The Climate Trust 2001 Annual Report

T H E C L I M A T E T R U S T2 0 0 1 A N N U A L R E P O R TT h e C l i m a t e T r u s t 2 0 0 1 A n n u a l R e p o r tOur MissionThe Climate Trust promotes climate change solutions by providing high qualitygreenhouse gas offset projects and advancing sound offset policy.Our Vision? The Climate Trust will be a global leader and innovator in the emerging offset market.? The Climate Trust will act in the public interest, and apply high standards ofintegrity to its environmental benefits and business dealings. ? The Climate Trust will pursue cost effectiveness and consider environmental,economic, and social co-benefits when selecting offsets.? The Climate Trust will inject creativity into the offset market by encouraginginnovative offset technologies, financing mechanisms, and participation oforganizations not traditionally involved with climate change.? The Climate Trust will involve itself with reliable partners in projects withmeasurable results.? The Climate Trust will accomplish its aims by employing partnerships and byleveraging its funds and its market leader position.? The Climate Trust will offer practical and user-friendly solutions to its customers.T h e C l i m a t e T r u s t 2 0 0 1 A n n u a l R e p o r t1Message from the ChairIn response to citizen concerns about rapid climate change, in 1997 Oregon enactedthe first legislation in the United States aimed at reducing greenhouse gas emissions.Since then, new power plants in the state have been required to offset a significantportion of their carbon dioxide emissions by funding projects that reduce atmos-pheric carbon dioxide levels. A key innovation in the regulation allows powercompanies to meet this requirement by providing funding to a non-profit organiza-tion, which uses the funding to purchase high quality carbon dioxide offsets. Theneed for such an organization led to the formation of The Climate Trust.The Climate Trust’s core program uses money provided by new Oregon powerplants to fund projects that avoid, displace, or sequester carbon dioxide. The offsetsfrom these projects are retired, or held in trust for the benefit of the environment.With this, our first annual report, we are pleased to announce the completion of ourinitial offset portfolio under our Oregon Power Plant OffsetProgram. As we go to press, The Climate Trust is finalizing itssecond offset portfolio. This will bring our total under thisprogram to 3.5 million metric tons of carbon dioxide offsetspurchased from twelve projects at a cost of seven million dollars.The Climate Trust’s public interest goals extend beyond regula-tory compliance under the Oregon Power Plant Offset Program.We are also developing additional voluntary programs to assistbusiness, government, and non-profits in meeting their green-house gas offset goals, create high quality supply for the emerging offset market,establish innovative mechanisms for leveraging offset funding, and encourage soundoffset policy nationally and internationally. This annual report describes some of theinitial successes of our Greenhouse Gas Partnership Program.The accomplishments of The Climate Trust testify to its three vital roles in thecreation of a global offset market. First, we are using our core program funding tocounter the harmful impacts of climate change, maximize greenhouse gas reduc-tions, demonstrate the viability of offsets, and encourage innovative offsets. Second,we are applying our expertise in offsets to expanding and enhancing the emergingoffset market. Finally, we are serving the public interest by sharing our unique expe-rience and promoting high quality standards for the offset market. For the benefit ofour fragile environment and our threatened global community, The Climate Trust iscommitted to providing leadership in the emerging offset market by promoting andimplementing viable climate change solutions. Diana Bodtker2001 Board ChairT h e C l i m a t e T r u s t 2 0 0 1 A n n u a l R e p o r t2History of The Climate Trustand the Oregon Carbon Dioxide StandardThe Climate Trust (the Trust) came into existence in July 1997, in the wake of agroundbreaking law enacted that year by the State of Oregon. House Bill 3283 wasthe first legislative action in the United States to control carbon dioxide (CO2), themost