CHAPTER 11 INTERNATIONAL GHG EMISSION MARKETS AND THEIR IMPACT ON THE U.S. RESOURCE SECTOR

• Jurisdiction: United States

Air Quality Challenges Facing the Natural Resources Industry in the Western United States
(Nov 2007)
CHAPTER 11
INTERNATIONAL GHG EMISSION MARKETS AND THEIR IMPACT ON THE U.S. RESOURCE SECTOR
Elisabeth (Lisa) DeMarco
Macleod Dixon LLP
Toronto, Ontario
Canada

Climate Change and Critical Developments in the Cross Border Emission Markets

Macleod Dixon LLP

• Canadian based International law firm established 1912

• 300 lawyers, 420 total staff in 7 global offices

• Focus: natural resource law (oil, gas, electricity, water, carbon and emission products)

• MD Climate Change Team: International Team, lead out of Toronto serving domestic and international clients

• MD Climate Change lawyers at the leading edge of Canadian and international emissions trading policy development since 1996 - more than a decade of proven ET Law experience

• Member of EMA, IETA, IETA CWGCM

• MD Climate Change Team has closed more than 100 MT of carbon transactions

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Macleod Dixon's Offices

Overview

• The Context

• The Canadian Framework for Air Emissions

• US Climate Change Bills

• State and Provincial Developments

• Legal and Contract Issues associated with Current Policies and Cross Border Emissions Trading

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The Context: What is driving the recent bubble climate change law and policy?

The Science: the IPCC

• Intergovernmental Panel on Climate Change (IPCC): TAR

• 1300 Authors; 1100 Reviewers

• Unanimously adopted by 100+ nations (including U.S.)

"Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global mean sea level."

• IPCC Fourth Assessment Report (2007)

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World Carbon Dioxide Concentrations

World Energy Consumption

source: Dr. Evan Mills

Likelihood of Observed Warming

Source: IPCC 4th Assessment (2007)

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Catalysts

• Climate Change Considerations Affecting Investment

• SEC petition by group of investors representing $1.5T of assets under management

• Capital stock turnover cycle in energy industry

• Energy security

• Carbon prices and market opportunities

Pricing source: Carbon Trends 2007, World Bank

Figure 8: Observed Prices for Project-based Transactions in 2005 & 2006

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Carbon Market Overview

source: Carbon Trends 2007, World Bank

Type	'05 Vol (MT CO2e)	'05 Value ($M US)	'06 Vol (MT CO2e)	'06 Value ($M US)
Allowance	328	7,971	1,131	24,620
1' CDM	341	2,417	450	4,813
2' CDM	10	221	25	444
JI	11	68	16	141
Other	20	187	17	79
Subtotal	382	2894	508	5,477
Total	710	10,864	1,639	30,098

The Canadian Air Emissions Framework

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The Framework: General Views

• The Framework as the First Step Forward and Theory of the Second Best

• Framework vs. Kyoto

• Framework: 20% (˜ 150 MT) decrease from estimated 2006 GHG levels (780MT) = 630MT by 2020

• Kyoto: 6% reduction from 1990 levels = 220 MT reduction from estimated 2006 GHG levels (780MT) = 560 MT by 2012

• Framework is not Kyoto: it continues Canada's move toward a "made-in-Canada" approach to climate change

• Supported by recent NRTEE analysis and PM Harper's speeches to APP and UN

Targets	Ways to comply
(in addition to in-house reductions)
Existing facilities	Climate change technology fund: one fund/two components
□ 6% improvement each year	□ Deployment & Intrastructure: access as % of total target over 2010-2017
from 2007 to 2010, giving an	period - 70%, 65%, 60%, 55%, 50%, 40%, 10%, 10%
enforceable 18% reduction	□ Research & Development: access over 2010-2017 period - 5 Mt
from 2006 emission intensity,	annually
starting in 2010	□ Explore credit for certified project investments
□ 2% annual improvement	□ Contribution rate to funds ($/tonne over 2010-2017 period) - $15, $15,
thereafter	$15, $20, $20 escalating with GDP
New facilities	Trading
□ 3-year grace period	□ Domestic trading
□ Clean fuel standard	□ Access to domestic offsets
□ 2% annual improvement	□ Access to Clean Development Mechanism at 10% of total target
□ Actively explore linkages to a Canada-U.S. -U.S. regional or
state level greenhouse gas emissions trading system
Credit for early action of 15 Mt

GHGs:

Source: Environment Canada.

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Targets	Ways to comply
(in addition to in-house reductions)
NATIONAL CAPS for 2012 to

...