Impact of climate change to our operations

Climate change has the potential to impact the business environment in which we operate. Reducing the environmental impact of our activities benefits:

• our operations
• financial results
• the communities in which we operate

We believe:

• greenhouse gas (GHG) emissions management will become a competitive issue
• companies that are better prepared to manage the associated costs will have a competitive advantage
• the physical risks to our assets to be relatively low

GHG regulations have not been set in all regions. However, TransAlta is proceeding to identify solutions that can be applied in all of our operating locations.

TransAlta undertakes extensive analysis regarding the financial implications of climate change and associated GHG regulations to the company. Requirements for GHG reporting were legislated in 2009 in Ontario, and federally in the United States through the Environmental Protection Agency.

The American Clean Energy and Security Act was approved by the House of Representatives in June 2009, and is an energy bill that could establish a cap and trade system to achieve a 17 per cent reduction in GHG emissions by 2020. There is significant uncertainty regarding the form and schedule of legislation that will be developed as a result of the cap and trade system designed, or if legislation will even emerge in 2010.

Alberta is the base of our operations and the only jurisdiction to have GHG reduction regulations in place in 2009. The majority of costs due to this regulation flow through to power purchase agreement (PPA) holders under change of law provisions. For 2009, after flow-through, our annual net GHG compliance costs will be less than $2 million. We continue to examine compliance options, including additions to our offsets portfolio to minimize our compliance risk beyond the expiration of our PPAs.