Chicago Climate Exchange ®, Inc. © 2007 Overview of CCX ® Conservation Agriculture Carbon Offset...

Chicago Climate Exchange®, Inc.© 2007

Overview of CCX®

Conservation Agriculture Carbon Offset Consultation October 28-30, 2008

Stephen McCombEconomist312-229-5134


Climate Exchange, PLC. Group• Chicago Climate Exchange (CCX)• Launched 2003 with 13 members, now 400+ members (US, CA, MX, BR)

• 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 SO2, CO2, NOx and related derivatives• Launched in December 2004, world’s first environmental derivatives exchange

• Montreal Climate Exchange (MCeX)• Joint venture with the Montreal Bourse• Host Canadian GHG trading, other environmental markets – launched May 2008

• Insurance Futures Exchange (IFEX)• Catastrophic event linked futures – Launched in 2008

• Tianjin Climate Exchange• Joint Venture with CNPC Asset Management and the City of Tianjin – Launched September 26,

2008


Why Emissions Trading?

- The US Acid Rain Program’s annual benefits in the year 2010 are expected to be $122 billion (Yr. 2000 $)

- Based on EPA’s latest air quality trends data the national composite average of SO2 annual mean ambient

concentrations decreased 48 percent between 1990 and 2005.


Real Electricity Prices Since 1990

Real Retail Electricity Prices (2007 $)

7.00

7.50

8.00

8.50

9.00

9.50

10.00

10.50

11.00

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Cent

s / K

Wh


Currently Available Mitigation Options (IPCC)

Currently viable mitigation actions

Can be significantly stimulated through an

emissions cap

Significantly stimulated mainly via

project-based crediting

Requires cap and offset

rules to optimize uptake

How addressed through CCX

Rules?

Energy SupplyImproved supply and distribution efficiency fuel switchingnuclear powerrenewables, combined heat andCapture and Storage

Yes

YesYes

Yes

Yes

Yes

Yes

Cap

Cap + offsetsCap

Cap + offsets

TransportMore efficient vehicles biofuels non-motorised transport (cycling, walking)

YesYes

(maybe)

YesYesn.a.

Cap + offsetsCap + offsets

n.a

BuildingsMore efficient lighting + appliances + HVAC insulation alternative refrigerants, recycle/destruct fluorinated gases (NB: word “destruct” not in IPCC report)

Yes

YesYes

yes

yesyes

yes

Yesyes

Cap + offsets

Cap + offsetsCap + offsets

(New CCX ODS destruction rule!)



Industry end-use electrical equipmentheat and power recoverymaterial recycling/ substitutioncontrol of non-CO2 gas emissionsprocess technologies

YesYesYes Yes Yes

YesYesYes Yes Yes

Cap + offsetsCap + offsetsCap + offsetsCap + offsetsCap + offsets

Agricultureincrease soil carbon via improved crop/grazing land mgmntrestore degraded landsimproved rice cultivation livestock methane energy crops to replace fossil fuel improved energy efficiency

NoNo

NoNoYes

(maybe)

YesYes

Yes Yes

(indirectly)

YesYes

OffsetsOffsetsNot addressed√OffsetsCap + offsetsOffsets/indirectly via conservation tillage incentives



ForestryAfforestation; reforestationforest managementreduced deforestationharvested wood product managementforest products/bioenergy to replace fossil fuel use

No

NoNoNoYes

Yes

Yes

Yes

All four forestation

management goals

can be advanced via on net carbon

flux crediting/ debiting

Yes

Offsets + forest flux rulesOffsets + forest flux rulesOffsets+Forest flux rulesCap + offsets

WasteLandfill methane recovery waste to energy waste water treatmentrecycling and waste minimization

NoYesNo

(indirect via cap)

YesYes

Yes(possible role for

offsets)

OffsetsCap + offsetsOffsets(indirect via cap)


Chicago Climate Exchange (CCX) is the world’s

first and North America’s only active voluntary,

legally binding integrated trading system to reduce

emissions of all six greenhouse gases, with offset

worldwide.

What is Chicago Climate Exchange?A premier and unique financial institution designed to advance business, environmental and social goals.


CCX MembersAerospace & EquipmentRolls-RoyceUnited Technologies

AutomotiveFord Motor Company

Beverage ManufacturingNew Belgium Brewing Company

ChemicalsDow CorningDuPontRhodia Energy Brasil Ltda

Coal MiningJim Walter Resources, Inc.PinnOak Resources LLC

Commercial InteriorsKnoll, Inc.Steelcase Inc.

CountiesKing County, WashingtonMiami-Dade County, FloridaSacramento County, California

Diversified ManufacturingEastman Kodak Company

Electric Power GenerationAGL Hydro PartnershipAllegheny Energy Inc.Alliant Energy Corporate Services Inc. American Electric PowerAmerican Municipal Power-OhioAssociated Electric Cooperative, Inc.

