The Climate Trust 2002 Annual Report

THE CLIMATE TRUST 2002 ANNUAL REPORTBoard of DirectorsVotingBill Edmonds, Board ChairMargaret Gardner, Vice ChairBettina von Hagen, SecretaryEugene Rosolie, TreasurerSusan AndersonMartha DibbleeCatherine CiarloNon-VotingTim CarlbergMichael J. HaywardSam McIntoshRoby RobertsStaffMike Burnett, Executive DirectorMichael Ashford, Deputy DirectorSean Clark, Offset Portfolio ManagerErica C. Graetz, Program and Operations ManagerLetter from the ChairTHE IMPORTANT WORK OF THE CLIMATE TRUST sits on the forwardedge of climate policy development, not just in the US, but globally.The Trust stands as a unique institution—a US entity guided by broadpolicy objectives in the practical pursuit of quality offsets of all kind.The practical experience of the Trust is a valuable resource to leadersdeveloping environmentally responsible and realistically achievableclimate policies. As of 2002, The Climate Trust has dedicated five years to growing this offset marketand setting standards through direct investment in quality offset projects. We haveseen continued success in the Oregon Power Plan Offset Program, adding six offsetprojects to our portfolio in 2002. Our carbon dioxide offset portfolio is now activelyreducing 2.5 million tons of CO2 through eleven projects worth over $5 million.The mission of The Climate Trust reaches beyond the Oregon program, and facilitatesoffset investments by other states, companies, and individuals. Our Greenhouse GasOffset Partnership Program is experiencing dramatic growth as industry realizes thegreat responsibility we have to reduce our impact on climate change. Power compa-nies and utilities are turning to The Climate Trust to help meet new local regulations.Companies working toward a sustainable business are offsetting company andemployee emissions. Individuals are seeking ways to offset their lifestyles as well. In2003, for the first time, the Trust has made its offset expertise available to the individ-ual through www.CarbonCounter.org. All these efforts makes us one of the largest buyers of offsets anywhere. With thissubstantial experience to draw upon, the Trust is sharing its knowledge and uniqueexperience with the broad climate policy community. We continue to participate inthe World Resources Institute’s GHG protocol offset project accounting module, andthe Natural Resources Defense Council’s State GHG Registries Collaborative. Whilethere is not clear agreement in the international community about how to proceed toaddress the climate challenge, ensuring offsets are of the highest credibility shouldbe a goal easily adopted by all stakeholders.The Climate Trust recognizes the critical importance of our offset work and our policyengagement on climate. Knowing our efforts provide important data for emergingpolicy, we take very seriously our responsibility to make sure our offset work meetsthe highest standards.T h e C l i m a t e Tr u s t 2 0 0 2 1As of 2002, The Climate Trust has dedicatedfive years to acquiring high quality offsets, acting as a pioneer in this emerging offsetmarket. Highlights include:• The Oregon Power Plant Offset Programadded six offset projects to our portfolio in 2002.• Our carbon dioxide offset portfolio is nowactively reducing 2.4 million metric tons of CO2 through eleven projects worth over$5 million.• Our Greenhouse Gas Offset Partner-ship Program is experiencing dramaticgrowth as industry realizes the greatresponsibility to reduce our impact on climate change.• The Trust has now made its offset expertise available to the individual atwww.CarbonCounter.org. • Power companies and utilities are turn-ing to the Trust to help meet new local regulations.All these efforts make us one of the largestbuyers of offsets anywhere. The Trust is shar-ing its knowledge and unique experience withthe broad climate policy community. We areparticipating in the development of the WorldResources Institute’s GHG Protocol offset project accounting module and sharing ourexperience with the Natural ResourcesDefense Council’s State GHG RegistriesCollaborative. While there is not clear agree-ment in the international community abouthow to proceed to address the climate chal-lenge, ensuring offsets are of the highestcredibility should be a goal easily adopted byall stakeholders.The Climate Trust recognizes the criticalimportance of our offset work and our policyengagement on climate. Knowing our effortsprovide important data for emerging policy,we take very seriously our responsibility to make sure our offset work meets the highest standards.Bill EdmondsBoard ChairMission StatementThe Climate Trust promotes climate change solutions by providing