Chicago Climate Exchange

Background

The Chicago Climate Exchange, launched in 2003 with 13 Charter Members, is the world’s first multinational, multi-sector exchange for reducing and trading greenhouse gases. Today, over 300 members belong to the exchange. The CCX includes accounting rules, verification procedures and a registry. The exchange is opened to members outside the United States. Offset activities may occur in the United States and in countries without Kyoto emission reduction commitments.³

The carbon financial instrument

The commodity traded on the CCX is a Carbon Financial Instrument® (CFI®) contract. Each CFI represents 100 metric tons of CO2 equivalent. CFI contracts can comprise of Exchange Allowances and Exchange Offsets. Exchange Allowances are issued to emitting Members in accordance with their emission baseline and the CCX Emission Reduction Schedule. Qualifying offset projects are used to generate Exchange Offsets. There are no limits on the use of offsets for compliance with emission reduction targets.⁴

Since 1993, CCX reports that just over 56 million metric tones of CO2 of offsets have been issued as of January 2009. CFIs also may be sold outside of the exchange into the voluntary offset market.⁵

Project types

Offset projects undergo review for a CCX Offset Committee. The CCX has rules for issuing CFI contracts for the following types of projects:

• Agricultural methane 
• Coal mine methane
• Landfill methane
• Agricultural soil carbon
• Rangeland soil carbon management
• Forestry 
• Renewable energy
• Ozone depleting substance destruction

Other project types maybe approved on a project-by-project basis, including:

• Energy efficiency and fuel switching
• Clean Development Mechanism (CDM) eligible projects⁶

Additionality and quantification procedures

Each project undergoes review by the CCX Offset Committee, which evaluates “additionality,” the criteria used to ensure that the savings in green house gas emissions are additional to those that would have occurred in a business-as-usual scenario. The CCX requires that offset projects are new, beyond regulation and involve “highly unusual practices.” Each eligible project activity has predefined baselines and methodologies for calculating emission reductions. Some baselines are project specific while others are quantified using performance standards.⁷

Co-Benefits

CCX does not require a local stakeholder consultation process or the existence of co-benefits, such as sustainable development criteria. Some offset developers and providers in the voluntary and mandatory markets attempt to provide and market additional environmental, social or economic benefits from their projects beyond the green house gas reductions. This is not a requirement under CCX rules.⁸

Accomplishments of CCX

Supporters of the CCX point out that it has help prepare the United States for a cap and trade system and that members have gained leadership recognition for taking early, credible and binding action to address climate change. This has allowed the exchange and its members to establish early track record in reductions and experience with the growing carbon and green house gas market.⁹

Criticisms of CCX

A number of criticisms have been raised against the CCX. One major concern is that CCX rules allow a company's baseline emissions limit to increase if the size of their operations increase. Under the CCX, the baseline therefore acts more like an intensity cap than an overall carbon emissions cap. This means that members might get credit for reducing green house gas emissions, even if their emissions actually go up, provided their emission intensity levels remain the same.¹⁰

Another criticism has been that some CCX’s offset rules undermine the real meaning of additionality. For instance, farmers have received carbon offset revenue for practicing no-till agriculture despite the fact that these farmers had been practicing no till for many years already. Under this senario, the CFIs issued for no-till agriculture would not actually act to offset current emissions since the CFI was financing a pre-existing, ongoing activity. ¹¹

The Natural Resources Defense Council and other environmental groups have urged state and municipal governments not to join the CCX, citing a number of concerns with the CCX. In addition to the two criticisms discussed above, these groups expressed concern that CCX rules and procedures were developed in a closed, non-transparent process; that participation in the CCX could limit options for participation in future trading schemes such as the Regional Greenhouse Gas Initiative (RGGI), which does not accept CCX credits; that state and local governments would be “under tremendous pressure to accept CCX rules and procedures in the context of future regulatory programs, and this would be a terrible detriment to state and local policy;” and that states should focus their efforts on mandatory policies.¹²

Future of CCX

The Chicago Climate Exchange has played an innovative role in bringing carbon trading to the US.  It is unclear how CCX will function if the US adopts a mandatory cap-and-trade program. If the US develops a national cap and trade program, or if mandatory regional cap and trade programs continue to develop and grow, the CCX could become largely a trading platform and exchange, with federal and state governments defining the rules and procedures of the financial instruments and certifying reductions.¹³

Footnotes

1.  Emission Reduction Commitment，chicagoclimateexchange.com.

2.  Overview，chicagoclimateexchange.com.

3. History.chicagoclimateexchange.com.

4.   Overview，chicagoclimateexchange.com.

5.  Offsets and Early Action Credits Issued as of 02/18/2009.chicagoclimateexchange.com

6. CCX Offsets Program.chicagoclimateexchange.com

7. CCX Rulebook Chapter 9: Offsets and Early Action Credits.

8.   For a discussion of co-benefits, see Anja Kollmuss, Helge Zink, Clifford Polycarp, Making Sense of the Voluntary Carbon Market: A Comparison of Offset Standards, WWF, 2008, pages 28-32.

9.  Id, at page 69.

10.  Abrahm Lustgarten, CCX's New Competition, Fortune, September 1, 2006.

11.  David Fahrenthold, Value of U.S. House's Carbon Offset is Murky, Washington Post, January 28, 2008, page A.10; Jeff Goodell, Capital Pollution Solution? New York Times Magazine, July 30, 2006; Anja Kollmuss, Michael Lazarus, Carrie Lee, Clifford Polycard, A Review of Offset Programs: Trading Systems, Funds, Protocols, Standards and Retailers,  Stockholm Environment Institute, October 2008, page 114.

12. Dale S. Bryk, States and Cities Should Not Join the Chicago Climate Exchange, Natural Resources Defense Council, undated.

13.  See Note 8, page 17.