chicago climate exchange ®, inc. © 2008 murali kanakasabai, ph.d vice president & senior...
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Chicago Climate Exchange®, Inc.© 2008
Murali Kanakasabai, Ph.D
Vice President & Senior Economist
Carbon Expo
Cologne
May, 2008
Chicago Climate Exchange®, Inc.© 2008
Recent CCX Volume/Price
2
$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
Jan
-07
Feb
-07
Mar-0
7
Ap
r-0
7
May-0
7
Ju
n-0
7
Ju
l-07
Au
g-0
7
Sep
-07
Oct-0
7
No
v-0
7
Dec-0
7
Jan
-08
Feb
-08
Mar 0
8 to
da
te
CF
I P
ric
e (
US
D)
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
Vo
lum
e T
rad
ed
(M
etr
ic T
on
s)
Volume Traded (metric tons)
CFI Price (USD)
Chicago Climate Exchange®, Inc.© 2008
CCX Baseline Emissions Greater than Largest EU National Allocation Plan
300
245
237
232
188
174
171
130
94 86 71 60 56 45 37 33 31 30 29 22 22 19 11 9 4 3
540
150
496
0
100
200
300
400
500
600
CC
X
Ger
man
y
Can
ada
Uni
ted
Kin
gdom
Pol
and
Italy
US
NE
Sta
tes
(RG
GI)
Aus
tral
ia
Spa
in
Fra
nce
Cal
iforn
ia
Cze
ch R
epub
lic
The
Net
herla
nds
Gre
ece
Bel
gium
New
Sou
th W
ales
Fin
land
Por
tuga
l
Aus
tria
Den
mar
k
Slo
vaki
a
Hun
gary
Sw
eden
Irel
and
Est
onia
Lith
uani
a
Slo
veni
a
Latv
ia
Luxe
mbo
rg
Hu
nd
red
Mill
ion
Met
ric
ton
s C
O2
Live Market
Market in development
Under discussion
2012
2003 start
2009
Size of Live, Emerging, Possible GHG Trading Markets
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Chicago Climate Exchange®, Inc.© 2008
CCX: A Global Exchange Platform
4
In development:
New York Climate Exchange™ and Northeast Climate Exchange™ : Developing financial instruments for northeastRegional Greenhouse Gas Initiative (RGGI)
California Climate Exchange™: Developing financial instruments relevant to the California Global Warming Solutions Act,AB32
India Climate Exchange™
Chicago Climate Exchange®, Inc.© 2008
How do we reduce CO2 Emissions
• Lower carbon fuel: natural gas, CO2 neutral fuel, nuclear
• More efficient fuel use: MPG, lighting, insulation
• Methane capture/combustion
• Abatement devices, alternative chemicals
• Carbon sequestration:– reforestation, carbon accumulation– agricultural soils, geologic
• How to orchestrate these to maximize benefits per dollar?
Chicago Climate Exchange®, Inc.© 2008
CCX Market Architecture
Chicago Climate Exchange®, Inc.© 2008
CCX Legally Binding Reduction Schedule For Direct-Emitting Members (2003-2010)
Phase I: Members made legally binding commitments to reduce or trade 1% per year from 2003-2006, for a total of 4% below Baseline.
Phase II: Members make a legally binding commitment to reduce to 6% below baseline by 2010.Baseline = Avg. emissions from years 1998-2001 (Phase I), emissions from year 2000 (Phase II)
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CCX is synergistic with and complementary to all emerging policy, precludes none – Whether state, regional, national, voluntary or mandatory.
Chicago Climate Exchange®, Inc.© 2008
CCX Emission Offsets
Purpose:− Low cost mitigation option− Participation from sectors not amenable to cap and trade
Eligibility: − Beyond regulation, rare, recent− Verifiable: eligibility, quantities, ownership− Avoid perverse incentives− No cherry picking – emitters must take entity-wide reductions
Target Actions with Major Mitigation Potential: − Non-CO2 gasses: low-cost, multi-benefit − Agriculture: soils hold 183 years of global CO2 emissions − Forestation: forests hold 75 years of global CO2 emissions − Advance broader societal goals: sustainable agriculture and forestry, energy efficiency,
renewable
General provisions: − Conservative crediting− Reserve pools for sequestration assurance
NB: Only the planet is carbon (source) neutral!
Chicago Climate Exchange®, Inc.© 2008
CCX Emission Offset Projects
Verified Offset projects sequester or eliminate GHGs to earn Carbon Financial Instruments (CFI) sold on CCX electronic platform to CCX membership
Minnesota dairy farmer receives first check from sales of CCX Offsets for methane destruction (Approx. $10k for 1 year)
Current pre-defined offset types:• Agricultural Methane• Landfill Methane• Agricultural Soil Carbon• Forestry• Renewable Energy• Coal Mine Methane• Rangeland Soil Carbon• Ozone Destruction• Others in development
Independent verification required by
authorized entities: SGS, DNV, First
Environment, BvQi
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Chicago Climate Exchange®, Inc.© 2008
CCX Offsets for Continuous Conservation Tillage and Grassland Planting
• Conservation tillage removes carbon from air (IPCC, Kyoto etc.)
• Rare practice (<5% of U.S. cropland)• Avoid perverse incentives• No offsets for historic practices, reduced fuel burn,
reduced run off and improved land value
• Revenue potential in Colorado crediting rate (at $4.50 per metric ton):
• No till: 0.2 to 0.6 mt/acre-yr = $0.90 to $2.70/ac-yr
•Grassland: 0.4 to 1.0 mt/acre-yr = $1.8 to $4.50
Chicago Climate Exchange®, Inc.© 2008
Carbon Financial Instrument (CFI)
• Carbon Financial Instrument (CFI) = 100 metric tons of carbon dioxide equivalent (CO2e)
• “Allowances” pre-issued to emitters in declining blocks
• “Offsets” from eligible verified reduction projects
• Allowances and Offsets treated equally in annual compliance
• Cash Contract =100 mtons (overnight delivery/settlement)
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Chicago Climate Exchange®, Inc.© 2008
Web-accessible Electronic Trading Platform
CCX® Comprehensive Market Structure
Electronic Market Registry Comprehensive Rules System •Emitters: Standard baseline, multi-year allowance stream equal to reduction targets• Offset Providers (project credits)• Emission audits, project verification• Liquidity Providers• Associate Members