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© 2007 Reproduction or quotation is prohibited without the express written consent of Chicago Climate Exchange, Inc.
Chicago Climate Exchangebriefing for
American Public Power Association CEO Climate Change
Task Force Washington DC, January 29, 2007
Michael J. Walsh, Ph.D.Executive Vice President
Chicago Climate Exchange312-554-3380
The Growing CCX Family
Chicago Climate Exchange (CCX)• Launched 2003 with 14 members, now 220+ members (US, CA, MX,
BR, NZ, AU, CH)
European Climate Exchange (ECX)• FSA-regulated futures market for European CO2 Allowances• Launched April, 2005 – accounts for 80-90% of total exchange traded
volume in the EU ETS
Chicago Climate Futures Exchange (CCFE)• CFTC-regulated futures exchange for U.S. SO2 allowances• Launched in December 2004, world’s first environmental derivatives
exchange
Montreal Climate Exchange (MCeX)• Joint venture with the Montreal Bourse• To host Canadian GHG trading, other environmental markets
New York Climate Exchange™ and Northeast Climate Exchange™ • Developing instruments for northeast Regional Greenhouse Gas
Initiative (RGGI)
Indiaa Climate Exchange• (In development)
0
100
200
300
400
500 Live Market
Market in development
Under discussion
Included emisisons
On hold
Size of Live, Emerging, Possible GHG Markets
2009
2012
2003 start
CCX is the second largest active carbon market in the world
What is Chicago Climate Exchange?
Chicago Climate Exchange (CCX ™)
is the world’s first and North America’s
only voluntary, legally binding
integrated greenhouse gas reduction
and trading system for all six
greenhouse gases, with offset projects in
North America and worldwide.
Chicago Climate Exchange MembersAerospace and Equipment
Rolls-Royce
AutomotiveFord Motor Company
Beverage ManufacturingNew Belgium Brewing Company
ChemicalsDow Corning
DupontRhodia Energy Brasil, Ltda
Electric Power GenerationAmerican Electric Power
Associated Electric CooperativeCentral Vermont Public Service
Duquesne Light CompanyGreen Mountain Power
Manitoba HydroTECO Energy, Inc.
ElectronicsMotorola, Inc.
Square D/Schneider Electric N.A
Environmental ServicesWasatch Integrated Waste
Management DistrictWaste Management, Inc.
Food ProcessingPremium Standard Farms
Forest Products CompaniesAbitibi-Consolidated
Aracruz Celulose, S.A.Cenibra Nipo Brasilliera, S.A.
International PaperKlabin, S.A.
MeadWestvaco Corp.Stora Enso North America
Temple-Inland, Inc.
Information TechnologyIBM
ManufacturingBayer Corporation
Interface, Inc.Knoll, Inc.
Ozinga Bros., Inc.United Technologies*
State & Local GovernmentsThe State of Illinois*
The State of New MexicoKing County, WA*
City of Aspen City of BerkeleyCity of BoulderCity of Chicago
City of Melbourne, Australia*City of OaklandCity of Portland*
PharmaceuticalsBaxter International, Inc.
UniversitiesThe University of Iowa
Hadlow CollegeMichigan State University *The University of MinnesotaThe University of Oklahoma
Tufts University
RecreationAspen Skiing Company
RetailSafeway Stores
SemiconductorsFreescale Semiconductor
STMicroelectronics
SteelRoanoke Electric Steel Corp.
TransportationAmtrak
San Joaquin Regional Rail
*in process
CCX Associate MembersArchitecture/Planning
Mithun, Inc.
Brokerage ServicesAmerex Energy
ConsultingDomani, LLC
Global Change AssociatesNatural Capitalism, Inc.
RenewSource Development, L.P.
Rocky Mountain Institute
Documentary ProductionCloverland, Inc.
Energy and Management Services
Orion Energy Systems LtdSieben Energy Associates
Thermal Energy International
EngineeringRumsey Engineers, Inc.
