of the verification is to provide assurance to Alberta Environment and Parks (AEP)

that the GHG Assertion is materially correct and presented fairly in accordance with the

relevant criteria.

SCOPE

The scope of this verification is presented in Table C-1. It includes the Project boundaries,

activities, technologies, and processes of the operation, GHG sources, sinks, and/or reservoirs,

types of GHGs for the time period covered, materiality and level of assurance. The geographic

verification scope is defined by the Project boundaries.

Table C-1 Scope Information

Item Tolko Athabasca Engineered Wood Plant

Geography

6km East Mitsu Industrial Park, Slave Lake, AB T0G 2A0

SE-26-72-4-W5

Latitude: 55.26082

Longitude: -114.50004

Organization Tolko Industries Ltd.

Activities Log processing, OSB manufacture, biomass combustion, on site

transportation, wood waste thermal energy system

Relevant GHG Carbon dioxide (CO2), Methane (CH4), Nitrous oxide (N2O)

GHG Reduction

CO2: 62,395 tonnes CO2e

CH4: 1,339 tonnes CO2e

N2O: -4,564 tonnes CO2e

CO2e: -2,667 tonnes CO2e

Sources

Baseline: Emissions : displace on site heat generation, fuel extraction and

processing

Project: Emissions: facility operations, combustion of biomass, fuel extraction

and processing

Time Period January 1, 2016 to December 31, 2016

Materiality 5%




LEVEL OF ASSURANCE

The verification was conducted to a reasonable level of assurance. The objective of a verification program is to obtain sufficient appropriate evidence to express a conclusion, providing reasonable or limited assurance, as to whether the audited body has complied with the specified requirements of the program criteria in all material respects.

Reasonable level of assurance is a higher level of assurance, providing a greater confidence the individual can place in the matter being verified. To provide a higher level of assurance, the verification needs to reduce the risk that a material misstatement exists in the matter being audited. The verification team achieves this by conducting a more in-depth and rigorous assessment of the verification.

MATERIALITY

According to AEP requirements, quantitative discrepancies exceed 5% of the total reported GHG emission are considered material.

VERIFICATION STANDARD

The verification is conducted in accordance with the ISO 14064 Part 3: Greenhouse Gases: Specification with guidance for the validation and verification of greenhouse gas assertions.

PROGRAM CRITERIA AND RELEVANT SUPPORTING DOCUMENTS

Alberta Climate Change and Emissions Management Act (CCEMA) (SA 2003, Chapter 16.7)

Specified Gas Emitters Regulation (SGER) (Alta Reg. 139/2007 includes amendments up to Alta Reg. 254/2007, July 1, 2007)

SGER, Technical Guidance Document for Offset Project Developers (Version 4.0, February 2013)

Technical Guidance for Greenhouse Gas Verification at Reasonable Level Assurance v.1.0 (AESRD, January 2013)

Quantification Protocol for Quantification Protocol for Energy Generation from the Combustion of Biomass Waste (Version 2.0, April 2014)

Offset Project Plan for Tolko Slave Lake Biomass Offset, version 1.0 December 15, 2015

Offset Project Report for Tolko Slave Lake Biomass Offset Project, version 2.2 September 8, 2017.

RISK ASSESSMENT

As part of the verification process, a risked-based verification and sampling plan must be developed that outlines the amount and type of evidence necessary to achieve the agreed level of assurances, methodologies for determining representative samples, and risks of potential errors, omissions, or misrepresentation.




The risk assessment is conducted by the verification team considering inherent risk, control risk, and detection risk.

Inherent Risk

Inherent risk is the risk of error due to the data complexity or lack of understanding by the staff. Inherent risk is determined to be Medium due to:

Second time reporting to AEP.

Single facility with limited number of emission sources.

Control Risk

Control risk is the risk that the responsible party’s control system will not detect and rectify a discrepancy. Control risk is determined to be Medium due to:

Data gathering system for hog fuel was automated and metered in 2016. Trim residues to the GTS system was estimated based on press production.

Tolko has a data management system to review, and cross check data recorded for reasonableness.

Detection Risk

Detection risk is the risk that the verification team will not identify a material discrepancy. Detection risk must be low due to:

Reasonable level of assurance requires a medium to low detection risk.

A detail risk assessment is summarized in Appendix D.

