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transcript
March 2012
CONFIDENTIAL AND PROPRIETARY
Market Compliance
Strategies
ELEMENT MARKETS INTRODUCTIONELEMENT MARKETS INTRODUCTION
US Emissions House of the Year US Emissions House of the Year
Business UnitsBusiness Units
Greenhouse Gas (GHG) and Emissions ServicesGreenhouse Gas (GHG) and Emissions Services
Credit MarketingGHG Offset Projects
Renewable Energy GroupRenewable Energy Group
Credit MarketingBiogas Development
Launched in 2005, Element Markets has become the leading producer and marketer of renewable natural gas and environmental commodities in the U.S.
Launched in 2005, Element Markets has become the leading producer and marketer of renewable natural gas and environmental commodities in the U.S.
• Leading marketer of environmental commodities with a focus on Emissions, GHG, and Renewable
Energy (Energy and Transportation Credits), and Biomethane
• Transacted over $700,000,000 in environmental commodities since inception in 2005
• Provides Environmental Asset Management Services for over 8,000 MW of generation
• Customer base of over 700 companies within the environmental markets
• EM is one of the largest developers of biomethane projects in the US and owns the largest Anaerobic Digestion Project in North America (Huckabay Ridge Anaerobic Digestion Project in Stephenville, TX)
• As a project developer and credit marketer EM has retired more than 550,000 CRTs in the last 12 months alone
LEADING ENVIRONMENTALLEADING ENVIRONMENTAL
CREDIT MARKETING PLATFORMCREDIT MARKETING PLATFORM
• Active in regional and federal
emissions markets
• Strong relationships and market
knowledge in all actively trading
air districts
• Portfolio includes Nox, SO2,
PM10, VOC, and CO positions
• Active in all compliance and
voluntary REC markets in North
America
• Member of ERCOT, NEPOOL GIS,
PJM-GATS, WREGIS, M-RETS and
NJ Solar registries
• Transacted over 19 million RECs
• Active in the US and Canadian
GHG markets
• Offset project developer
managing 18 carbon offset
projects
• Transacted 20 million tonnes of
GHG credits over last 24 months
MarketingMarketing
Greenhouse Gas CreditsRenewable Energy CreditsEmissions Credits
Regional GHG MarketsState RPS and GoalsRegional Emission Markets
Element Markets has proprietary risk and inventory management systems developed specifically
to handle environmental commodities
• Registration with the ARB was to have been completed by January 31, 2012
• CARB has hired a third party, SIA, for the development of the account infrastructure for registered
entities, this account system should go online in the second quarter of 2012
• Accounts created for registered entities
• Holding Account
• Allowances issued by the ARB will be placed into holding account
• Allows for the transference of compliance instruments
• Limited Use Holding Account
• Where allowances for auction and consignment will be placed
• Compliance Account
• Allowances may be transferred into this account at anytime
• Once transferred compliance instruments cannot be removed
ACCOUNT TYPESACCOUNT TYPES
AB 32 MARKET FRAMEWORK (2013) AB 32 MARKET FRAMEWORK (2013)
2013 Volume
SupplySupply
Allocated
Allowances - EDCs
Allocated
Allowances - EDCs
Domestic OffsetsDomestic Offsets
Allowances from
Linked Programs
Allowances from
Linked Programs
Allowance
Reserve Auction
Allowance
Reserve Auction
ImportsImports
GHG Market
2013 Volume
95.8 million
~4.5 million
121.8 million
(All Vintage Years)
Unclear
Total Supply: ~160.4 million tons CO2e
DemandDemand
EGUs (>25,000 tpy)EGUs (>25,000 tpy)
2013 Emissions
39.7 million
Industrials
(>25,000 tpy)
Industrials
(>25,000 tpy) 74 million
Total Demand: 167.3 million tons CO2e
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First DeliverersFirst Deliverers 53.5 millionIndustrialsIndustrials64.5 million
Auction PoolAuction Pool
**Monetization Requirement - IOUs
Compliance OptionsCompliance Options
BankingBanking
2 Year Compliance
Period
2 Year Compliance
Period
Source: EM Research based on ARB data
Note that ~2.5 million credits annually from 2013-2014
cap are out of the pool because they are set aside (for
Voluntary Renewable Energy or the Reserve Pool)
Total demand is based on ARB forecast
Future vintage allowances (10% of 2015 and 2016) will
be offered during the 2012 and 2013 auctions, but
cannot be used for compliance
AB 32 MARKET FRAMEWORK (2015) AB 32 MARKET FRAMEWORK (2015)
2015 Volume Allowances from
Linked Programs
Allowances from
Linked Programs
ImportsImports
GHG Market
Compliance OptionsCompliance Options
BankingBanking
Unclear
Total Supply: 377.7 million tons CO2e
DemandDemand
EGUs (>25,000 tpy)EGUs (>25,000 tpy)
2015 Emissions
41.2 million
Industrials
(>25,000 tpy)
Industrials
(>25,000 tpy) 74.1 million
Total Demand: 406.7 million tons CO2e
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First DeliverersFirst Deliverers 53.5 million
3 Year Compliance
Period
3 Year Compliance
Period
Fuel Suppliers
>25,000 tpy
(gas, NGLs,
distillates)
Fuel Suppliers
>25,000 tpy
(gas, NGLs,
distillates)
Propane/Natural
Gas Suppliers
>25,000 tpy (C,R)
Propane/Natural
Gas Suppliers
>25,000 tpy (C,R)
56.6 million
181.3 million
Note that ~17 million credits from the 2015 cap are out
of the pool because they are set aside (for Voluntary
Renewable Energy or the Reserve Pool)
Source: EM Research based on ARB data
SupplySupply
Allocated
Allowances - EDCs
Allocated
Allowances - EDCs