highquality greenhouse gas offset projects and advancing sound offset policy.Vision StatementThe 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 of integrityto its environmental benefits and business dealings.The Climate Trust will pursue cost effectiveness while considering environmental, economic, and social co-benefits when selecting offsets.The Climate Trust will encourage innovation in terms of offset technologies, financingmechanisms, and the participation of organizations not traditionally involved with climate change.The Climate Trust will involve itself with reliable partners in projects with measurable results.The Climate Trust will accomplish its aims by employing partnerships and by leverag-ing its funds and its market leader position.The Climate Trust will offer practical and user-friendly solutions to its customers.2 T h e C l i m a t e Tr u s t 2 0 0 2The Oregon CO2 StandardWhat is a Greenhouse Gas Offset Project?A greenhouse gas offset is a project implemented specifically to reduce the level of greenhouse gasesin the atmosphere. A wide variety of technological approaches can be employed to create an offset.These approaches include energy efficiency in buildings, factories, and transportation; renewableenergy, such as wind and solar energy; shifting to lower carbon energy sources, e.g., from coal to nat-ural gas; cogeneration; and capturing carbon dioxide in forests and in agricultural soils.Offsets are named for the fact that they offset the purchaser’s emissions through actions taken by theimplementer. Typically, the purchaser of the offset is striving to meet a voluntary or mandatory emis-sions target, and has exhausted all cost-effective emissions mitigation opportunities on it own sites.Since the purchaser is emitting in excess of its target, it must purchase emissions reduction offsetsfrom another organization, which implements an emissions reduction project with funding providedby the purchaser. The project implementer transfers the rights to the emissions reduction to the off-set purchaser, which uses the transferred emissions reductions to fill the gap needed to meet its target.By encouraging this "emissions trading" approach, regulators ensure that mitigation occurs at thelowest total cost to society. In order to assure that emissions trading results in a tangible net benefit to the environment, offsetprojects must meet two essential tests. First, it must be demonstrated that an offset project would notoccur without the funding provided by the offset purchaser. Second, results must be rigorously quan-tified. A realistic future baseline projection of emissions absent the project must be developed, andactual emissions must be measured. The difference between the actual emissions and the baseline'sprojected emissions is the greenhouse gas benefit provided by offset project. A third party with nofinancial interest in the offset project must verify the approach and calculations used to quantify theresults.A greenhouse gas offset is a project imple-mented specifically to reduce the level ofgreenhouse gases in the atmosphere. A wide variety of technological approaches can be employed to create an offset. Theseapproaches include energy efficiency in build-ings, factories, and transportation; renewableenergy, such as wind and solar energy; shifting to lower carbon energy sources, e.g.,from coal to natural gas; cogeneration; andcapturing carbon dioxide in forests and in agricultural soils.Offsets are named for the fact that they offsetthe purchaser’s emissions through actionstaken by the implementer. Typically, the pur-chaser of the offset is striving to meet avoluntary or mandatory emissions target, andhas exhausted all cost-effective emissions mit-igation opportunities on it own sites. Since thepurchaser is emitting in excess of its target, itmust purchase emissions reduction offsetsfrom another organization, which implementsan emissions reduction project with fundingprovided by the purchaser. The project imple-menter transfers the rights to the emissionsreduction to the offset purchaser, which usesthe transferred emissions reductions to fill thegap needed to meet its target. By encouragingthis "emissions trading" approach, regulatorsensure that mitigation occurs at the lowesttotal cost to society. In order to assure that emissions trading resultsin a tangible net benefit to the environment,offset projects must meet two essential tests.First, it must be demonstrated that an offsetproject would not occur without the fundingprovided by the offset purchaser. Second,results must be rigorously quantified. A real-istic future baseline projection of emissionsabsent the project must