Table C-2 Summary of Emission Reduction

GHG In tonnes CO2e CO2 CH4 N2O CO2e Total

Baseline 63,705.5 2,047.7 370.2 - 66,123.4

Project 1,310.6 708.8 4,933.6 2,667.1 9,620.1

Total Emission Reductions

62,394.9 1,338.9 -4,563.3 -2,667.1 56,503.4




VERIFICATION PROCEDURES

The verification procedures to obtain sufficient and appropriate evidence can be summarized into the following tasks.

General Procedures

Assess independence between the Verification Team and the Facility; address conflicts of

interest as required

Obtain an understanding of the management systems, processes and the relevant controls

used to generate, aggregate and report GHG emissions

Assess the information collected for accuracy, consistency, completeness, relevance,

and transparency

Identify potential inherent, detection, and control risks, as well as material misstatements in

net emissions calculations

Emissions Data and Reporting Procedures

Interview relevant Tolko Athabasca Plant’s management and staff responsible for data

collection and reporting

Review Offset Project Plan and Report

Review relevant documents and records on a sample basis

Review calculations and methodologies used to calculate net emission reductions

Assess the use of emission factors and conversions, where applicable

Test and re-calculate information related to the data on a sample basis

Assess the types of information collected for accuracy, consistency, completeness,

relevance, and transparency

Assess the individual data collected for accuracy, consistency, completeness, relevance,

and transparency

Data Management and Control Procedures

Assess the organization of management systems and controls

Assess the types of information collected and corresponding methods of collection

Review the back-up procedures of management systems and controls




SCHEDULE OF ACTIVITIES

Table C-3 Schedule of Activities

Activity Deliverable Date

Authorization to Proceed Tolko Slave Lake OSB Mill June 9, 2017

GHG calculator and other supporting documents

Tolko Slave Lake OSB Mill June - July, 2017

Perform Risk Analysis and prepare Verification Plan and Sample Plan

Keystone Environmental July 10 – 19, 2017

Site Visit Keystone Environmental July 20, 2017

Verification Review Keystone Environmental July 21, 2017 – Sept 8, 2017

Peer review Keystone Environmental Sept 11, 2017

Exit Meeting Keystone Environmental and Tolko Slave Lake OSB Mill

Sept 12, 2017

Final Verification Documents Keystone Environmental Sept 15, 2017

VERIFICATION TEAM

Table C-4 Verification members and roles

Role Name

Lead Verifier, Designated Signing Authority Judy Tai, MASc., P.Eng

Independent Peer Reviewer Francisco Perello, PhD., P.Eng

Verifier Eva Marcy, BASc., EIT

CHANGES TO OPERATIONS, AND ORGANIZATIONAL OR OPERATIONAL BOUNDARIES SINCE PREVIOUS VERIFICATION

No Change.

GHG SUBJECT MATTER ASSOCIATED WITH ASSERTION

Carbon Dioxide (CO2)

Methane (CH4)

Nitrous Oxide (N2O)




DESCRIPTION OF THE DATA MANAGEMENT SYSTEM

General data management – Production and sales are collected in the Tolko internal automatic system which links to the accounting system for financial reporting. Accounting staff review all invoices received and conduct reasonableness accuracy reviews.

Biomass to energy system – biomass feedstock (hog fuel and wet fines) to the energy system was automatically measured by meters and recorded through the Data Gathering System (DGS). The data was reviewed by Production Manager for reasonableness check.

Production – OSB production at various operation stages was capture in the DGS.

Diesel & propane – Invoices were provided by the suppliers. Monthly cross checks were performed for reasonableness by accounting department.

Trim loss – wood fines generated during the trimming of the board edges after the press The amount of trim waste was estimated based on the weight of trim loss calculated by width difference between the panel infeed and output for finished products. The weight and the width of panels through press were captured by the DGS system.

Comments Requires Corrective Action (Y/N) Procedures Issue Addressed

None N Tested for completeness, accuracy, consistency, conservativeness


None N Tested for completeness

None N Tested for completeness

None N Tested for completeness, accuracy, consistency





None N Tested for completeness, consistency

None N Tested for completeness, consistency

5

Not all sources of hog fuel were accounted for. Trim loss from boarding cutting was not included.

Y Tested for completeness, accuracy, consistency, conservativenessIncluded trim loss as a source for fuel.

Not all sources of hog fuel were accounted for. Trim loss from boarding cutting was not included.

Y Tested for completeness, accuracy, consistency, conservativeness

Trim loss was estimated based on the weight of trim loss calculated by width difference between the panel infeed and output for finished products.


