CCX ODS Destruction Offsets Projects: Overview, Lessons Learned

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CCX ODS Destruction Offsets Projects Overview,
Lessons Learned Future Opportunities
June 14, 2010 Stephen J. Donofrio Economist C
hicago Climate Exchange
Prepared for the United Nations Environment
Program Seminar on the environmentally sound
management of banks of ozone-depleting substances
(decision XXI/2)
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Climate Exchange PLC FamilyGlobally Operating
Six Exchanges in Five Countries across Four
Continents

• Climate Exchange Plc is an AIM listed company
  (CLE.L) which owns the European Climate Exchange
  (ECX) and the Chicago Climate Exchange (CCX)
• Chicago Climate Exchange (CCX) is North America's
  only and the world's first global marketplace for
  integrating voluntary legally binding emissions
  reductions with emissions trading and offsets for
  all six greenhouse gases.
• Chicago Climate Futures Exchange (CCFE), a
  wholly owned subsidiary of CCX, is a CFTC
  designated contract market that offers derivative
  products for emission allowances and other
  environmentally based markets
• European Climate Exchange (ECX) is the most
  liquid, pan-European platform for trading carbon
  emissions under the EU ETS, offering futures and
  options contracts. ECX commands over 80 market
  share of the exchange traded volume for EU ETS
  carbon credits
• The Montréal Climate Exchange is a joint venture
  between the Montréal Exchange (MX) and the
  Chicago Climate Exchange (CCX). MCeX operates
  the first regulated environmental derivatives
  market in Canada.
• Tianjin Climate Exchange (TCX) is a joint venture
  between CNPC, CCX and City of Tianjin. TCX is
  first integrated exchange for trading
  environmental financial products in China.
• Envex is a joint venture between CCX and
  Macquarie bank of Australia. Envex develops
  exchange-traded and OTC climate and environmental
  products for the emerging Australian markets.
  

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CCX Market Architecture (2003-2010)

• Chicago Climate Exchange (CCX ) is the worlds
  first and North Americas only active voluntary,
  legally binding integrated trading system to
  reduce emissions of all six greenhouse gases,
  with offset projects in North America and
  worldwide
• CCX has 400 members worldwide with a registered
  emission baseline of 600 MMT CO2e
• CCX has 330 registered GHG emission reduction
  projects totaling 83 MMT CO2e

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CCX Comprehensive Market Structure
Comprehensive Rules System

• Emitting Members Standard baseline, multi-year
  allowance stream to reduction targets
• Offset Aggregators/Providers
  GHG project protocols
• Liquidity Providers
• Associate Members

Electronic Market Registries
Web Electronic Trading Platform
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CCX Offset Project Types
Verified Offset projects sequester or eliminate
GHGs to earn Carbon Financial Instruments (CFI)
sold on CCX electronic platform to CCX membership
Current pre-defined Offset Categories
Agricultural Methane Collection Combustion
Agricultural Best Management Practices - Continuous Conservation Tillage and Conversion to Grassland Soil Carbon Sequestration
Agricultural Best Management Practices - Sustainably Managed Rangeland Soil Carbon Sequestration
Avoided Emissions from Organic Waste Disposal
Coal Mine Methane Collection and Combustion 
Forestry Carbon Sequestration 
Landfill Methane Collection and Combustion
Ozone Depleting Substances Destruction
Renewable Energy Systems
Small Scale Renewable Biogas 
Ozone Depleting Substances Destruction
14 ODS Destruction Projects Registered787,300 Mt
CO2e issued
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Key Details of ODS Destruction Protocol
Rationale and Premise

• ODS have significant Global Warming Potentials
  (GWP) ranging between 500 and 10,000 Mt CO2e
  when emitted from ODS banks
• Represents a liability, destruction creates an
  asset
• While Montreal Protocol phased out production and
  consumption, not much regulatory or economic
  incentive for recovery and destruction
• Little recovery and destruction occurring
• Magnitude of GHG problem from ODS is significant
  GHG emissions
• 2007 US Bank of eligible ODS 330 MMT CO2e
• 2007 accessible quantity of ODS contained in
  equipment is over 1400 MMT CO2e
• US EPA est. that 13 of eligible ODS will be
  emitted by 2010 if not recovered and destroyed
• IPCC/TEAP est. 6 Gt CO2e will be released to the
  atmosphere from the most easily accessible and
  destroyable ODS banks in refrigeration and air
  conditioning (2011-2015) total Kyoto reductions
  is 4.3 Gt CO2e 2008-2012
• Venting is regulated, BUT, enforcement is
  difficult