Vanasse Hangen Brustlin, Inc.
Financial ServicesAccess Industries, Inc. MB Investments, LLC
Financing AgenciesOhio Air Quality Development Authority
Green Power MarketersGreen Mountain Energy Company
Information TechnologyOpen Finance LLC
Intercontinental Exchange
Legal ServicesFoley & Lardner, LLP
Sullivan & Cromwell, LLP
Non-Governmental OrganizationsAmerican Coal Ash Association
American Council on Renewable EnergyDelta Institute
Houston Advanced Research CenterMidwest Energy Efficiency Alliance
World Resources Institute
Private CollegesPresidio School of Management
Risk ManagementThe Professional Risk
Managers’International Association
Religious OrganizationsJesuit Community of Santa
Clara University
Renewable EnergyAirtricityIntergy
Reknewco, Ltd.
Retiring/OffsetsCarbonfund.orgTerrapass, Inc.
Social InvestmentKLD Research & Analytics
Pax World
TechnologyMillennium Cell
Polar Refrigerant Technology
Trade AssociationsConfederation of British
Industry
CCX Participant Members
Offset AggregatorsC-Green Aggregator, LLC
Delta InstituteEnvironmental Carbon Credit Pool,
LLCEnvironmental Credit Corp.
First Capital Risk Management, LLCIowa Farm Bureau
National Carbon Offset CoalitionNorth Dakota’s Farmers Union
Offset ProvidersBeijing Shenwu Thermal Energy Trading
Hubei Sanhuan Gallo Cattle
Granger HoldingsIntrepid Technologies, Inc.
Lugar Stock FarmPrecious Woods Holdings
Sexton EnergySustainable Forestry Management, Ltd.
AGS Specialists, LLCAmerex Energy
Breakwater Trading, LLCCalyon Financial, Inc.
Cargill Power Markets, LLCEagle Market Makers, LLC
Evolution Markets, LLCEXO InvestmentsFCT Europe, Ltd.
First New York Securities, LLC.Friedberg Mercantile Group,
Ltd.
Liquidity Providers
Galtere International Master Fund, LP
GFI Securities, LLCGoldenberg, Hehmeyer & Co.
Grand Slam Trading, Inc.Grey K Environmental Fund, LP
Haley Capital ManagementICAP Energy, LLC
Kottke Associates, LLCThe League Corp.
Marquette Partners, LPNatsource, LLC
Peregrine Financial GroupRand Financial Services, Inc.
Serrino Trading Co.Shatkin Arbor, Inc.S.R. Energy, LLC
SwissRe Financial Products Corp.
TEP Trading 2 Ltd.TradeLink, LLC
Tradition Financial Services, Ltd.
TransMarket Group, LLC
Practical and strategic drivers:
obtain practical expertise through “hands-on” participation
build institutions: first-mover; global linkages
get ahead of disparate regulations, prepare for policy
reduce long-term mitigation costs
build carbon price into minds of operators and planners
trading profits, possible early action crediting
serve your stakeholders
Meet fiduciary commitments
Why Become a CCX® Member?
CCX Market Architecture (2003-2010)
Reduction Schedule For Phase I + II Members100.00%
99.00%
98.00%
97.00%
96.00% 95.75% 95.50%95.00%
94.00%
92%
93%94%
95%96%
97%98%
99%100%
98-01 2003 2004 2005 2006 2007 2008 2009 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.
Baseline = Avg. emissions from 1998-2001, emissions in 2000 (Phase II)
Phase II: Members make a legally binding commitments to reduce to 6% below baseline by 2010.
Economic Growth Provision limits recognized emission increase to 2% above baseline in 2003, 2004, 3% above baseline 2005-2010
CCX Market Architecture: Phase 2 Only
Reduction Schedule For Phase II Members100.00%
98.50%
97.00%
95.50%
94.00%
92%
93%94%
95%96%
97%98%
99%100%
baseline 2007 2008 2009 2010
Phase II: Members made legally binding commitments to reduce or trade 1.5% per year from 2007-2010, for a total of 6% below baseline.