be developed, andactual emissions must be measured. The difference between the actual emissions andthe baseline's projected emissions is the green-house gas benefit provided by the offsetproject. A third party with no financial interest in the offset project must verifythe approach and calculations used toquantify the results.Innovative Oregon legislation requires newpower plants to meet a CO2 standard thatreduces emissions by approximately 17 per-cent. Power plant developers can meet thestandard by making a fixed price per ton pay-ment to The Climate Trust, which uses thefunds to stimulate projects to reduce atmos-pheric CO2 levels. To date the Trust has spent$5 million through this standard to contract for2.5 million tons of carbon dioxide offsets.T h e C l i m a t e Tr u s t 2 0 0 2 3The Importance of Carbon Dioxide Offsets 4 T h e C l i m a t e Tr u s t 2 0 0 2Offsets are an important complement to theglobal community’s primary challenge ofachieving significant emissions reduction by major emitters. Offsets act to maximize the environmental benefit from society’sclimate change mitigation funding byfocusing it on the most cost-effective mitiga-tion opportunities. Offsets are more than just a part of the solutionto climate change. They also benefit theeconomy by stimulating technologiesnecessary to transform our economy towardlower carbon intensity, and by reducing themany costs resulting from our predominantreliance on fossil fuels. Offset projects are primarily undertakenbecause they reduce greenhouse gas levels inthe atmosphere and help mitigate climatechange. However, they often have otherenvironmental and economic "co-benefits" as well. Environmental co-benefits includereducing other air pollutants that damagehealth and infrastructure, as well as protec-ting biodiversity, ecosystems, water supply,and endangered species. Economic co-bene-fits include reduced energy bills, reduced trafficcongestion, job creation, and stimulatingmarket share and cost-competitiveness fortechnologies that reduce greenhouse gasemissions.The Climate Trust’s Process for Acquiring Oregon Program Offsets Under the Oregon law’s guidelines, a wide vari-ety of offset projects are eligible for fundingfrom the Trust. Examples of eligible projecttypes include renewable energy, energy effi-ciency, energy system decarbonization, andcarbon sequestration. Projects can be locatedanywhere in the world, with a preference forhigh quality projects located in Oregon.Oregon’s standard requires the purchase ofquantifiable and measured CO2 offsets gener-ated from projects implemented in the future. In 2000 and 2001, the Trust used a two-phaseRequest for Proposal (RFP) process to identifyand select offset projects. First, a globally dis-tributed solicitation invites short formproposals. Selected projects from the firstphase are invited to submit detailed proposals. During both phases, proposals aresubject to extensive review by staff, outsideexperts, and the Trust’s Offset Committee, withall final selections approved by the Trust’sBoard of Directors. Cost effectiveness in termsof the cost per ton of reasonably assured addi-tional CO2 benefit is the primary selectionfactor. Other selection factors include: relia-bility of the project concept, reliability of theproject partner, monitoring and verification,permanence, guarantees, location, portfoliodiversity, replicability, expandability, and co-benefits. The purchasing process concludeswith negotiation and agreement on a detailedterm sheet that is finalized in a contract. T h e C l i m a t e Tr u s t 2 0 0 2 5The Climate Trust’s 2001 Greenhouse Gas Offset PortfolioThe Climate Trust initiated its second large-scale carbon dioxide offset acquisition process in January2001. After receiving and reviewing nearly 80 short-form offset project proposals in response to ourrequest for proposals, we invited nearly twenty projects to submit detailed proposals. After consid-erable review and due diligence by the Trust’s staff, Offset Committee, and outside experts, the Trust’sBoard selected seven offset projects for negotiations. The following six offset projects have beenput under contract to date. Market conditions relating to the seventh project changed during nego-tiations and it may or may not go forward. We are hopeful that it will proceed, but if it does not, wewill place the funding that we had allocated to it into other offset projects.This portfolio includes a diverse array of projects, including building energy efficiency, transportationefficiency, cogeneration, distributed generation, material substitution, and permanent forest seques-tration. It complements our initial five-project portfolio