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www.kestrelmanagement.com
Management Systems • Risk and Liability Management • Process Improvements
©Copyright 2007 Kestrel Management Services, LLC
Carbon Trading: Opportunities and Cautions
Philip TrowbridgeKestrel Management Services
Email: ptrowbridge@kestrelmanagement.comDirect Phone: (512) 795-9119
Presentation Overview
©Copyright 2008 Kestrel Management Services, LLC
• Emissions trading overview• Purpose• Explanation• History
• Policy & regulatory development• Kyoto• EU • US & regional
• Climate change program considerations• Exchange vs brokerage
Climate Change Importance
©Copyright 2008 Kestrel Management Services, LLC
• McKinsey surveyed nearly 2200 Executives• 60% - climate change important to strategy
Source: McKinsey Global SurveyDecember 2007
Climate Change Importance
©Copyright 2008 Kestrel Management Services, LLC
Source: McKinsey Global SurveyDecember 2007
Climate Change Importance
©Copyright 2008 Kestrel Management Services, LLC
Source: McKinsey Global SurveyDecember 2007
Climate Change Importance
©Copyright 2008 Kestrel Management Services, LLC
Source: McKinsey Global SurveyDecember 2007
Climate Change Importance
©Copyright 2008 Kestrel Management Services, LLC
Source: McKinsey Global SurveyDecember 2007
Climate Change Importance
©Copyright 2008 Kestrel Management Services, LLC
Source: McKinsey Global SurveyDecember 2007
However, only 30% of companies incorporate climate change into their corporate strategy
Emissions Trading
• Goal: Reduce emissions • Often referred to as “Cap & Trade”
©Copyright 2008 Kestrel Management Services, LLC
What is a Cap & Trade System?
• Cap – emissions limit • Limit at or below current emissions
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How Cap & Trade Works
Image Credit: Union of Concerned Scientist©Copyright 2008 Kestrel Management Services, LLC
Cap & Trade History
• Established in U.S. through 1990 Clean Air Act Amendments
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Cap & Trade History
• Established in U.S. through 1990 Clean Air Act Amendments• SO2 & NOx trading
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Kyoto Protocol
Kyoto Protocol (1997)• Established mechanisms for trading CER’s between
countries/continents
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EU Emissions Trading Scheme
• Largest emission trading system in world• Covers 10,000 installations• Includes variety of heavy industry
U.S. Policy Overview
• Seven Cap & Trade proposals introduced in U.S. Congress in 2007
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U.S. Policy Overview – continued
• Carbon trading program considerations• Economy-wide program – regulated “upstream”
©Copyright 2008 Kestrel Management Services, LLC
Western Climate Initiative
• Formed: February 2007• Partners: NM, AZ, CA, OR, WA, MT, UT, BC,
MAN
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Regional Greenhouse Gas Initiative
• Formed: August 2003• Partners: CT, DE, ME, NY, VT, MD,
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Corporate Strategic Response Considerations
• Strategic timing – understand why taking action now is the right time (leader, close follower, laggard)
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Benefits of Participating in Carbon Trading Today
• Development & maturity of GHG accounting practices
©Copyright 2008 Kestrel Management Services, LLC
Carbon Trading Cautions
• C&T is a redistributive system – net reductions?
©Copyright 2008 Kestrel Management Services, LLC
Chicago Climate Exchange (CCX)
• Launched 2003 (+300 members)• Voluntary, legally binding• Trades six GHG’s (CO2, N2O, HFCs, PFCs, CH4, SF6 ) • Carbon Financial Instruments (CFI’s) issued
annually (CFI’s = 100 metric tons priced/ton)• Offset project verification
• Initial and annual third party verification• Reports reviewed by CCX and FINRA
• Reduction targets - 3% existing members; 6% new members
©Copyright 2008 Kestrel Management Services, LLC
Chicago Climate Exchange (CCX)
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Source: www.chicagoclimatex.com 06/10/08
Cantor CO2e
• Provide professional brokerage services to the energy and environmental commodity markets in U.S. & EU
• Headquarters: London & San Francisco• Began emissions trading in 1992• Trade CO2, NOx, SOx, VOC’s, REC’s, • Carbon related services include:
• Support for “carbon neutral” – corporate and consumer
• Market carbon offsets
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Trading: Exchange Member or Broker?
• Annual membership fee $5K to $35K
• Transaction fee $5 per trade
• Audits reviewed by NASD to ensure conformance
©Copyright 2008 Kestrel Management Services, LLC
Trading: Exchange Member or Broker?
• No membership fee• No Master Agreement• Brokerage fee 3% to 5%• No reduction target
requirement• Rigorous due diligence
process
©Copyright 2008 Kestrel Management Services, LLC
Conclusion
• U.S. has a history of cap & trade• Carbon trading will likely be part of climate change
regulation solution• Preparation depends on part you want to play• Market participation may help better prepare you
for future• Economics may help resolve whether to use
brokerage or exchange
©Copyright 2008 Kestrel Management Services, LLC
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