Avista CorporationCentral Vermont Public ServiceDTE Energy IncDuquesne Light CompanyDynegy Holdings Inc.Green Mountain PowerHoosier Energy Rural Electric Cooperative, Inc.Manitoba HydroMirant CorporationNRG Power Marketing Inc.Puget Sound Energy, Inc.Reliant Energy Services Inc.TECO Energy, Inc.

ElectronicsMotorola, Inc.Sony Electronics Inc.Square D/Schneider Electric N.A.

Environmental ServicesAtlantic County Utilities AuthorityLancaster County Solid Waste Management AuthorityVeolia Environmental Services North America CorpWasatch Integrated Waste Management AuthorityWaste Management, Inc.

Ethanol ProductionCorn Plus LLP

Financial InstitutionsBank of America Corporation

Food and Agricultural Products& Services Agrium U.S. Inc.Cargill, Incorporated

Food ProcessingMeister Cheese Co. LLCPremium Standard FarmsSmithfield Foods, Inc.

Forest Products Abitibi-Consolidated Aracruz Celulose S.A.Cenibra Nipo Brasiliera S.A.International Paper Klabin S.A.Masisa S.A.MeadWestvaco Corp.Neenah Paper IncorporatedStora Enso North AmericaSuzano Papel E Celulose SATembec Industries Inc.Temple-Inland Inc

ManufacturingBayer CorporationInterface, Inc.Ozinga Bros., Inc. Smurfit-Stone

MunicipalitiesCity of AspenCity of BerkeleyCity of BoulderCity of ChicagoCity of OaklandCity of Melbourne, AustraliaCity of Portland

PetrochemicalsPetroflex Industria e Comercio SA

PharmaceuticalsBaxter International, Inc.

RecreationAspen Skiing Company

RetailSafeway, Inc.

StatesState of IllinoisState of New Mexico

Steam HeatConcord Steam Corporation

SteelRoanoke Electric Steel Corp.

TechnologyFreescale SemiconductorIBMIntel CorporationSTMicroelectronics

TransportationAmtrakSan Joaquin Regional Rail

Commission

UniversityHadlow CollegeMichigan State UniversityUniversity of IdahoUniversity of IowaUniversity of MinnesotaUniversity of OklahomaTufts University


CCX, Second Largest Live Carbon Market

20122003 start 2009

300

245

237

232

174

171

151

130

94 86

71 60 56 45 37 33 31 30 29 22 22 19 11 9 4 3

400

150

540

0

100

200

300

400

500

600

CC

X

Ger

man

y

Can

ada

Uni

ted

Kin

gdom

Pol

and

Italy

Aus

tral

ia

Spa

in

Fra

nce

US

NE

Sta

tes

(RG

GI)

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


CCX Market ArchitecturePhase 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.


CCX Membership► Participant Members

• Offset Provider: Owner of an Offset Project that registers and sells Offsets on its own behalf.

• Offset Aggregator: Entity that serves as the administrative representative, on behalf of Offset Project owners, of multiple Offset-generating projects.

• Liquidity Provider: Entity or individual who trades on CCX for purposes other than complying with the emissions reduction schedule, such as market makers and proprietary trading groups.

Selected Offset Aggregators3 Phases Energy ServicesCarbon FarmersCargill, IncCO2 Australia LimitedDelta InstituteEconergyEcosecuritiesEnvironmental Credit Carbon PoolEnvironmental Credit Corp.First Capitol Risk ManagementIntrepid Technologies, Inc.Iowa Farm BureauKentucky Corn Growers Assoc.National Carbon Offset CoalitionNorth Dakota Farmers UnionRice Dairy LLCStandard Carbon

Selected Liquidity ProvidersArreon Carbon Amerex EnergyBlack River Clean EnergyBreakwater TradingCalyon Financial, Inc.Cargill Power MarketsEvolution MarketsFCT Europe Ltd.First New York Securities LLC.Goldenberg, Hehmeyer & Co.Haley Capital ManagementJP Morgan Ventures EnergyLehman Brother CommodityMarquette PartnersNatsource LLCPeregrine Financial GroupRand Financial Services, Inc.Shatkin Arbor, Inc.Swiss Re Financial Products Corp.Tradelink

Selected Offset ProvidersArreon Carbon UK Ltd. Beijing Shenwu Thermal EnergyCO2 AustraliaEcosecuritiesEnergy Trading CoCommonwealth Resource Management Corp.Gallo Cattle CompanyHubei Sanhuan Development Corporation Lugar Stock FarmPrecious Woods HoldingsRCM International LLCSexton Energy LLCSustainable Forestry Management, Ltd.Vessels Coal Gas Inc. Weber County