initiated in 2000. The earlier portfolio includedwind energy, landfill-gas-to-electricity, transportation efficiency, and permanent forest sequestra-tion. For more information on our initial portfolio visit: www.climatetrust.org/CTProjects.html.Data Center Distributed Generation Project:The Climate Trust has contracted to buy offsets from a Sure Power Corporation project that will installultra-high reliability onsite power generation systems at data centers. Sure Power systems are highlyefficient, and emit less carbon dioxide than do conventional systems relying on the power grid. TheClimate Trust will pay a fixed price per ton for these emissions reductions at the end of each year, afterthey have been quantified by a third party verifier. Sure Power’s environmentally preferred systemsAn onsite power generationsystem installed by SurePower Corporation.6 T h e C l i m a t e Tr u s t 2 0 0 2produce what the company calls “24-by-7-by-forever” power through a patented architecture ofmultiple power generation, storage, and backup devices. Sure Power systems are installed with state-of-the-art environmental controls, and they eliminate the need for environmentally unfriendly back-upbatteries and diesel generators. They also integrate combined heat and power (CHP) technologiesthat recycle byproduct heat through highly efficient heating and cooling systems. Portland Traffic Signals Timing Project:The Climate Trust has contracted to buy offsets from a City of Portland project that will improve thetiming of traffic signals. Over the next five years, the Portland Office of Sustainable Development willwork with the Portland Office of Transportation, Washington County, and the Oregon Departmentof Transportation to improve signal timing on seventeen major metropolitan area arterials. By reduc-ing idling and acceleration, emissions of carbon dioxide from gasoline and diesel fuel will decrease.After the signal timing has been completed, The Climate Trust will pay Portland based upon theamount of carbon dioxide emissions that will be avoided.Portland Building Energy Efficiency Project:The Climate Trust has contracted to buy offsets from two City of Portland building energy efficiencyprograms. These programs reduce carbon dioxide emissions from grid power, natural gas, and fueloil. The Multifamily Assistance Program increases weatherization activity in multifamily housing unitsby serving as a one-stop shop for project coordination, technical and financial advice, and incentives.The Commercial Green Buildings Program encourages building designers and owners to construct toPortland’s highly efficient LEED Green Building Standards. After the efficiency measures have beeninstalled, The Climate Trust will pay a fixed price per ton based upon the anticipated carbon dioxidereductions over the lives of the measures. The City of Portland willwork to optimize traffic signal timing on major arterials. This Portland apartmentcomplex (above right) hasbeen weatherized for energy efficiency under the Multifamily AssistanceProgram.T h e C l i m a t e Tr u s t 2 0 0 2 7Deschutes Riparian Reforestation Project:The Climate Trust has contracted to buy offsets from a Deschutes Resources Conservancy (DRC)program that helps landowners in the Deschutes River Basin reforest denuded riparian areas withnative trees. The Deschutes River is one of Oregon’s premier trout streams. Stock for replantingdenuded stream banks will be taken from remnant stands of local native species. As the trees grow,they will absorb carbon dioxide from the atmosphere and sequester it in biomass. The amount ofsequestration will be quantified according to a state-of-the-art monitoring and verification plan. TheClimate Trust funding will pay DRC to recruit and provide incentives to landowners to participate inthe program. Landowners will enter into legally binding agreements to preserve the trees for atleast 50 years. Cement Substitution Project:The Climate Trust has contracted to buy offsets from the International Institute for EnergyConservation’s (IIEC) Blended Cement Program. IIEC, a global nonprofit organization with head-quarters in Washington, DC, has worked on sustainable energy solutions including energy efficiency,renewable energy, and integrated transport planning since 1984. The manufacturing process forPortland cement releases approximately one ton of carbon dioxide for every ton of cement produced.In blended cement, industrial byproducts replace part of the cement in concrete while maintaining itsstructural integrity. This avoids the emissions of carbon dioxide resulting from the cement manufac-turing process. The Climate Trust will pay IIEC to recruit