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Protocol Rationale and PremiseU.S. ODS Lost
Opportunity MMt CO2e
Today
Quick action is needed since opportunity is all
but lost within 10 years
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ODS Protocol History Peer Review and Committee
Approval Process
CCX Offsets Committee Review(May 15, 2007)
Concept Proposed by DuPont (Dec. 19, 2006)
Research and technical work performed by U.S.EPA
and ICF
CCX Offsets Committee Approval (June 19, 2007)
Discussions, Consultation, Research - CCX, DuPont
and U.S.EPA
Discussions, Consultation -CCX, DuPont and U.S.EPA
Further Research - CCX, DuPont, U.S.EPA
Ongoing Committee Review and Protocol Development
last update 8/20/2009

• Draft protocol development by CCX, DuPont (Mack
  McFarland) and U.S. EPA (Jeff Cohen) began on
  December 19, 2006
• Originally submitted to CCX Committee on Offsets
  on May 15, 2007
• Approved by the CCX Committee on Offsets on June
  19, 2007
• Six months process of research, proposal,
  consideration, revisions and approval

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CCX Offsets Committee Membership
Committee Member Member Organization
Scott Subler (Chair) Environmental Credit Corp
Bill Hamlin Manitoba Hydro
Annabeth Reitter NewPage Corporation
Amy Van Kolken Banister Waste Management
Bob Fledderman Mead Westvaco
Larry Merritt Ford Motors
Dave Miller Iowa Farm Bureau
Lisa Shpritz Bank of America
David Skole Michigan State University
Tod Delaney First Environment
Scott Weaver American Electric Power
Ben Conte EcoSecurities
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Peer Reviewers and Commenter's
CCX Offset Aggregators / Providers
CCX Members

• Coolgas
• Delta Institute
• EcoSecurities
• Reclamation Technologies (RemTec)
• Environmental Credit Corp.
• Hudson Technologies
• Iowa Farm Bureau

American Electric Power Bank of America Dow
Corning DuPont Ford Motors Mead
Westvaco Michigan State University Waste
Management
Discussions, Consultation, Research and Technical
Work
CCX-approved Verification Bodies
Other
Air Compliance Testing First Environment,
Inc. ICF International
California Air Resources Board NewPage
Corporation Polar Refrigerant PureChem U.S.
Environmental Protection Agency (EPA)
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CCX ODS Destruction Offset Project Cycle
Converting Liabilities into Assets

• Aggregator confirms project eligibility, prepares
  destruction plan proposes project
  implementation plan for CCX Validation

OWNER
Weight and samples taken. Owner transports ODS to
destruction facility.
DESTRUCTION FACILITY
Weight and samples taken. Facility destroys ODS
according to CCX protocol
Third-party conducts verification
VERIFIER
CCX issues to Aggregator credits for verified
destruction in form of Carbon Financial
Instruments (CFI)
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CCX ODS Destruction Protocol
Aggregator confirms project eligibility, prepares
destruction plan proposes project
implementation plan for CCX Validation

• CCX ODS Destruction protocol credits verified
  destruction of eligible ODS at a destruction
  facility that meets the eligibility requirements
• ISO 14064-2 Format
• Project Definition
• General Eligibility Requirements
• Project Boundary
• Monitoring and Sampling Requirements
• Quantification Methodology
• Verification Guidance

Weight and samples taken. Owner transports ODS to
destruction facility.
Weight and samples taken. Facility destroys ODS
according to CCX protocol.
Third-party conducts verification
CCX issues to Aggregator credits for verified
destruction in form of Carbon Financial
Instruments (CFI)
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CCX ODS Destruction Protocol General
Eligibility Requirements
Aggregator confirms project eligibility, prepares
destruction plan proposes project
implementation plan for CCX Validation

• CCX has established the following set of general
  eligibility requirements that are applicable to
  all ODS destruction offset projects.
• CCX Membership Registered CCX member
• Ownership Status Attestations, contracts
• Project Start Date January 1, 2007
• Project Location Destruction U.S.-only, imported
  ODS permitted
• ODS Materials (1) Refrigerants and ODS that is
  entrained in foam (2) Must be phased out under
  MP and CAAA Title VI
• Performance Benchmark Two criteria (1)
  Regulatory (2) Common Practice