CCX Emission OffsetsPurpose:

− Low cost reductions in sectors outside cap – known solutions

Eligibility: − Beyond regulation, rare, recent, verifiable− No cherry picking – emitters must take entity-wide reductions

General provisions: − Conservative crediting− Avoid perverse incentives− Reserve pools for sequestration assurance

Target Actions with Major Mitigation Potential: − Scalability:

− Agriculture: soils hold 183 years of global CO2 emissions − Forestation: forests hold 75 years of global CO2 emissions

− Other benefits: clean water, soil health, less fuel burn, social benefits


CCX Offsets Committee and Sub-Committees

CCX Committee

on Forestry

CCX Committee on Offsets

CCX Executive Committee

Other Committees

Soil Carbon Technical Advisory Sub-Committee

Rangeland Technical Advisory Sub-Committee

Landfill Technical Advisory Sub-Committee

Avoided Methane from Waste Disposal Technical Sub-Committee

Hydro Power Technical Advisory Sub-Committee

Agricultural Methane Technical Advisory Sub-Committee

Other Forestry Sub Cmts


Methane Combustion Projects

• Landfill, coal mine and agricultural methane capture and combustion

• Projects operational on or after January 1, 1999

• Voluntary installation that is not required by law

• Crediting Rate: 21 mt CO2 per mt CH4 destroyed


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)• Minimum 5 year commitment• Avoid perverse incentives• No offsets for historic practices, reduced fuel burn,

reduced run off and improved land value


Sustainable Rangeland Management

• Minimum 5 year commitment• Degraded and non-degraded land• Practices:

– Sustainable Stocking Rates– Rotational Grazing– Seasonal Use


CCX Forestry Offset Types

Afforestation Managed Forests Long Lived Wood

Planted January 1, 1990 on sites unforested or degraded

Commitment 15 years agreement

Offsets for increase in carbon 2003- 2010 period•Above and below ground biomass•Increases in soil carbon

Quantification based tables (DOE 1605b tables)

Maintain 20% of earned offsets reserve pool to account for catastrophic losses and other reversals

Verification:

10% in-field sample of both acreage and enrollment

Beginning, end and periodic verification

Protocol almost finalized

No date cut off

Baseline stock 2002 or 2006

Proof of sustainable forest management

PEFC: ATF, SFI, FSC

Offsets issued: Growth – Harvest + Long Lived Wood

Annual quantification based on CCX approved model

Annual offsets are adjusted for land acquisitions, dispositions, harvesting and catastrophic losses

20% of issuance place into reserve pool

Long term maintenance of land under forestry

Some carbon remains sequestered in wood products after harvest

Credit for the fraction of stored carbon after 100yrs

Proof of sustainable forest management PEFC: ATF, SFI, FSC

Carbon rights must be retained through sales contract


Offsets Registered by Type

0.72% 1.31% 1.49% 1.92%2.58% 2.97% 3.53% 4.04%

7.48%

14.21%

27.52%

32.23%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

ODSDestruction

RenewableEnergy -Biomass

HFCDestruction

AgriculturalMethane

RenewableEnergy -

Wind

FuelSwitching

RenewableEnergy

EnergyEfficiency

LandfillMethane

Forestry AgriculturalSoil Carbon

Coal MineMethane

Most reductions are at the stack, Offsets account for 10% of verified cuts


Offsets Registered by Country

51.84%

16.84%

8.24% 8.17%5.93%

2.64% 2.02% 1.75% 1.61% 0.83% 0.10% 0.04%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

USA`

Canad

a

Urugu

ayIn

dia

Germ

any

China

Mex

ico

Brazil

Chile

Costa

Rica

Indo

nesia

New Z

ealan

d


0

1

2

3

4

5

6

7

8

Cumulative CFI Volume (metric tons)

Price of CFI (USD $)

2004 2005 2006 20082007

CCX Price & Volume History


Summary and Opportunities

• Modest participation from offsets sector to date (approximately 10% of verified reductions)

• Carbon market incenting reduction that would not have occurred otherwise

• Members of CCX are leading with legal commitment to reduce emissions, part of a comprehensive system

• Offsets will bridge gap while emission reduction technology catches up


Bi Partisan Support• “the Chicago Climate Exchange is providing an innovative means of

involving American businesses and citizens in the effort to protect the environment…I listed my farm in Indiana on the Chicago Climate Exchange to set an example for farmers and foresters in my state and throughout America…For example, the exchange mechanism could be utilized by turning unused farmland into tree farms that sequester carbon while providing farmers with extra money… In short, American farmers could become the vanguard in using market forces to the benefit of both the environment and the pocketbook…”