participants and provide incentives for the useof blended cement concrete in construction and civil works projects. Part of IIEC’s funding is contin-gent on certification of the use of blended cement concrete, and incentives are in place for IIEC toexceed the targeted amount of carbon dioxide benefit. The Deschutes River inCentral Oregon.8 T h e C l i m a t e Tr u s t 2 0 0 2Lumber MillCogeneration Project:The Climate Trust has contractedto buy offsets from a CollinsCompanies project that willinstall a cogeneration facility at alumber mill in Lakeview, Oregon.This factory will switch from ahigh-pressure to a low-pressuredrying kiln, and install a high effi-ciency 638 kW backpressuresteam turbine to generate elec-tricity from previously wasted stream. The co-generated electricity will displace purchased power, andthe corresponding carbon dioxide emissions, from the grid. The Climate Trust will provide fundingonce the cogeneration facility has achieved commercial operation. Collins guarantees that the project will provide a pre-determined amount of offsets over a 15-year life. Monitoring and VerificationThe Trust requires state-of-the-art monitoring and verification of its offset projects. Nationally rec-ognized experts are required to prepare monitoring and verification plans to quantify the CO2 benefits. Periodic monitoring and verification reports are prepared and verified by an independentthird party. The Trust manages its offset contracts carefully to assure that the developer meets all offset eligibility requirements, monitoring and verification requirements, performance milestones, performance guarantees, and other requirements.Funding for this PortfolioFunding for this portfolio was provided by new energy facilities choosing the Trust to meet the require-ments of Oregon’s Carbon Dioxide Standard. Initially, funding for approximately $5.5 million of offsetprojects was provided by two new combined cycle gas turbines starting construction in Oregon:Hermiston Power Project (550 MW; Hermiston, OR; owned by Calpine) and Coyote Springs 2 (270MW; Boardman, OR; owned by Avista).As we were evaluating offset proposals, two smaller energy facilities were subject to the standard.This included a 100 MW single cycle gas turbine diesel generator constructed by PacifiCorp PowerMarketing to meet the West Coast power crisis, and an underground natural gas storage station con-structed by NW Natural.The 150 kW backpressureturbine-generator picturedis installed at FranciscanSisters of PerpetualAdoration in their DistrictHeating Plant in La Crosse,Wisconsin.T h e C l i m a t e Tr u s t 2 0 0 2 9Greenhouse Gas Offset Partnership ProgramOrganizations fund offsets via The Climate TrustThe Greenhouse Gas Offset Partnership Program allows organizations to benefit from our offsetacquisition expertise and processes. These services are available to businesses, governments, and non-profit corporations who can purchase or donate to offset their emissions.Large Emitter Customized Offset Acquisitions: This program element is for large purchasers,such as power plants and other companies consuming large amounts of fossil fuel. The Trust workswith the client to determine preferences for offset type, criteria, and cost, and helps the client solicit,select, and negotiate contracts for offsets. The client can directly sign the offset contract that the Trusthelps the client negotiate, or the Trust can sign the offset contract, transfer the offset rights to theclient, and manage the contract on behalf of the client. The Trust has successfully provided this serv-ice to Seattle City Light as well as two Massachusetts power plants.Donate-to-Offset Program: This program ele-ment allows organizations to donate funds to theTrust, which uses the funding to acquire offsets andhold them in trust for the benefit of the environ-ment. This element is designed to be a convenientmechanism for organizations to cause the imple-mentation of high quality offsets. The Trust has hadsix businesses participate in this program to date,including such companies as Nike, Delta Airlines,Progressive Investment Management, and GreenMountain Energy.CarbonCounter.org: Coming in 2003 TheClimate Trust and Mercy Corps are teaming up toprovide small emitters and individuals a simple toolto calculate and offset their carbon dioxide emissions. CarbonCounter.org calculates the amount ofcarbon dioxide emitted from an individual’s home, car, and airplane travel. Participants are given theopportunity to offset their carbon dioxide emissions by donating money to expand our innovative off-set portfolio.Employee Offset Program: Coming in 2003 Organizations seeking to help employees