Alberta Greenhouse Gas Summit Calgary | October 23, 2014 Chelsea Erhardt 1 CPX Environmental Commodities History CPX has been involved in environmental markets for over 10 years Evolved from voluntary initiatives and ramped up postSGER (2007) • Team of six professionals Strong proponent of the offset system • Over $100mm invested to support GHG reduction projects • Eight million offsets procured Market activities include • Hedging • Portfolio optimization • Proprietary trading CPX supports innovation through the GHG market Capital Power’s Alberta CO2e Intensity Clear GHG price trajectory is critical to long-term investments Benefits Cut Across Organisation Renewables and Emissions Portfolio • 3rd party hedging service across NA • Proprietary trading Origination and Marketing • Green power and gas products • Market insight for customers Business Development • Manage new asset risk • Portfolio optimization of new assets Investors • Carbon disclosure project • Lower costs • Lower risk CPX to turned a risk into a source of competitive advantage Regulation Investors Big Oil Anticipates 10-Fold Surge in Carbon Emission Cost Coal Seen as New Tobacco Sparking Investor Backlash: Commodities (Bloomberg, December 6, 2013) (Bloomberg, November 20, 2013) Big Oil Anticipates 10-Fold Surge in Carbon Emission Cost Oil sands firms urged to reveal risks of carbon crackdown (Bloomberg, December 6, 2013) (Globe and Mail, October 24, 2013) Climate change will plague energy industry: DOE (Market Watch, July 11, 2013) A New Divestment Focus on Campus: Fossil Fuels (New York Times, Sept 5, 2013) First US carbon (RGGI) market in membership talks with five states Pension funds are now waking up and starting to make the connection between their investments in fossil fuels (Point Carbon, October 11, 2013) China's national carbon market to start in 2016 –official (Globe and Mail October 30, 2013) (Reuters, August 31, 2014) Regulation is expanding across North America and, critically, investors are taking note Carbon Disclosure Part of Investors Criteria Google now publishes the Carbon Disclosure Project score for every publicly traded company What is the most effective policy tool? Policy Instrument: Command & Control • Rigid, provided limited incentive to innovate • Example: CST (Capital Stock Turnover) standards Policy Instrument: Carbon Tax • Simple to implement, reduced flexibility and incentive to innovate • Example: BC carbon tax Policy Instrument: Market Mechanism • Flexible, relies on private sector to allocate capital, incentivises innovation and efficiency, low aggregate cost • Example: California AB 32 (Cap & Trade), RGGI, EU-ETS Markets are favoured because they are cost effective and work Success Story : The Acid Rain Program • SO2 Allowance Trading Program in the US (1995-2010) “Probably the greatest Green success story of the past decade.” – The Economist, July 6th 2002 Existing GHG markets showing similar success Regional Greenhouse Gas Initiative (RGGI) RGGI Cap and Trade • Nine states, third largest carbon market • 100% of power sector emissions only • AB equivalent price $42/t • $1.84bn in auction proceeds since 2008 • 700mm allowances auctioned and 328mm traded in secondary market 29% drop in GHG emissions in participating states GHG Power Emissions Within RGGI Power prices have declined an average of 8% across RGGI states http://www.env-ne.org/public/resources/ENE_RGGI_Report_140523_Final.pdf California and RGGI Markets in Action Commoditized products enable transparent price discovery California and RGGI markets are active and liquid Five Key Takeaways 1. GHG markets work, they are well established and they are growing 2. GHG markets are not causing economic dislocation 3. GHG regulations/markets create risks, but also opportunities 4. Investors are aware of and focused on how companies manage GHG emissions 5. A clear, long-term price signal is key Questions? 14
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