Not all invoices matched with data entry Y

Tested for completeness, accuracy, consistency, conservativeness Data entry corrected.

None N Reviewed for completenessNone N Reviewed for completenessNone N Reviewed for completeness

Tolko Athabasca Engineered Wood Plant GHG Verification - 2016Sampling Plan

Verification Line Items Site Visit Confirmation/Documents Reviewed

1

SGER Carbon Offset Emission Factors Handbook. V.1.0 March 2015

2016 National Inventory Report

Emission Factors

Others7

3

Biomass consumption records

Diesel and Propane Usage Tracking Spreadsheet, 20164 Data Management System

IT/Security procedures

Interviewed site staffReviewed data management proceduresProcess Layout

Upstream electricity usage

Propane and diesel invoices

Calculation Process

Data backup & storage

Record keeping procedures

Weigh belt meters calibration records for press operation

Biomass

Calibration Records2

6

Biomass meters calibration records

Biomass calculations

Diesel Invoices (12 months)

Propane Invoices (12 months)Invoices

Metering system to track hog fuel to combustion.

ATTACHMENT D

RISK ASSESSMENT

Level of Risk(high, med, low)

Type of Risk(inherent, control,

detection)Considerations for Procedures

low inherent Review against content of report. Review against Keystone Environmental process.

low inherent Indicated questions, weaknesses, edits required by client.

low inherent Discuss with client and site visit conducted .

medium inherent

Invoices and raw data records review to ensure data is complete and availableDiscuss with client to ensure mutual understanding. Revise content if necessary (e.g., elaborate).

medium control

Data collection was automatic and direct to plant process operations. Review biomass metering system and transfer system on site. Interview personnel on processes.

low control Review invoices for usage. Review to ensure data is complete and available.

low control Review invoices for usage. Review to ensure data is complete and available.

3 medium controlData collection was automatic for weight of wood through press. Review process flow diagram and estimation methodology.

4 medium controlData collection direct to mill process operations. Interview personnel on processes.

5 low control Interview with personnel.6 low control Review emission factors source publication.

Definitions:inherent risk:

control risk:detection risk:

Is the susceptibility of an assertion to misstatements assuming that there are no internal related controls.Is the risk that the responsible party’s internal controls do not detect, prevent or correct a material misstatement in the greenhouse gas assertion.Is the risks that the verification procedures will not detect a misstatement that exists in a greenhouse gas assertion that could be material to the assertion.

Emission Factors Choice/calculation of emission factors

Trim Loss Trim loss estimation to energy system

QA/QC Procedures QA/QC as well as storage of records

Biomass consumption

Diesel consumption

Data Management/ Record Keeping Data sources and collection

Propane consumption

2

Tolko Athabasca Engineered Wood Plant GHG Verification - 2016Risk Assessment

Item Risk Identification

Offset project documents, level of detail, format, quality of plans, etc. – general issues;

1

Sources and sinks considered;

Sources and sinks considered

Project boundaries;General Statement

Fuel Consumption

ATTACHMENT E

STATEMENT OF VERIFICATION

September 15, 2017 Alberta Environment and Park Climate Change Secretariat 12th Floor, Baker Centre 10025 - 106 Street Edmonton, AB T5J 1G4 Dear Sir or Madam: Re: Verification Statement – Tolko Slave Lake Biomass Offset Project


Project No. 12885 (10) Keystone Environmental Ltd. (Keystone Environmental) is pleased to submit this Verification Statement to Alberta Environment and Parks (AEP) for the Tolko Slave Lake Biomass Offset Project (the Project) at the Tolko Athabasca Engineered Wood Plant, located in Slave Lake, AB.

Keystone Environmental has completed the verification of emission reductions generated from Tolko Slave Lake Biomass Offset project for the period of January 1, 2016 to December 31, 2016. The Greenhouse Gas (GHG) Emission Reduction Assertion was prepared by Blue Source Canada ULC (the project developer) on behalf of Tolko Industries, Ltd. (Tolko), the project owner. The project generates GHG offset credits from direct reduction of GHG emissions by displacing fossil fuel usage with biomass.

Blue Source is responsible for the preparation and fair presentation of the information within the Offset Project Plan, Offset Project Report and the Greenhouse Gas Assertion of Emission Reduction Credits in accordance with the requirements of the Alberta Offset Credit System under the Specified Gas Emitters Regulation (SGER). Tolko is responsible for the implementation and operation of the Project at the site location.

