chicago climate exchange ®, inc. © 2008 murali kanakasabai, ph.d vice president & senior...

Chicago Climate Exchange®, Inc.© 2008

Murali Kanakasabai, Ph.D

Vice President & Senior Economist

[email protected]

Carbon Expo

Cologne

May, 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)


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

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Pol

and

Italy

US

NE

Sta

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(RG

GI)

Aus

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Spa

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Fra

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Cal

iforn

ia

Cze

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Net

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Bel

gium

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Fin

land

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Den

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Latv

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Hu

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Mill

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Met

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O2

Live Market

Market in development

Under discussion

2012

2003 start

2009

Size of Live, Emerging, Possible GHG Trading Markets

3


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™


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?


CCX Market Architecture


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)

7

CCX is synergistic with and complementary to all emerging policy, precludes none – Whether state, regional, national, voluntary or mandatory.


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!


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

9


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


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)

11


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

chicago climate exchange ®, inc. © 2008 murali kanakasabai, ph.d vice president & senior...

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