2009 GRI economic performance indicators

Climate change risk

We consider the physical risks of climate change to our operations to be relatively low. We do not anticipate any material impact on our operations as a result of global climate change during the life of our existing fleet.

Geographically, our facilities are not affected by sea-level issues. Operationally, we forecast some generation efficiency changes with ambient temperature fluctuations but it is very small in relation to current production levels. The biggest concern is the long-term effects on water supply (rivers) which are used for process cooling, specifically at our coal plants. We have developed expertise operating in low-water environments which could be applied to other operations, if required. However, we still forecast that we will have sufficient water permits to continue to operate all of our current facilities until the end of their life, including the potential implementation of carbon capture and storage. Our fuel supply chain is largely mine-mouth coal and natural gas from pipeline systems which are not expected to be materially impacted. We do expect the price of power to increase due to the implementation of greenhouse gas (GHG) constraints. As some of our facilities purchase power from the electricity grid for internal use, there is some exposure there; however it will be offset by increased revenue from the sale of the power from the affected facilities.

TransAlta’s additional assessment of risk exposure, as it relates to climate change, is outlined in site-specific emergency preparedness and response processes. Each process, depending on the location of the facility and potential natural disasters, ensures that potential emergency situations are identified and that plans are established to effectively recover from those situations, with minimum consequences for our people, the environment, our assets and our reputation.

Financial risk

TransAlta has significant coal and natural gas based generation assets, and there is a market risk that investors could discount corporate valuations based on perception of the viability of those fuels in the future, affecting share price, credit ratings and equity-raising capabilities. It is important that the financial community and investors have an accurate view of not just how regulations will affect companies but how companies are positioned to mitigate those effects. For this reason TransAlta maintains an open and active dialogue with the financial community through activities such as our annual Investor Day and our annual corporate report.

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 are flowed 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.

Projections of costs due to GHG regulations have been completed and are summarized in TransAlta’s investor day presentations.

All future emissions compliance costs are estimated based on internal price curves and all are factored into the economic viability analysis of all new capital projects. These factors have led to a hiatus in investments in new coal facilities beyond our current Keephills 3 project, until such time as CCS becomes proven. They have also led to increased investment in renewable energy projects over the past three years.

Other risks

TransAlta believes there will be other important but manageable risks associated with climate change. These may include:

• government willingness to approve new fossil-fired generation, including varied regulations from jurisdiction to jurisdiction which will significantly impact development costs
• the cost of new technologies impacting consumer power costs. – Shifts in consumer demand to specific forms of generation, as well as overall increases in demand
• technology risks associated with the planned adoption of clean coal technology and the associated electrical reliability and availability issues

Opportunities

There are two opportunities that we believe are being created from regulatory action on GHGs. The first is an increased market for renewable energy and the associated environmental products. TransAlta’s position as one of Canada’s largest wind energy companies provides a clear business opportunity to expand new renewable generation. This opportunity is most appropriate for our operations in Canada and the U.S.

The second opportunity is the potential to develop CCS as a clean energy technology, making the continued use of coal viable and highly competitive. We believe that our investment in CCS, through Project Pioneer, and the resulting experience, will be highly valuable.

Please refer to the Environment section of this report for more details of our climate change strategy and projects.

TransAlta’s 2009 annual report also contains information on page 41, under the heading Climate Change and the Environment.

TransAlta’s defined contribution pension plan contributes 10 per cent of an employee’s base salary plus incentive payment up to the allowed limits. The defined benefit pension plan contributes 1.4 per cent per year of service up to ‘Average Maximum Pensionable Earnings’ (five years’ average maximum pensionable earnings) and two per cent of the service for earnings over the Average Maximum Pensionable Earnings.

All full-time and part-time employees participate in the retirement plans. Temporary employees on less than six-month terms, casual and contactor employees are not eligible to participate in the retirement plans. Term employees(over six months but less than two years term) participate in the pension plan. Please refer to Employee Future Benefits indicator in the Economic section of the Numbers section of this report for more information.

In 2009, the federal and Alberta governments announced more than $750 million in funding for the Project Pioneer CCS project at Keephills 3. TransAlta did not receive any government funds in 2009 but will be invoicing in 2010 for 2009 costs incurred.

• Alberta: 1.50
• British Columbia: 4.69
• Ontario: 2.02
• Quebec: 1.83
• Washington: 2.19
• Australia: 1.34

Please refer to Community Investment for more details and to the community investment indicators in the Numbers section of this report.

Beyond financial donations, TransAlta employees and retirees volunteered more than 12,000 hours to help out in communities in which we operate.

TransAlta participates in a large number of research, non-governmental organizations, stakeholder groups and policy initiatives, many of which have broad reaching benefits to society in terms of research, education, and community support. Please refer to Our Involvement and Community for more details.