Domestic OffsetsDomestic Offsets
Allowance
Reserve Auction
Allowance
Reserve Auction
2015 Volume
92.3 million
~4.5 - ? million
121.8 million
(All Vintage Years)
IndustrialsIndustrials246.1 million
Auction PoolAuction Pool
**Monetization Requirement - IOUs
2015 Vintage – 2012
Auctions
2015 Vintage – 2012
Auctions39.5 million
• California Carbon Allowances (CCA): AB32 Allowances for 2013 Delivery
• Auction floor price of $10
• The program must be initiated and allowances trading for product to exist
• Historical lifetime range of CCAs has been $11.50 - $24.25/ CCA
• Currently valued at ~$15.00/ CCA
• California Carbon Offsets (CCO): AB32 Guaranteed Offsets for 2013 Delivery
• CCOs are offsets issued by CARB
• Falls under the 8% of allowable offset usage limit
• The program must be initiated and allowances trading for product to exist
• Buyer Liability Risk
• Currently valued at ~$11.00/ tonne
• AB 32 CAR Approved Offsets: One of the four approved CAR offset protocols
• Offsets from one of the 4 CAR protocols that approved by CARB
• Falls under the 8% offset usage limit
• These offsets bear re-verification risk by CARB
• Buyer Liability Risk
• Currently valued at ~$9.00/ tonne
AB 32 PRODUCTS AND PRICINGAB 32 PRODUCTS AND PRICING
Potential Auction Floor Price Assuming 3% CPIPotential Auction Floor Price Assuming 3% CPI
Note: Auction floor increases by CPI (3%) + 5% every year
• As the first auction approaches, now is the time to have internal and external controls in place to
mitigate the affects of this program to your organization
• Like all volatile commodities that influence your company’s earnings, it is essential to develop and
implement a strategy for compliance and potential hedging
• Effects on power and natural gas markets
• Multiple levels of the your organization will be affected by AB 32 including accounting, legal, risk,
operations, finance, etc.
• Now is the time to start taking the following actions
• Determine long/short position
• Develop a compliance strategy
• Budgeting & planning
• Identify offset opportunities
• Portfolio optimization strategy
• Develop an auction strategy
• Develop an understanding of transacting in the market
MARKET BASED ACTIONS FOR 2012MARKET BASED ACTIONS FOR 2012
Next Steps
• The California Office of Administrative Law approved the rule on December 13, 2011 and the rule
became effective on January 1, 2012
• ARB will be releasing white papers and implementation guidelines beginning in early 2012
Offsets
• ARB has stated that they plan to issue new protocols for adoption by early 2013
• Expectation is 2-3 protocols to be adopted and it will be interesting to see which protocols are
selected with the offset supply concerns that exist by compliance entities
• All new offset protocols must undergo a full 45-day comment period
Linkage with Other Programs
• The potential effect of other programs linking with AB 32 is unknown
• Quebec and ARB has announced plans to link and working through processes to be ready for
first 2012 auction
• Ontario and British Columbia hope to initiate compliance in 2013 as well
• Linkage could have large impacts on the market, but it will be difficult to smoothly link all the
programs
• Any linkage agreements will need to undergo a full 45-day comment period
GOING FORWARD GOING FORWARD
Evaluation and Implementation
• Element Markets (EM) intends to provide greenhouse gas management support services,
environmental research updates and GHG risk expertise to our clients
• EM will do this by establishing position reports, compliance estimates, compliance planning, estimated
regulatory risk, evaluation of current market positions and will optimize opportunities
• EM will employ dedicated staff to support the EM EAM relationship. Staff will:
• Estimate a compliance position (long/short)
• Budget and plan for GHG management which includes future expansion, shutdowns,
curtailments, etc. for compliance planning
• Evaluate opportunities and alternative compliance options
• EM will develop a strategy for position management
• Evaluation of current portfolio with reference to the expected market and regulatory
environment
Portfolio Management
• Implement compliance strategy that will be executed under an EM master agreement
• Conduct regular meetings with staff for progress updates and discuss market activities
• Provide GHG market updates and discuss regulatory changes and estimated risks
ENVIRONMENTAL ASSET MANAGEMENT ENVIRONMENTAL ASSET MANAGEMENT
(EAM)(EAM)
ELEMENT MARKETS ELEMENT MARKETS
Jackie Ferlita, Director
Element Markets, LLC
15541 Commerce Lane
Huntington Beach, CA 92649
Office: 714-397-5508
jferlita@elementmarkets.com
www.elementmarkets.com
Jackie Ferlita, Director
Element Markets, LLC
15541 Commerce Lane
Huntington Beach, CA 92649
Office: 714-397-5508
jferlita@elementmarkets.com
www.elementmarkets.com
• “US Emissions House of the Year - 2010” by Energy Risk
• Nominated as Rising Star in Platt’s Global Energy Awards
• “Best Carbon Trader - North America 2011” by World Finance
• #1 Mandatory GHG Credit Dealer (2009,2010) - Energy Risk
• #1 Voluntary GHG Credit Dealer (2008, 2009,2010) – Energy Risk
• Runner-Up, Best Trading Company, N.A. Mandatory GHG (2009) – Environmental Finance
• Top 5 Developer, North American Voluntary Greenhouse Gas Markets (2009) – Point Carbon
• #1 NOx & SO2 Dealer (2009,2010) – Energy Risk
• Best Trading Company, SO2 Emissions Credits (2008, 2009, 2010) – Environmental Finance