reducetheir impact on global warming will be able to partner with The Climate Trust to provide an employee-matching offset program. Under this program organizations can encourage employees to calculateand offset their carbon dioxide emissions on CarbonCounter.org by matching the employees’ donation amount.Visit our new web sitewww.CarbonCounter.orgto offset your personalemissions.10 T h e C l i m a t e Tr u s t 2 0 0 2Our Giving ProgramProtect the ClimateThe Climate Trust is a 501(c)3 non-profit organization doing cutting edge work to reduce greenhousegas levels We invite individuals, businesses, and organizations to donate to the Climate Trust. Our newly launched Giving Program helps us to move forward with our mission of…“promoting climate change solutions by providing high quality greenhouse gas offset projects and advancing sound offset policy.”Donations directly support new program development in creative and innovative ways to protect the climate. In particular, new funding can help us expand our Greenhouse Gas Offset PartnershipProgram, which provides a simple and easy way for institutions and individuals to offset their greenhouse gas impact.Direct financial support helps The Climate Trust expand new programs because our currentfunding can only be spent on purchasing offsets. Over 96% of our expenses go directly tooffset-based climate change mitigation programs.Support The Climate Trust with a 501(c)3 tax deductible donation.Mail checks or money orders payable to: The Climate TrustAttn: Giving Program516 SE Morrison Street, Suite 300Portland, OR 97214-2343Financial Statement December 31, 2002 & 2001 AuditedStatements of Financial Position2002 2001AssetsCash $8,419,440 $3,489,441Other current assets $16,760 $5,632Office equipment, net of accumulated depreciation $11,966 $16,218TOTAL ASSETS $8,448,166 $3,511,291Liabilities and Net AssetsLiabilitiesAccounts payable and accrued expenses $24,514 $21,260Offset contracts payable* $4,750,669 $677,620Unearned offset contract revenue* $3,508,988 $2,575,765Total Liabilities $8,284,171 $3,274,645Net assetsUnrestricted $120,950 $231,646Temporarily restricted $43,045 $5,000Total Net Assets $163,995 $236,646TOTAL LIABILITIES AND NET ASSETS $8,448,166 $3,511,291Offset Fund Developer'sCommitment AmountTransferred toClimate TrustMinimumAllowableOffset AmountActual OffsetContractAmount ObligatedContracts Balance Leftto ObligateOffset Mgt.Funds Spent Total forOffset MgtFundsOffset Mgt.Funds UnspentDeveloper’s Commitment Offset Contracting Offset ManagementOffset Funds Tracking ReportKlamathCogenerationProject2001 Batch:Hermiston Power ProjectCoyoteSprings2NW NaturalKlamathExpansion ProjectMassachusetts1,197,6974,218,7602,643,09723,566261,478600,000 1,197,6974,218,7602,643,09723,566 261,478600,000 958,158 3,375,0082,114,47818,853209,182480,0001,036,1203,375,0082,114,47818,853209,182480,0001,036,1202,517,7411,577,39114,064156,04900857,267537,0874,78953,133480,000161,577843,752528,6194,713 52,296120,00061,82742,74826,782 239 2,650099,750801,004501,8374,474 49,646120,000*The Climate Trust is restricted by law to use this money for the sole purpose of funding offset projects. 12 T h e C l i m a t e Tr u s t 2 0 0 2Statements of Activities2002 2001Changes in net assets:RevenuesOffset contract revenue $4,685,350 $1,111,080Other contract revenue $67,864 $34,555Interest income $113,182 $103,232Other income $17,532 $1,600TOTAL REVENUE $4,883,928 $1,250,467ExpensesProgram $4,884,345 $1,187,434Management and general $84,042 $44,128Fund Raising $31,237 $24,446TOTAL EXPENSES $4,999,624 $1,256, 008Change in net assets $(115,696) $(5,541)Change in temporarily restricted net assets:Contributions $43,045 $5,000Change in temporarily restricted net assets $43, 045 $5,000Change in net assets $(72,651) $(541)Net assets – beginning of year $236,646 $237,187Net assets – end of year $163,995 $236,646Unearned Contract RevenueAll offset contract revenues are restricted for selection and contracting, acquiring, and managingoffset contracts. Offset contract revenues are recognized as revenue in the period the offsetcontracts are obligated and management and oversight services are performed. Offset contractfunds received but not yet obligated are recorded as unearned offset contract revenue. Unearnedoffset contract revenue is summarized as follows:2002 2001Balance at beginning of year $2,575,765 $1,755,167Funds received $5,618,573 $1,931,678Funds obligated and revenue earned $(4,685,350) $(1,111,080)Unearned offset contract revenue $3,508,988 $2,575,765T h e C l i m a t e Tr u s t 2 0 0 2 13516 S.E. Morrison Street, Suite 300Portland, OR 97214-2343Printed on recycled paper with soy-based inks