• Senator Richard Lugar (R-IN), Chairman of Senate Foreign Relations Committee

• “To deal directly with climate change, something we failed to do in the last energy bill, we should use a market-based strategy that gradually reduces harmful emissions in the most economical way…..Right here in Chicago, the Chicago Climate Exchange is already running a legally binding greenhouse gas trading system”

• Senator Barack Obama (D-IL), April 3, 2006


Offset Committee Members and Activities in Technical Sub-Committees

Scott Subler (Chair)

Environmental Credit Corp Chair, Agricultural Methane Technical Sub Committee Avoided Landfill Technical Sub-Committee Energy Efficiency Technical Sub-Committee

Bill Hamlin Manitoba Hydro Chair, Hydro Power Technical Sub-Committee

Annabeth Reitter NewPage Corporation Environmental Compliance Committee

Scott Weaver AEP Energy Efficiency Technical Sub-Committee

Tod Delaney First Environment

Amy Van Kolken Banister

Waste Management Landfill Gas Technical Sub-Committee

Bob Fledderman Mead Westvaco Chair, CCX Committee on Forestry

Larry Merritt Ford Environmental Compliance Committee

Dave Miller Iowa Farm Bureau Advisor, Agricultural Soil Carbon Technical Sub-Cmt. Advisor, Rangeland Soil Carbon Technical Sub-

Committee

Lisa Shpritz Bank of America Best in Class Buildings Committee

David Skole Michigan State University

Ben Conte EcoSecurities


Agricultural Soil Science Technical Sub-Committee

Dr. Alan Franzluebber Agricultural Research Service, USDA

Dr. Charles Rice Department of Agronomy , Kansas State University

Dr. Keith Paustian Department of Soil and Crop Sciences, Colorado State University

Dr.Rattan Lal School of Natural Resources, Ohio State University

Dr. Mark Liebig Agricultural Research Service, USDA

Dr. Lee Burras Iowa State University

Dr. Sjoerd Willem Duiker Department of Soil and Crop Sciences, Pennsylvania State University

Dr. Mark Alley Department of Crop and Soil Environmental SciencesVirginia Polytechnic Institute and State University

Dr. John Grove College of Agriculture, University of Kentucky


Rangeland Soil Science Technical Sub-Committee

Dr. Joel Brown (Chair) USDA NRCS

Dr. Justin Derner ARS WY

Dr. Rebecca Phillips ARS North Dakota

Dr. Jerry Schuman ARS WY

Dr. Tony Svejcar ARS Oregon


Agricultural Methane Technical Sub-Committee

Scott Subler (Chair) Environmental Credit Corp

Garth Boyd CMA Consulting

George Hoguet Native Energy

Jeffrey Frost Agrefresh

Luca Zullo Cargill Inc.


Landfill Gas Technical Sub-Committee

Todd Davlin Granger Holdings

Matt Lamb RSG Associates

Christie Magerkurth First Environment

Amy Van Kolken Banister Waste Management

Brooks Norris Lancaster County Solid Waste Management Authority

David Heitz Geosyntec Consultants


Avoided Methane from Waste Disposal Technical Sub-Committee

Sharad Deshpande (Chair) Environmental Credit Corp

Scott Subler Environmental Credit Corp

Sally Brown University of Washington

Jean Schwab US EPA

Jim Warner Lancaster Solid Waste Authority

Brian Bahor Covanta Energy

William R. Schubert Waste Management

Brenda Smyth California Integrated Waste Management Board


Forestry Committee

Bob Fledderman (Chair) Mead Westvaco

Jim Rakestraw (Vice Chair) International Paper

Matt Smith Forecon, Inc.

Silvia Gomez Greenoxx

Robert Burke Lugar Tree Farms

Dr. McFarland Michigan State University

Todd Parker Delta Institute

Neil Sampson NCOC

John Shideler NSF

Christoph Bulholzer Precious Woods


Avoided Deforestation Technical Sub-Committee

Sandra Brown Winrock International

Luiz Cornacchioni Suzano Papel e Celulose

Diane Fitzgerald American Electric Power

Silvia Gomez Greenoxx Global Environmental Program

Thomas Lovejoy The Heinz Center

Debra Moskovits The Field Museum

Steve Ruddell World Wildlife Fund

Eneas Salati Brazilian Foundation for Sustainable Development

Neil Sampson Vision Forestry, LLC

Francisca Tondreau Masisa S.A

William Stanley The Nature Conservancy

Virgilio Viana State of Amazonas, Brazil

Benjamin Vitale Conservation International

Chicago Climate Exchange ®, Inc. © 2007 Overview of CCX ® Conservation Agriculture Carbon Offset...

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