Transcript Waste Heat Capture - Climate Action Reserve

California Carbon Markets update:
An overview of the regulations, market and trading activity
Presented by:
David Nussbaum
July 2011
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Evolution Markets Overview
Evolution Markets is the
Intersection of Environment, Energy, and Finance™
Complete Financial Services for Green Markets and Clean Energy Sector
- Commodity Brokerage
- Market Execution Platforms
- Structured Transactions
World’s Largest Environmental Brokerage
- More than 60 Professionals Worldwide
- More than $150 billion in Transactions
Formed in May 2000
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Evolution Markets Overview
Evolution has offices on three continents and has completed environmental transactions in
more than 30 countries
London
San Francisco
New York
Beijing
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Environmental and Energy Markets
Evolution covers all major environmental and energy markets
Environmental Markets
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Renewable Energy Credits
GHG Credits, Allowances, Derivatives
SO2 Emissions Allowances
NOX Emissions Allowances
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Houston/Galveston NOX
RECLAIM (L.A. NOX & SOX)
Emissions Reduction Credits (ERCs)
Biomass
Energy Efficiency Credits
Water Rights
Weather Derivatives
Energy Markets
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Green Power Transactions
Biofuels
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Coal
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OTC Physical & Derivatives
Natural Gas
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Ethanol
Biodiesel
Options, Swaps, & Calendar Spread
Options
West Physical Basis Index
Nuclear Fuels
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Physical & Futures
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Leadership in the Markets We Serve
Since Evolution Markets was founded in 2000, we have received more than 100 awards for excellence in
brokerage. Below you will find a sample of our most recent awards from 2010. For the full list our awards, please
visit www.evomarkets.com
Annual Commodity Rankings
Annual Customer Survey
2010
Best Broker, Options (EUAs, CERs)
Best Broker, Spot & Futures (EUAs, CERs)
Best Broker, U.S. Coal
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Best Broker, Asia Coal
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Best Broker EUA Options
Best Primary Originator Kyoto Project Credits
Best Broker, CER Options
Best Broker, Secondary Market Kyoto Project Credits
Best Broker, CERs – Secondary (CDM)
Best Broker, CERs - Primary (CDM)
Best Broker, North American Mandatory Markets (e.g. RGGI)
Best Broker, SO2
Best Broker, NOx (Reclaim)
Best Broker, NOx
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Best Broker ERCs
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Best Broker, US SO2 & NOx
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Best Broker, US Weather Derivatives
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Best Broker, European Weather Derivatives
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House of the Year: U.S. Coal (2010)
Best Broker, Renewable Energy Certificates, North America
Specialist Broker of the Year (2008)
Best Broker, Weather Risk Management, North America
Best Broker, Weather Risk Management, Europe
2010
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House of the Year: European Emissions (2007)
Annual Awards
House of the Year: Weather / Emissions (2004)
Best Broker, Weather Risk Management, Asia
Best Broker, Catastrophe Risk Management, Global
*category runner-up
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Overview of California Carbon Program
General Information
• Program administered by the California Air Resources Board (CARB)
• Program required to reduce emissions to 1990 levels by 2020
• Covered Sources: 85% of State’s greenhouse gas emissions
• Covered Facilities are those with annual emissions equal or greater than 25,000 MtCo2e
• Start Date
– First allowance auction: August 15, 2012
– Compliance obligations: 2013
Timeline
December 2010:
July 2011:
October 2011:
Final ratification of AB-32
Updated cap-and-trade regulations released by CARB
Anticipated approval of cap-and-trade regulation by CARB board
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Covered Cap in million MtCo2e
2013: 162.8
2014: 159.7
Compliance Period I (2013 - 2014)
2015: 394.5
2016: 382.4
2017: 370.4
Compliance Period II (2015 – 2017)
2018: 358.3
2019: 346.3
2020: 334.0
Compliance Period III (2015 – 2017)
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Auction
Timing & Quantity
• First auction set for August 2012
– 2013 allowances will be auctioned, as well as 2015 allowances (three-year forward)
– First time physical allowances will enter marketplace
• Quarterly auctions begin in 2013
– Each auction will auction 25% of that year’s annual budget + 10% of future vintage year
allowances
Participation
• Covered entities, voluntary associated entities (i.e. banks, funds, etc.)
