Bid - Firm commitment to purchase a specific quantity of allowances at a specific price.

Offer - Firm commitment to sell a specific quantity of allowances at a specific price.

Vintage Year - The first year the Allowance can be used for compliance. SO2 Allowances are bankable, and therefore earlier vintage allowances (i.e. 1998 vintage) can be used for the current and any year afterwards (i.e. calendar year 1998 and on).

Allowance Transfer Form ("ATF") - Form OMB No. 2060-0258 from the EPA which affects the transfer of allowances from Buyer to Seller. The form requires the Buyer and Seller to sign and list specific information regarding their ATS account, serial number or transferred allowances.

The Forward Curve - The forward curve represents the price at which buyers and sellers purchase and sell allowances in forward settling transactions. In mature markets, forward markets are quoted in a similar fashion to the allowance spot market, with bids and offers to make purchases and sales at a future date. In the allowance market, the forward market is often too thin to have standing firm bids and offers for all vintage years, but most participants view the forward market as a cost of carry market, with prices reflecting somewhere between 6% - 7% annual escalation against spot prices. As you get farther out in time past the year 2003, the forward market price decreases due to regulatory uncertainty.

Option: An option provides the option buyer with the right, but not the obligation, to buy a commodity at a specified price by a certain date.

Option Premium: The price the option buyer pays to the option seller.

Strike Price: The strike price is the price at which the option buyer has the right to buy the commodity.

Option Exercise Date: The date the option buyer has the right to exercise the option.

Volatility: The standard deviation of the log of the daily changes in price, expressed in percent annualized. For example, 20% volatility means there is a 68.3% (one standard deviation) chance that in one year prices will be 20% lower or higher.

Historical Volatility: Calculated using past prices.

Implied Volatility: Calculated using an option pricing model and is the only unknown component when valuing options. The market determines the implied volatility.

Black-Scholes Formula: Options pricing model where the components are: Correct Price, Strike Price, Volatility, Time, Interest Rates

A call option (european) gives the buyer the right but not the obligation to buy a specified number of Allowances at a fixed price on the exercise date.

A put option (european) gives the buyer the right but not the obligation to sell a specified number of Allowances at a fixed price on the exercise date.