Weight and samples taken. Owner transports ODS to
destruction facility.
Weight and samples taken. Facility destroys ODS
according to CCX protocol
Third-party conducts verification
CCX issues to Aggregator credits for verified
destruction in form of Carbon Financial
Instruments (CFI)
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CCX ODS Destruction Protocol General
Eligibility Requirements
Aggregator confirms project eligibility, prepares
destruction plan proposes project
implementation plan for CCX Validation

• Projects must not be considered common practice
  or required by law or other legally binding
  framework to be considered for offset issuance
• Regulatory Criteria
• No regulation that requires destruction of ODS
• No regulation that requires dismantling
  refrigerators/freezers and removal and
  incineration of ODS entrained in the foam
• CCX Project Owner Attestation
• Common Practice Criteria
• No voluntary destruction of ODS
• No voluntary dismantling refrigerators/freezers
  and removal and incineration of ODS entrained in
  the foam
• Assumes voluntary ODS destruction is not common
  practice all projects that destroy ODS comply
  with this requirement

Weight and samples taken. Owner transports ODS to
destruction facility.
Weight and samples taken. Facility destroys ODS
according to CCX protocol
Third-party conducts verification
CCX issues to Aggregator credits for verified
destruction in form of Carbon Financial
Instruments (CFI)
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CCX ODS Destruction Protocol Baseline Scenario
Aggregator confirms project eligibility, prepares
destruction plan proposes project
implementation plan for CCX Validation

• CCX identified that for both gaseous or liquid
  ODS and ODS entrained in foam, the baseline
  scenario is the fugitive emissions of ODS gas
• Gaseous or Liquid ODS
• In the absence of regulation or requirements
  mandating destruction ? fugitive emissions
• ODS Entrained in Foam
• Shredding baseline scenario ? protocol assumes a
  conservative release of 24 of ODS
• Not significant enough research to support any
  greater amount of ODS release during shredding or
  release in the landfill

Weight and samples taken. Owner transports ODS to
destruction facility.
Weight and samples taken. Facility destroys ODS
according to CCX protocol
Third-party conducts verification
CCX issues to Aggregator credits for verified
destruction in form of Carbon Financial
Instruments (CFI)
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CCX ODS Destruction Protocol Project Boundary
Aggregator confirms project eligibility, prepares
destruction plan proposes project
implementation plan for CCX Validation

• Boundary of a project includes the ODS
  destruction, monitoring and recording equipment,
  and relevant project-based emission sources.
• ODS Destruction Process (1) CO2 as byproduct of
  destruction and, (2) CO2 emitted from fossil
  fuel usage in process
• Other Project-based Emissions CO2 emitted from
  transportation of ODS to destruction facility
• Monitoring and Recording Equipment ODS emissions
  from periods that the destruction equipment not
  functioning to protocol requirements.

Weight and samples taken. Owner transports ODS to
destruction facility.
Weight and samples taken. Facility destroys ODS
according to CCX protocol
Third-party conducts verification
CCX issues to Aggregator credits for verified
destruction in form of Carbon Financial
Instruments (CFI)
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Key Details of the Protocol Monitoring and
Sampling
Aggregator confirms project eligibility, prepares
destruction plan proposes project
implementation plan for CCX Validation

• Must develop a monitoring plan with procedures to
  obtain, record, compile and analyze data for
  quantifying and reporting GHG ERs
• Determining Total Quantity of ODS
• Gaseous or Liquid
• Weight Reconcile pre- and post- destruction ODS
  container weights using calibrated scales / flow
  meters as per manufacturer specs
• Composition Pure ODS (at least 95) and mixed
  ODS composition is determined using protocol
  specified sampling procedures and gas
  chromatography analysis of sample at certified
  lab (twice tested, 99 confidence).
• Foams
• Weight/Composition Project Proponents must
  propose a sampling procedure with project
  documentation to CCX.
• Composition Track serial s, manufacturer data,
  sample

Weight and samples taken. Owner transports ODS to
destruction facility.
Weight and samples taken. Facility destroys ODS
according to CCX protocol
Third-party conducts verification
CCX issues to Aggregator credits for verified
destruction in form of Carbon Financial
Instruments (CFI)
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Key Details of the Protocol Quantification of
Avoided GHG Emissions
Aggregator confirms project eligibility, prepares
destruction plan proposes project
implementation plan for CCX Validation