• Any party with a Holding Account with allowances can sell at the general auction
and receive the clearing auction price for their allowances
• Entities must register 30 days prior to the auction with the ARB
• Single entity can purchase maximum of 25% of the total auctioned future vintage
allowances
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Allocations
Utility/Power Allocation
• Starting 2012, the Electric Distribution Utilities (EDUs) will receive 90% of 2008 sector level
emissions, declining linearly to 85% in 2020 (roughly 97.7MM to start, declining to 83MM in 2020)
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Independent Power Producers (IPPs) will receive no free allowances under AB 32
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IOUs must sell 100% of allocation at auction; POUs can trade or retire allocations
Industrial Allocation
• Largest sectors include up/downstream petroleum, cement, manufacturing, mining & minerals,
paper & pulp
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Industrial sectors will receive a majority of their required allowances for free from the outset and
will continue to be freely allocated for the entire program
– Can retire or trade allocations
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Individual sector/facility-level allocations aren’t yet known
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The “Four Buckets” of CA Carbon Products
Indicative Pricing:
7/21/11
California Carbon Allowances (CCAs)
Forward delivery of California Carbon Allowances
$16.75 bid / $17.25
offer
Guaranteed ARB-compliant Offsets
$10.75 bid / $11.75
offer
ODS
$8.50 bid / $9.50 offer
Forestry
$6.00 bid / $8.00 offer
Livestock (dairy)
$7.75 bid / $9.75 offer
Firm delivery of offsets guaranteed to meet AB 32 compliance
requirements
Early Action Credits
Early action credits subject to re-verification to meet AB 32
compliance requirements
Potential Early Action Credits
$2 bid / $4 offer
ARB is expected to approve additional methodologies from
Offset Standard Bodies such as the Climate Action Reserve,
American Carbon Registry and potentially others
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California Carbon Allowance
Overview
– First trade executed in early November
– CCA contracts deliver in December each year (first auction set for August 2012)
– OTC market and standard forward contracts have begun trading for early hedging and
trading purposes
– Exchange-based products are currently being developed with one expected to launch
September 2011
– Liquidity currently less than that of the offsets but expected to pick-up as power marketers
and traders digest this program and as additional covered entities implement risk
management strategies.
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Guaranteed ARB-compliant Offsets/
Early Action Credits
Guaranteed ARB Offsets
– Project specific or non project-specific with term out to five years
– Product guarantees firm forward delivery of offsets useable for compliance with AB 32
(onto an ARB-approved registry)
– Generally offered by secondary sellers with strong credit
Early Action Credits
– Climate Reserve Tonnes (CRTs) CAR-approved protocols include:
• Livestock Methane (U.S.)
• Forestry & Urban Forestry
• Ozone Depleting Substances (ODS)
– Criteria for inclusion
• Vintages 2005-2014
• Location: Domestic United States
• Project start date prior to January 1, 2013
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Market Participants and Factors
Participants
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Compliance buyers
Energy companies
Commodity trading shops
Financials
Hedge funds
Industrials
Factors
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Buyer liability
EAC  ARB offset conversion
Proposed regulatory changes
Potential future legal action
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Current Transaction Structures
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Fixed price for allowances and forward settlement
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Fixed price for ARB-guaranteed offsets (where seller takes all delivery and eligibility risk – this
may or may not be project-specific)
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Fixed price for project-specific ARB approved Early Action offsets where volume is not
guaranteed
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Floating Price for ARB-approved offsets linked to a forward allowance or offset price
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Floating Price for non ARB-approved offsets linked to a forward allowance or offset price
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Fixed price for offsets that are currently not ARB approved (Advantage: Lower Price / Risk:
eligibility may or may not happen)
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Numerous options structures on any of the above products
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Spread trading between allowances and offsets
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Historical Pricing
3/1/11 – 7/1 /11
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Contact Information
David Nussbaum
Director
Evolution Markets Inc.
10 Bank Street
4th Floor
White Plains, New York
10606
tel.
mob.
email
website
+1.914.323.0265
+1.917.816.2255
[email protected]
www.evomarkets.com
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