MANAGEMENT’S DISCUSSION AND ANALYSIS The Facilities are subject to complex and stringent environmental, health and safety regulatory regimes, which primarily focus on: • Air emissions; •  Taking of water, management of water and discharges into water, including seasonality issues; • The storage, handling, use, transportation and distribution of dangerous goods and hazardous and residual materials (such as chemicals); •  The prevention of releases of hazardous materials into the environment;  •  The presence and remediation of hazardous materials in soil and ground water, both on and off site;  •  Workers' and adjacent landowner health and safety issues; •  Sound and vibration matters; and •  Bird, bat and other wildlife impacts. Due to the nature of their operations, the Facilities are not subject to any material contingent environment liabilities or environmental remediation costs upon the retirement of assets. Greenhouse Gases and other Air Pollutants Certain of the Facilities have an impact on the environment, particularly the Cardinal and Whitecourt facilities, which both emit greenhouse gases ("GHGs"), such as carbon dioxide ("CO 2 ") and nitrous oxides ("NOx"). All Facilities comply in all material respects with the applicable Canadian, UK,  Swedish and European Union legislation and guidelines regarding GHGs and other emissions. There are a number of draft proposals in respect of changes to such legislation and guidelines (including proposed limits on GHG emissions) in various stages of development. However, it is difficult to  predict how these changes may apply to the Facilities. Capstone mitigates the potential impact of future changes to environmental legislation and guidelines by remaining diligent in the operation of the Facilities, including stringent policies and procedures to prevent the improper discharge of emissions or other pollutants. Capstone's  environmental footprint is also mitigated by the renewable profile of its wind, hydro, biomass and solar power facilities, which could generate GHG offset credits, where eligible. Cardinal There is currently no restriction on the amount of CO 2 O that the Cardinal facility may emit, although the facility is required to report its CO 2 O O emissions  under various federal and provincial regulations. Environmental regulations in Ontario also provide for, among other things, the reporting, allocation  and retirement of NOx emissions. NOx emissions from Cardinal's generating equipment are lower than the levels mandated by legislation. Whitecourt The Whitecourt facility uses biomass combustion technology to convert the energy content in wood waste into electricity. Biomass is generally considered to be carbon-neutral as the amount of CO 2  arising from combustion is equal to what would be emitted if the biomass were to  decompose naturally. As a result, electricity generated from biomass is regarded as an environmentally-friendly form of power generation. The Whitecourt facility is subject to limits governing the emissions of carbon monoxide, NOx and particulates in accordance with the facility's  Environmental Approval. Average annual emission levels at the Whitecourt facility are below the levels of permitted emissions for the facility. The  Whitecourt facility is also subject to certain federal and provincial GHG reporting requirements and is in compliance with these requirements. Hydro Facilities Capstone's hydro facilities do not produce GHGs. However, their operations are governed by water management plans, which specify the hydrological conditions during which production may occur. Wind Farms Capstone's wind farms, including Erie Shores, Glace Bay, Sky Gen, Amherst, Glen Dhu and Fitzpatrick, do not produce GHGs, but are subject to  regulations and/or approvals relating to birds, mammals, other animals, and to sound. Amherstburg Solar Park The operation of Amherstburg does not generate GHGs.  Värmevärden In 2007, the European Union adopted a long-term climate change target, commonly referred to as 20-20-20. The goal of the target is for member  states (including Sweden) to reduce energy use by 20%, reduce CO 2 O O emissions by 20%, and increase their proportion of renewable energy to 20%, all by 2020. The government of Sweden has subscribed to the 20-20-20 targets and has made biomass-fired and waste-fired heating facilities, which  would encompass facilities such as Värmevärden, an important component of its overall plan to meet its CO 2 O O reduction commitments. Bristol Water Energy use in water treatment and other activities carried out by Bristol Water results in indirect emissions of GHGs. Bristol Water is subject to the UK Climate Change Levy, although the forecast cost for 2013-2014 is an immaterial amount due to credits arising from Bristol Water's purchase of green energy. Further information regarding Environmental, Safety and Health Regulations matters is contained in the Corporation's Annual Information Form (which is available under the Corporation's profile on www.sedar.com). 46 CAPSTONE INFRASTRUCTURE CORPORATION