Baseline = Avg. emissions from 1998-2001 OR emissions in 2000
Economic Growth Provision limits recognized emission increase to 3% above baseline 2007-2010
CCX Operations and Governance
CCX Operations include:Use of CEMs and WRI/WBCSD emission calculation methods CCX Registry: official holder, transfer mechanism for CCX Carbon Financial Instruments Trading platform integrated with Registry; all trades guaranteed NASD provides market surveillance and emission verification
CCX Governance:Self-regulatory organization overseen by Committees comprised of Exchange Members, directors and staff
Committees include: Environmental Compliance, Forestry, Membership, Offsets, Trading and Market Operations
CCX Emission Offsets Program
• Verified Offset projects sequester or eliminate GHGs, earn Carbon Financial Instruments marketable to CCX members
• Pre-defined offset projects:− Landfill and agricultural methane destruction − Carbon sequestration: reforestation, agricultural soils− Renewable energy, fuel switching, energy efficiency− Independent verification by authorized entities: SGS,
DNV, First Environment, BvQi− Others in development
Minnesota dairy farmer receives first check from
sales of methane-destruction CCX Offsets
Defining CCX Offsets: Principles
• 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, renewables
SES Field Inspector conductingsoil sampling in no-till corn
CCX Price* and Volume History 2003 - 2006
2004 Q12004 Q2 2004 Q3
2004 Q4
2005 Q1 2005 Q2 2005 Q3
2005 Q4
2006 Q1
2006 Q2
2006Q3
2006Q42007Q1
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50$
per m
etric
ton
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
Met
ric to
ns o
f CO2
(projected)
* End of quarter pricesquarterlyvolume
CCX® Progress to Date• Complete operation implemented: rulebook, trading, clearing, registry, market, governance
• Member Baselines and 2003, 2004, 2005 Emissions Independently Audited
• Program-wide emission reductions achieved
• Trading and clearing mechanisms fully functional
• > over 15 million tons exchanged
• prices now in range of $4.00/metric ton CO2
• Offsets from methane, ag soils, forestry, renewables verified, issued and sold
Conclusions: CCX Big Picture Results
• Major pool of private and public sector talent engaged• Members• Other experts
• Thousands of individuals now far more informed on carbon management and trading
• Detailed rules and methods tested and refined• many second generation procedures now in place• hands-on experience for emissions and project verification experts• detailed expertise accumulated by members• practical experience now informing policy discussions
Views on CCX“What would be wrong, at least on a theoretical basis, with taking
what you have come up with by way of requirements for your (CCX) members and essentially mandating that everybody in the country comply with those?”
Senator Jeff Bingaman (D-NM), ranking minority member, Senate Energy & Natural Resources Committee, April 4, 2006
“the Chicago Climate Exchange is providing an innovative means of involving American businesses and citizens in the effort to protect the environment. Our nation’s leading companies are buying and trading units of carbon as a way to reduce their impact on climate change. I am hopeful that the economic opportunities provided by the Exchange will enhance the incentives farmers already have to participate in the sequestration of carbon.”
Senator Richard Lugar (R-IN), Chairman of Senate Foreign Relations Committee, May 18, 2006
“The CCX is leading the way toward a future in which reducing greenhouse gases could bring not only environmental rewards, but financial ones too.”
Al Gore, from An Inconvenient Truth (book version), 2006
How to become a CCX Member
1. Inventory and baseline – Gather energy data for CCX baseline period (1998-2001, or just year 2000)
for significant emitting activities
2. Develop Baseline with CCX. CCX staff provides preliminary analysis and GHG conversions
3. Weigh reduction trends planned; establish reduction schedule
4. Make legally binding CCX reduction commitment – Join CCX
5. Demonstrate progress through annual True-up – Buy, Sell, Trade
6. Participate in CCX governance committees (optional)