• Avoided GHG Emissions Total quantity ODS
  destroyed net project based emissions, leakage.
• Total Quantity of ODS Destroyed (Mt CO2e)
  (Quantity of ODS Waste Concentration of ODS
  ODS GWP Min EPA DE) / Mt Conversion Factor ODS
• Project Emissions sum of CO2e from ODS
  destroyed and fossil fuel use
• CO2 from ODS Destroyed ((Quantity of ODS Waste
  Concentration of ODS Min EPA DE) / Mt
  Conversion Factor ODS) ODS specific emission
  factor
• CO2 from Fossil Fuels (Stationary and
  Transportation) Quantity of fuels
  Fuel-Specific Emission factor
• Note Transportation MAY be calculated by using
  the product of distance traveled and
  transportation type emission factor
• Leakage Protocol assumes no leakage

Weight and samples taken. Owner transports ODS to
destruction facility.
Weight and samples taken. Facility destroys ODS
according to CCX protocol
Third-party conducts verification
CCX issues to Aggregator credits for verified
destruction in form of Carbon Financial
Instruments (CFI)
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Key Details of the Protocol Verification
Aggregator confirms project eligibility, prepares
destruction plan proposes project
implementation plan for CCX Validation

• Verification guidance provided in CCX Protocol
  and general verification guidance document
• All projects must be verified by a independent
  third party verification agency approved for ODS
  verification by CCX
• All verification reports undergo a quality
  assurance review by Financial Regulatory
  Authority (FINRA) before being registered in CCX
  Electronic registry
• CCX issues the amount of verified emission
  reductions into the CCX Offset Aggregator/Provider
  s registry holdings account.

Weight and samples taken. Owner transports ODS to
destruction facility.
Weight and samples taken. Facility destroys ODS
according to CCX protocol
Third-party conducts verification
CCX issues to Aggregator credits for verified
destruction in form of Carbon Financial
Instruments (CFI)
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CCX ODS Destruction Project Scenarios

• Hospital collects to destroy ODS, on-site
  replacement
• Easy to track and identify substitute
• Aggregator purchases stockpile of unusable
  refrigerant ODS
• Easy to track, no substitution
• Municipality led refrigerant collection program,
  ODS destruction secondary
• ODS destruction can serve as initial incentive,
  e.g. rebates
• ODS imported from Article 5 country (India), high
  cost
• Need strong market value to incent destruction

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CCX ODS Program Achievements

• Pioneer of protocol development - CCX developed
  the first standardized ODS Destruction Offset
  Project Protocol draft for voluntary carbon
  market, adopted July 2007
• 14 ODS Destruction Projects Registered - 787,300
  tons issued
• R-11, R12, R-13, R-113, R-114, R-115, Halon 1211,
  Halon 1301, etc
• 12 participants
• 1 producer, 7 carbon offset project aggregators,
  4 refrigerant reclaimers
• CCX Validated the first ever refrigerator foam
  ODS destruction project
• CCX-approved Verification agencies
• First Environment
• ICF International

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CCX ODS Destruction Offset ProjectsLessons
Learned

• Despite a clear opportunity to destroy ODS, there
  are barriers.
• CDM HFC has created negative sentiment for
  destruction offsets
• In Article 5 countries, there is too much ODS
  that recycling is not viable must encourage
  destruction of ODS
• Critical to build/link institutional framework to
  market Communication with project participants
  given verification requirements
• Projects need to know why they are required to
  provide particular data items, given the cost of
  data acquisition
• Technology exists, but is expensive

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CCX ODS Destruction Offset ProjectsLessons
Learned

• Project registration is market price dependent
• Utilize best practice standards when possible
  (EPA, ISO, etc)
• Cost to destroy ODS varies by country,
  technology, capacity and type
• Market factors are important, potential to
  oversupply
• Voluntary ODS destruction is not a windfall
  market does not supply upfront funding
• High level of price volatility of voluntary
  carbon markets
• ODS project registrations indicate high market
  interest

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Ongoing Market DevelopmentFuture Opportunities

• Further Developments to Existing Protocol
  Requirements
• Expanding eligible project location to include
  countries other than the U.S.
• New technologies (e.g. mobile destruction
  facilities) U.S. EPA dependent
• Importation requirements U.S. EPA dependent
• Phase down of production and consumption of
  ozone-friendly, super GHGs
• Montreal Protocol
• EPA CAAA revision
• U.S. Climate and Energy Cap-and-Trade Legislation
• Project funding opportunities Institutional,
  national, regional
• Developing country pilot programs

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End

• Contact information
• Stephen Donofrio, Economist                      
              Chicago Climate Exchange, Inc.312
  554 7012, direct312 554 3350, main312 554 3373,
  faxsdonofrio_at_chicagoclimateexchange.com