Keystone Environmental is responsible to provide our opinion to a reasonable level of assurance that the GHG Emission Reduction Assertion in the Project in 2016 calendar year is materially correct and presented fairly in accordance with the applicable criteria.

Verification Statement – Tolko Slave Lake Biomass Offset Project



VERIFICATION STATEMENT

We have reviewed the Greenhouse gas (GHG) emission reduction presented in the following report prepared by Blue Source:

Tolko Slave Lake Biomass Project, Greenhouse Gas Emissions Reduction Offset Project Report For the Reporting Period 1 January 2016 – 31 December 2016, Final Report, v. 2.2, dated September 8, 2017

Greenhouse Gas Assertion of Emission Reduction Credits, dated September 15, 2017

Tolko Slave Lake Biomass Offset Project, Greenhouse Gas Emissions Reduction Offset Project Plan, Version 1.0, December 15, 2015

The above documents cover the period from January 1, 2016 to December 31, 2016.

Based on the above documents, the total GHG emission reductions reported by Blue Source in the GHG Assertion for the Project during the reporting period of 2016 are 56,503 tonnes of CO2 equivalent.

Year Emission Reduction Credits

(Tonnes CO2e)

2015 51,151

2016 56,503

Total 107,654

Tolko is responsible for the operation of the Project and the implementation of data collection and internal control as determined necessary to enable the preparation of the GHG Assertion that is free from material misstatement.

Our responsibility is to express an opinion as to whether anything has come to our attention to suggest that the GHG Assertion is not presented fairly in accordance with the requirements of the Alberta GHG Offset System. We conducted the verification in accordance with the requirements of the Alberta Environment and Parks Technical Guidance for Offset Project Developers v. 4.0 (February 2013) and the International Standard ISO 14064-3, Greenhouse gases – Part 3: Specification with guidance for the validation and verification of greenhouse gas assertions (1st Edition, 2006). Those standards require that we plan and perform the verification to obtain reasonable assurance about whether the emission reduction credits claimed by Tolko Industries Ltd. are free from material misstatement.

METHODOLOGY

We completed our review in accordance with the International Standard Organization ISO 14064; part 3. We planned and performed our work in order to provide reasonable level assurance (positive level assurance), with respect to the GHG emission reduction. Our review criteria were based on Alberta Environment’s approved quantification methodology

o

a

a

Verification Statement - Tolko Slave Lake Biomass Offset projectfor Emission Reduction Cred¡ts in 2016

Slave Lake, AB

(Quantification Protocol for Energy Generation from the Combustion of Biomass Waste, Version2.0, April 2014); the Specified Gas Emitters Regulation and associated guidance documents.we believe our work prov¡des a reasonable basis for our conclusion. The review criteria againstwhich the GHG assertion and supporting evidence was evaluated include, but not limited tó, thefollowing:

o Conformance with the requirements and principles of the above quantification protocol,regulation, and associated guidance documentsThe data supporting the GHG calculations have sufficient controls to be considered fair andaccurate and without material discrepancy

The calculations supporting the GHG assertion are sufficiently accurate to be considered fairand accurate and without material discrepancy

Any assumptions or approximations made to bridge data gaps are conservative

CONCLUSION

Based on our review, the emission reduction credits presented in the Offset project Reportdated September 8, 2017 and the Greenhouse Gas Assertion dated September 15, 2311provided by Blue Source, is presented fairly, in all material respects, in accordance wíth therequirements of the Alberta GHG Offset Credit System. ln our opinion, the emission reductioncredits presented in the Project Report are free of material misstatements, omissions, ormisrepresentations.


Sincerely,

Keystone Environmental Ltd.fCc. i;

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J. ìi Vil

Judy Tai, M.Lead VerifierKeystone Environmental Ltd.Burnaby, BC

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KeystoneEnvironmentalKnowlgdge-Dr¡ven Results

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ATTACHMENT F

AEP EXEMPTION LETTER

Albert Climate Change OfficeRegulatory and Compliance12th Floor, 10025 106 Street Edmonton, Alberta T5J 1G4 CanadaTelephone: 780-427-5200www.alberta.ca

January 18, 2017

Michael Towers Manager, Energy and EnvironmentTolko Industries Ltd.Box 393000 - 28th Street Vernon, British Columbia V1T 6M1

Subject: 2016 Exemption Request for Tolko Slave Lake OSB (Athabasca) Facility (EPEA Approval #277285) under the Specified Gas Emitters Regulation.

