VOLUNTARY REPORTING OF GREENHOUSE GASES PROGRAM

In 1993 the United States initiated the Climate Challenge Program pursuant to the Rio Treaty with a commitment to reduce emissions of greenhouse gases in the nation to their 1990 levels by the year 2000. Almost all major electric utilities in the nation have committed to voluntary goals under the Climate Challenge Program to individually reduce, avoid, or sequester certain quantities of greenhouse gas emissions by the year 2000, it being understood that if a voluntary program achieves the needed reductions, then a mandatory program will not be necessary. Under the program utilities (or any company or individual) submit reports to DOE documenting the action being taken and the tons of greenhouse gases (usually reported in equivalent tons of carbon dioxide) being reduced, avoided or sequestered, sometimes referred to as "carbon dioxide credits." It became obvious to government officials that the voluntary program was not working and that the United States would not meet emission reductions promised in the Rio Treaty. Tougher steps to reduce carbon dioxide emissions were considered. After subsequent international meetings, the agreement was modified and became known as the Kyoto Protocol and the U.S. Climate Challenge Program is in remission, but reporting continues under the Voluntary Reporting of Greenhouse Gases Program. Although the Bush administration does not support the Kyoto Protocol, it is implementing the Green Power Partnership to encourage the use of green power and renewables to, among other things, reduce the emission of global warming gases.

REPORTABLE CREDITS FROM COALBED METHANE PROJECT

TPCO is involved in a coalbed methane project which generates approximately 30,000 tons per year of reportable carbon dioxide credits per megawatt of generation, as explained below.

Methane is a greenhouse gas which is significantly worse than carbon dioxide. The Intergovernmental Panel on Climate Change (formed to administer the Rio Treaty) currently values the radiative forcing of methane 23 times that of carbon dioxide, meaning that a 1-ton reduction in methane released into the atmosphere is worth a 23-ton reduction in carbon dioxide released into the atmosphere. Some experts are of the opinion that this factor should be significantly greater than the currently accepted 23.

Although the mines from which the methane is being extracted are sealed and are no longer active, through the processes of subsidence of the mines and desorption of the coal, methane is being released from the coal remaining in the mines which increases the gas pressures in the mines to the point that the methane is released into the atmosphere. (The gas pressure in one well increased from 29 PSI in 1990 to 40 PSI in 1995.) The mines actually produce gas from the coal remaining in the mines.

The following example illustrates the reduction in greenhouse gases as a result of burning methane which would otherwise be released into the atmosphere:

Pure Methane Heat Content = 1,000 Btu/CF
Methane Density = 19.2 gram/CF or 0.04238 lb/CF
Engine-Generator Heat Rate = 10,300 btu/kWh

Methane Consumed (lb per kWh):
((Heat Rate)/(Heat Content)) x (Density) = (10,300/1,000) x 0.04238 = 0.4365

Carbon Dioxide Produced (empirical) = 110 lb per million btu of Methane
(10,300 btu/kWh x 110 lb/mmbtu)/1 mm = 1.13 lb per kWh

(Note: The carbon dioxide produced will be ignored since the energy generated would displace other generation producing a similar amount of carbon dioxide.)

Approved Carbon Dioxide to Methane Multiplier = 23

Carbon Dioxide Credit (lb per kWh):
(Methane Consumed) x (Multiplier) = 10.04 lb CO2 per kWh

Thus a coalbed methane project will generate approximately 37,000 tons of equivalent CO2 reduction per year per megawatt of installed generation.

REPORTABLE CREDITS FROM BIOMASS PROJECTS

The biomass projects mentioned under Business Opportunities above generate approximately 20,000 tons per year of reportable carbon dioxide credits per megawatt of generation, as explained below.

Because wood is created through the absorption of atmospheric carbon dioxide, its combustion results in no net increase in carbon dioxide in the atmosphere; as opposed to the combustion of gas, coal, or oil which results in a net increase in atmospheric carbon dioxide. In addition, the combustion of wood wastes results in a net decrease in greenhouse gases by avoiding the release of methane (23 times worse than carbon dioxide as previously noted) from decomposing wood wastes in sawdust piles, landfills, and other oxygen limited conditions. One study indicates that for every pound of dry wood wastes burned, a release of 0.13 pound of methane into the atmosphere is avoided. Since the burning of wood is greenhouse gas neutral in regard to the release of carbon dioxide into the atmosphere, the net improvement (without considering displacing fossil fuels) can be evaluated as a reduction of 0.13 pound of methane for each dry pound of wood wastes burned.

Biomass generation would also avoid net atmospheric increases in carbon dioxide by displacing electricity which would otherwise be generated by fuels such as natural gas (110 lb carbon dioxide per mmbtu), coal (210 lb carbon dioxide per mmbtu), or oil (170 lb carbon dioxide per mmbtu). On a typical utility (such as Carolina Power & Light Company) this reduction in carbon dioxide emissions would average 1.35 lb per kWh, and would be in addition to that associated with the avoidance in methane releases from the decomposing wood wastes. A biomass plant will typically consume 2 lb of wood for each kWh generated.

(2 lb wood/kWh) x (0.13 lb CH4/lb wood) x (23) + (1.35 lb CO2/kWh) = 7.33 lb CO2 per kWh

Thus this would result in a typical reduction in greenhouse gas emissions by an equivalent of approximately 27,000 tons of carbon dioxide credits per year per megawatt of generation.

VALUE OF CARBON DIOXIDE CREDITS

Perhaps the most celebrated transaction placing a value on carbon dioxide credits was a trade by Arizona Public Service Company of 25,000 tons of sulfur dioxide allowances to Niagara Mohawk Power Corporation for 1.75 million tons of carbon dioxide credits. This could be viewed as pegging the value of a ton of carbon dioxide credits at 1/70th of the value of a ton of sulfur dioxide allowances. When this transaction occurred in the fall of 1994, sulfur dioxide allowances were going for about $145 a ton for vintage 1995 and $135 a ton for vintage 2000, which would place the value of carbon dioxide credits at around $2.00 a ton. The EPA's 2002 spot auction market price averaged $168 a ton, and the 7-year advance market price was about $82 a ton. Using $168 and $82 a ton for sulfur dioxide and the 1:70 ratio, the value of carbon dioxide credits would be around $2.40 and $1.17 a ton, respectively.

Another way to value carbon dioxide credits would be to simply look at the cost of actually reducing, avoiding, or sequestering the emissions of greenhouse gases. The cost of planting trees in a third world country may be in the range of $0.50 per ton of carbon dioxide credits claimed, with a good deal of arm waving concerning the growth rate and survivability of the trees. Certain efficiency improvements such as the replacement of existing transformers with new low loss transformers would be in the $100 per ton range. Efficiency improvements with no cost which are claimed as generating carbon dioxide credits have a hollow ring in that such improvements should have already been made, and is probably why the Climate Challenge Program did not achieve the desired results.

Similar to sulfur dioxide allowances, the purchase or sale of power does not automatically carry with it the carbon dioxide credits which may be associated with the generation of the power being sold and purchased. The carbon dioxide credits being generated in the coalbed methane project mentioned above have not been purchased and are currently available for purchase by any entity desiring to claim them under the voluntary reporting program. These carbon dioxide credits (currently projected at 37,000 tons per year per megawatt of generation installed) could be claimed (and reported) after the fact based on actual generation and 10.04 lb of credits per kWh, or an estimate could be claimed based on a projection of expected generation. Similarly, the carbon dioxide credits will also be made available for purchase from the biomass projects separate and apart from the power sales.

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