prevalent global warming pollutant. HB 3283 requires new energy facilitiesbuilt in the state to avoid, sequester, or displace a significant portion of their carbondioxide emissions.Under the law, new gas-fired power plants with a capacity greater than 25megawatts, and certain other energy facilities, must meet a net emissions rate of0.675 pounds of CO2 per kilowatt-hour. The net emissions rate is adjusted periodi-cally to meet a level that is 17% below the most CO2-efficient gas-fired power plantcommercially operating in the United States. A plant developer may choose to meetpart or all of its reduction target by making a one-time, lump sum payment of miti-gation funds to the Trust to offset the emissions over the life of the power plant. Inturn, the Trust must use the funds to carry out projects that avoid, sequester, ordisplace the carbon dioxide that the plant will emit in excess of the required stan-dard. The Trust retires the tons acquired under the Oregon standard for the benefitof the environment. Projects funded or under negotiation by The Climate Trust reduce traffic conges-tion, create efficient multifamily housing, build wind and renewable energy, useotherwise wasted industrial energy to generate electricity, substitute low carbonconstruction materials, and plant and permanently protect native trees in some ofthe world’s most diverse and threatened ecosystems. The Climate Trust’s Process for Acquiring OffsetsUnder the law’s guidelines, a wide variety of offset projects are eligible for fundingfrom the Trust. Examples of eligible project types include renewable energy, energyefficiency, energy system decarbonization, and carbon sequestration. Projects can belocated anywhere in the world, with a preference for high quality projects located inOregon. Oregon’s standard requires the purchase of quantifiable, monitored, andverified CO2 offsets generated from projects implemented in the future. In 2000 and 2001, the Trust used a two-phase Request for Proposal (RFP) processto identify and select offset projects. First, a globally distributed solicitation invitesshort form proposals. Selected projects from the first phase are invited to submitdetailed proposals. During both phases, proposals are subject to extensive review byT h e C l i m a t e T r u s t 2 0 0 1 A n n u a l R e p o r t3staff, outside experts, and the Trust’s OffsetCommittee, with all final selectionsapproved by the Trust’s Board of Directors.Cost effectiveness in terms of the cost perton of reasonably assured additional CO2benefit is the primary selection factor. Otherselection factors include: reliability of theproject concept, reliability of the projectpartner, monitoring and verification, perma-nence, guarantees, location, portfoliodiversity, replicability, expandability, and co-benefits. The purchasing processconcludes with negotiation and agreementon a detailed term sheet that is finalized in a contract.Oregon Carbon Dioxide StandardImplementationIn the year 2000, The Climate Trust released its first RFP. Funds were provided bythe City of Klamath Falls to offset emissions for the Klamath Cogeneration Project,operated by PacifiCorp Power Marketing, Inc. This solicitation drew 60 short-formproposals from fourteen states and fifteen countries. Eight projects were invited tosubmit detailed proposals. The Trust contracted for five offset projects totaling850,000 metric tons at an average cost of $1.41/metric ton. These projects are high-lighted on the next page. In 2001, the Trust solicited $5.75 million of offsets with funding provided bypower plants owned or operated by Calpine Corporation, Avista Corporation, NWNatural, and PacifiCorp Power Marketing, Inc. Almost 80 short-form proposalswere submitted by high quality organizations involving a wide range of mitigationtechnology types. Approximately 20 proposers were invited to submit detailed pro-posals, from which the Trust selected seven projects for final negotiations. Sectorsrepresented in the 2001 portfolio include cogeneration, distributed generation,transportation, building efficiency, forest sequestration, and material substitution.The Trust anticipates completing contracting for 2.65 million metric tons in 2002. T h e C l i m a t e T r u s t 2 0 0 1 A n n u a l R e p o r t4Updates? Every two years, Oregon’s Energy