Dear Mr. Towers:

Your request to exempt Tolko Slave Lake OSB (Athabasca) Facility from a compliance obligation under the Specified Gas Emitters Regulation for the 2016 compliance year has been accepted.

This is in keeping with the possible removal of biomass CO2 emissions from the calculation of the threshold with respect to the SGER in future cycles as well as provisions under section 24 of the regulation. In the case of your facility, in the absence of biomass emissions the remainingfacility emissions are less than 10 kilotonnes, well below the 100 kilotonne threshold.

For the 2016 compliance period Tolko Slave Lake OSB is required to submit a verified data report by the compliance deadline of March 31, 2017.

Tolko Slave Lake Biomass Offset Project (9963-2876) will remain eligible to generate offset credits for the 2016 calendar year. Tolko Slave Lake will have to apply next year for exemption from the 2017 SGER Compliance obligation.

Please direct any questions you may have to [email protected].

Sincerely,

John Storey-Bishoff, M.Sc., P.EngDirector, Climate Change Compliance

Digitally signed by John Storey-Bishoff DN: cn=John Storey-Bishoff, o=Environment and Sustainable Resource Development, ou=Air and Climate Change Policy Branch, [email protected], c=CA Date: 2017.01.18 13:48:24 -07'00'

ATTACHMENT G

AEP PROTOCOL DEVIATION APPROVAL LETTER

Climate Change Policy and Regulations Branch12th Floor, 10025 106 Street Edmonton, Alberta T5J 1G4 CanadaTelephone: 780-427-5200www.alberta.ca

May 9, 2016

Aleena DewjiBlue Source CanadaSuite 700, 717-7th Avenue SWCalgary, AB T2P 0Z3

Dear Ms. Dewji,

Subject: Request to obtain audit findings and clarify calculation of fuel combustion emissions in the Tolko Slave Lake Biomass Offset Project (9963-2876)

The Climate Change Office has reviewed your email sent April 5, 2016 requesting access to the government audit findings from recent biomass projects and clarification on the calculation of emissions from the combustion of biomass in the Quantification Protocol for Energy Generation from the Combustion of Biomass v2.0. Blue Source is collecting energy generation data and utilizing emission factors to calculate emissions from fuel combustion (as described through source/sink P15 in the project condition) and is requesting to use this same methodology to calculate emissions from fuel combustion in the baseline condition.

A government audit has not been conducted thus far on a project that is using the current (2014) version of the protocol, thus there are no audit reports available to share at this time. Blue Source may use the methodology described for source/sink P15 of Table 6 to calculate emissions from heat generation in the baseline condition, provided that all protocol requirementsrelated to the application of this methodology are met in both the baseline and project condition.

If you have further questions please do not hesitate to contact our office directly at [email protected].

Sincerely,

John Storey-Bishoff, P.Eng. Director, Climate Change ComplianceAlberta Climate Change Office

cc: Alberta Emissions Offset Registry (file)

Digitally signed by John Storey-Bishoff DN: cn=John Storey-Bishoff, o=Environment and Sustainable Resource Development, ou=Air and Climate Change Policy Branch, [email protected], c=CA Date: 2016.05.10 14:14:40 -06'00'

ATTACHMENT H

KEYSTONE ENVIRONMENTAL LTD. GENERAL TERMS AND CONDITIONS FOR SERVICES

1

KEYSTONE ENVIRONMENTAL LTD. GENERAL TERMS AND CONDITIONS FOR SERVICES

The terms and conditions set forth below govern all work or services requested by CLIENT as described and set forth in the Proposal and/or Work Plan of Keystone Environmental Ltd. ("Keystone Environmental "), any Purchase Order issued by CLIENT or Agreement between Keystone Environmental and CLIENT. The provisions of said Proposal or Agreement govern the scope of services to be performed, including the time schedule, compensation, and any other special terms. The terms and conditions contained herein shall otherwise apply expressly stated to the contract including any terms in addition to or inconsistent with said Proposal or Agreement. 1. COMPENSATION

The fees for services provided by Keystone Environmental consists of: (1) an hourly billing rate for any staff member actively working on a project, except for lump-sum or percent of construction fee basis projects; (2) reimbursement of direct expenses