Facility Siting Council (EFSC) has the optionto increase the monetary path rate to reflect changes in the offset market andinflation. In 2001, EFSC acted to increase the monetary path rate from $0.57 to$0.85 per short ton ($0.94 per metric ton) of CO2.? Oregon passed Senate Bill 843, which changes the energy siting process to allowfor expedited development of temporary energy resources to avoid power black-outs. Despite passing this legislation during the peak of the California powercrisis, the legislature still required these facilities to meet the Oregon carbondioxide standard.The Importance of Carbon Dioxide Offsets Offsets are an important complement to the global community’s primary challengeof achieving significant emissions reduction by major emitters. Offsets act to maxi-mize the environmental benefit from society’s climate change mitigation funding byfocusing it on the most cost-effective mitigation opportunities. Offsets are more thanjust a part of the solution to climate change. They also benefit the economy by stim-ulating technologies necessary to transform our economy toward lower carbonintensity, and by reducing the many costs resulting from our predominant relianceon fossil fuels. In addition, they protect natural resources such as air quality, watersupply, forests, coastal areas, and biodiversity.PROBLEMS:Utility EmissionsIndustrial EmissionsBuilding EmissionsVehicle EmissionsClearcutting ForestsSOLUTIONS:Renewable EnergyCogenerationEnergy EfficiencyCarpoolingReforestationT h e C l i m a t e T r u s t 2 0 0 1 A n n u a l R e p o r t5The Initial Offset Projects Portfolio:The 2000 Request for ProposalsThe Climate Trust began contracting and funding its first portfolio of projects in2001. The City of Klamath Falls provided over $1 million to the Trust to offsetcarbon dioxide emissions from an expansion of it’s 480-MW Klamath CogenerationPlant, operated by PacifiCorp Power Marketing, Inc. Over the lifetime of these highquality projects, the Trust will retire 850,000 metric tons of carbon dioxide. Theselected projects include:Internet-based carpool coordination in Portland areaThe Climate Trust is funding a safe, quick, interactive Internet site to helpcommuters conveniently and easily arrange carpools.Landfill gas to electricity with CO2 recoveryThe Climate Trust is funding a landfill gas to electricity project planned to demon-strate new technology that cleans the landfill gas and captures carbon dioxide priorto combustion.Innovative financing of Oregon wind powerThe Climate Trust and Bonneville Environmental Foundation are sharing the costsof purchasing green tags from a wind farm in Oregon.Preserve unique Northwest forestThe Climate Trust is helping the Lummi Indian Tribe buy more than 1,600 acres offorestland and protect it from logging. The project involves protecting rare pristinemid-elevation Cascade mountain old growth and restoring adjacent forest lands.Reforestation in Coastal EcuadorThe Climate Trust is funding Conservation International and the Jatun SachaFoundation to reforest more than 680 acres of highly degraded pasture. The projectis located in one of the most biologically diverse and threatened areas in the world.(Contract executed in 2002.)Expanding the Trust’s Role:The Climate Trust’s Partnership ProgramThe Climate Trust is now partnering with private and public entities to activelymitigate their greenhouse gas emissions using a wide range of cost effective andpractical mechanisms. The Trust took significant strides in founding its GreenhouseGas Partnership Program during 2001 by establishing the capability to acquireoffsets to meet the needs of other organizations in addition to Oregon power plantowners. Partnerships receive high priority because they play a key role in the Trust’smission to reduce greenhouse gas levels, and they provide revenues to complementthe Trust’s core program funding.The Greenhouse Gas Partnership Program allows the Trust to serve the voluntarygreenhouse gas offset market as well as the regulated market under the Oregonprogram. The offsets that are acquired under this program can be held in perpetuityby the Trust for the benefit of the environment. The Trust has focused on increasing the size of scaleable projects in its coreprogram offset portfolio to offer partners the option to expand existing projects.This allows partners to benefit from the same expertise, ongoing processes, and highquality standards that the Trust applies to the core Oregon program offsets.Similarly, the Trust may work with large partners to identify and manage new anddistinct offsets. On behalf of its partners, the Trust solicits, evaluates, selects, negoti-ates, contracts, and manages offset projects, applying strict standards and expertreviews from both staff and consultants. The Trust serves as a very efficient andcost-effective vehicle for assisting all partners in meeting their offset needs.The Trust’s current partnership with Seattle City Light was the first in itsGreenhouse Gas Partnership Program. In a 2000 Earth Day resolution, Seattlecommitted to mitigate the greenhouse gas emissions associated with its new energypurchases and resources. Seattle joinedthe Trust’s 2001 offset RFP, soliciting247,000 metric tons. Seattle is partici-pating in and sharing the cost of the offsetevaluation, selection, and contractingprocesses. In 2001, the Trust begancontracting for seven projects under thissolicitation, some of which will be sharedwith Seattle City Light. Ultimately, theTrust will likely transfer significantly moretons at a much lower cost than Seattleoriginally anticipated.In 2001, the Trust also establishedthe Giving to Protect the Climate partner-ship program, an innovative donate 6T h e C l i m a t e T r u s t 2 0 0 1 A n n u a l R e p o r tOn behalf of its partners, the Trust solicits,evaluates, selects, negotiates, contracts,and manages offset projects, applying strictstandards and expert reviews from bothstaff and consultants. The Trust serves as a very efficient and cost-effective vehicle for assisting all partners in meeting theiroffset needs.& retire mechanism for funding offsets. Organizations make a tax-deductibledonation to the Trust enabling us to purchase additional offsets and hold them inperpetuity for the benefit of the environment. A variant of this cost-efficient anduser-friendly mechanism can be used to transfer ownership of high quality offsets to a purchaser, though without the tax advantages.Looking AheadThe Climate Trust is excited to be expanding programs and initiatives in 2002. Inaddition to completing a $6 million offset acquisition process for projects from the2001 solicitation, the Trust will build its partnership program to help business,government, and non-profits meet their greenhouse gas offset goals. The Trust willalso expand its efforts in fulfilling a mission of advancing sound offset policy in theUnited States and around the globe.T h e C l i m a t e T r u s t 2 0 0 1 A n n u a l R e p o r tT h e C l i m a t e T r u s t 2 0 0 1 A n n u a l R e p o r t8Greenhouse Gas Partnership ProgramThe Trust will continue expanding its Greenhouse Gas Partnership Program to: create a high quality supply of carbon dioxide offsets for the emerging market,provide an efficient, cost effective, and user friendly way for organizations to makegreenhouse gas offsets happen, and help establish innovative mechanisms for leveraging offset funding.Policy DevelopmentThe Trust plays a unique role in the global offset market by combining the perspectives and aspirations of an environmental non-profit with the pragmaticneeds of a corporate offset buyer. To increase market efficiency of acquiring highquality offsets, the Trust will help establish practical rules for an offset market. TheTrust will share more of its unique expertise with policy makers in the coming yearsin order to help advance the offset market in three areas: carbon offset standards,policy replication and extension, and offset market development.Carbon Offset StandardsCarbon offset standards are an essential precursor to the orders-of-magnitude scale-up needed for a fully active emissions trading system. Standards would encourageThe Trust will share more of its uniqueexpertise with policy makers in the comingyears in order to help advance the offsetmarket in three areas: carbon offset standards, policy replication and extension,and offset market development.T h e C l i m a t e T r u s t 2 0 0 1 A n n u a l R e p o r t9business participation in today’s voluntary mitigation regime by reducing risk andclarifying value when undertaking mitigation and buying offsets. Policy Replication and Expansion Weak federal government leadership on climate change has created an urgent need for effective policies at the state and local levels. One of the Trust’s goals is to provide information to the policy arena that will encourage the replication ofOregon’s carbon dioxide standard and trust model in other states. The Trust alsointends to work with other states to extend the Oregon climate policy from newpower plants to other sectors.Offset Market DevelopmentThe Trust will utilize its experience and expertise to assist interested states in devel-oping registries for greenhouse gas mitigation projects and other climate policies.Registering greenhouse gas mitigation projects with a recognized agency will helpestablish integrity and desirability of offset projects. States working on climatechange policy know that standard practices for registration and accounting willincrease the credibility of projects and assist in developing the offset market. The Climate Trust Offset Funds Tracking OverviewDecember 31, 2001Developer’s Commitment Offset Contracting Offset ManagementOffset Fund Developer’s Amount Remaining Minimum Actual Obligated Balance Total Offset OffsetCommitment Received Commitment Allowable Offset Contracts Left to Offset Mgmt. Mgmt.Offset Contract Obligate Mgmt. Funds FundsAmount Amount Funds Spent UnspentKlamath 1,197,697 1,197,697 0 958,158 1,036,120 850,120 186,000 161,577 35,141 126,436CogenerationProjectHermiston 4,215,874 0 4,215,874 3,372,699 0 0 3,372,699 843,175 0 843,175PowerProjectCoyote 2,643,097 1,843,285 799,812 2,114,478 0 0 2,114,478 528,619 0 528,619Springs 2Klamath 261,478 261,478 0 209,182 0 0 209,182 52,296 0 52,296ExpansionProjectNW Natural 23,566 23,566 0 18,853 0 0 18,853 4,713 0 4,7132001 2000AssetsCash $ 3,389,441 $ 2,000,459Other current assets 5,632 3,180Office equipment, net of accumulated depreciation 16,218 2,945Total Assets $ 3,511,291 $ 2,006,584Liabilities and Net AssetsLiabilitiesAccounts payable and accrued expenses $ 21,260 $ 14,230Offset contracts payable* 677,620 —Unearned contract revenue* 2,575,765 1,755,167Total Liabilities 3,274,645 1,769,387Net AssetsUnrestricted net assets 236,646 237,187Total Liabilities and Net Assets $ 3,511,291 $ 2,006,584Statements of ActivitiesRevenuesContract revenue $ 1,145,635 $ 11,725Contributions 5,000 —Interest income 103,232 94,340Other income 1,600 —Total Revenues $ 1,255,467 $ 214,065ExpensesProgram $ 1,187,434 $ 147,596General and administrative 44,128 41,386Fundraising 24,446 9,114Total Expenses $ 1,256,008 $ 198,096Change in net assets $ (541) $ 15,969Net assets—beginning of year $ 237,187 $ 221,218Net assets—end of year $ 236,646 $ 237,187*The Climate Trust is restricted by law to use this money for the sole purpose of funding offset projects.Unearned Contract RevenueContract revenues are recognized as revenue in the period the services are performed. Contractfunds received but unspent are recorded as unearned contract revenue. Unearned contract revenue is summarized as follows:2001 2000Balance at beginning of year $ 1,755,167 $ 1,268,517Funds received 1,931,680 604,002Revenue earned (1,111,082) (117,353)Unearned contract revenue $ 2,575,765 $ 1,755,167Financial StatementDecember 31, 2001 & 2000 AuditedStatements of Financial Position10The Board and StaffBoard of DirectorsVotingBill Edmonds, Board ChairMargaret Gardner, Vice ChairBettina von Hagen, SecretaryEugene Rosolie, TreasurerSusan AndersonDiana BodtkerCatherine CiarloNon-VotingTim CarlbergMichael J. HaywardSam McIntoshRoby RobertsStaffMike BurnettExecutive DirectorMichael AshfordDeputy DirectorErica C. GraetzProgram and Operations ManagerThe Trust is governed by a seven member Board of Directors, as required by the Oregon energyfacility siting law. The Oregon Energy Facility Siting Council appoints three of the Boardmembers. Three more are appointed by an environmental organization (currently NorthwestEnergy Coalition). The applicants and holders of energy facility site certificates who use the mone-tary path to comply with the law’s carbon dioxide standard appoint the seventh Board member.Each site certificate holder that has provided money to The Trust may appoint a nonvotingmember to serve on the Board so long as The Trust holds undisbursed funds associated with thatsite certificate.