Chicago Climate Exchange, Inc.

Transcription

1 Chicago Climate Exchange, Inc. Global Warming: Using Markets to Solve Environmental Problems March, 2008 William M. Ferretti, Ph.D. Vice President and Special Assistant to the Chairman

2 What is the Chicago Climate Exchange? The Chicago Climate Exchange (CCX ) is a financial institution which administers the world s first and North America s only voluntary, legally binding cap and trade system to reduce emissions of all six greenhouse gases, with offset projects in North America and worldwide

3 Why carbon emissions trading? Proven, least-cost, and comprehensive tool for managing emissions Successful precedents: U.S. Acid Rain Program Provides a price signal Rewards technological innovation and strategic planning Flexible, efficient Reveals hidden assets and hidden costs throughout operations

4 CCX Members are Leaders in their Sectors

5 More about our Members Public sector the states of New Mexico and Illinois, seven U.S. cities, 1 Australian city, 3 U.S. counties U.S. House of Representatives Universities - Tufts, Minnesota, Idaho, Iowa, Oklahoma, Michigan State, Univ. of California, San Diego Associate members Mithun, Sullivan & Cromwell, Rocky Mountain Institute Liquidity providers professional traders, hedge funds International CCX present in Australia, Brazil, China, Chile, Costa Rica and India

6 Size of Live, Emerging, Possible GHG Markets CCX includes more industrial emissions under its legally binding cap than any country in the world (16% of all large U.S. stationary sources of GHG emissions) Live Market Market in development Under discussion CCX Germany Canada United Kingdom Poland Italy Australia Spain US NE States (RGGI) France California Alberta Czech Republic The Netherlands Greece Belgium New South Wales Finland Portugal Austria Hundred Million Metric tons CO start

7 Why members join To create shareholder value To limit threats to shareholder liability To demonstrate corporate and environmental transparency To obtain first-mover advantage in emissions trading

8 CCX market architecture ( ) Phase I: Members made legally binding commitments to reduce or trade 1% per year from , for a total of 4% below baseline. Baseline = Avg. emissions from , emissions in 2000 (Phase II) Phase II: Members make a legally binding commitments to reduce to 6% below baseline by CCX is synergistic with and complementary to all emerging policy, precludes none - whether state, regional, national, voluntary or mandatory. 100% 99% 98% 97% 96% 95% 94% 93% 92% % Reduction Schedule For Phase I + II Members 99.00% 98.00% 97.00% 96.00% 95.75% 95.50% 95.00% 94.00%

9 Emissions quantification & verification Prescribed emission quantification methods Annual true-up Independent standardized verification Emission audits conducted by FINRA (formerly NASD)

10 CCX Emission Offsets Program Verified Offset projects sequester or eliminate GHGs, earn Carbon Financial Instruments marketable to CCX members Pre-defined projects: Landfill, coal mine and agricultural methane destruction Carbon sequestration: reforestation, agricultural soils, rangeland 10 Renewable energy, fuel switching, energy efficiency Independent verification by authorized entities: SGS, DNV, First Environment, BvQi Minnesota dairy farmer receives first check from sales of CCX Offsets for methane destruction

11 CCX Offset Projects Worldwide CCX currently has offset projects in 26 U.S. states with others in development Alabama Arkansas California Colorado Georgia Idaho Illinois Indiana Kansas Kentucky Massachusetts Maine Michigan Minnesota North Dakota Nebraska New Jersey New Hampshire New York Ohio Oregon Pennsylvania South Dakota Texas Washington Wisconsin States with Offset Projects January 2007 Additional projects in Canada, China, Costa Rica, India, Germany, Mexico & New Zealand 11

12 The CCX System Works Total CCX baseline now represents more than 16% of total, large U.S. stationary GHG sources (540 million metric tons) actual reductions (direct emissions) = 12% vs. required reductions of 4% This represents more than 180 million tons of greenhouse gas reductions in the first four compliance years of CCX Membership has grown from 14 in 2003 to over 400 Multi-sectoral representation International representation Trading volumes have grown exponentially million tons CO 2 equivalent million tons million tons 2008 to date 14 million tons

13 11/8/07 2/28/08 3/6/08 12/6/07 12/13/07 12/20/07 12/27/07 1/3/08 1/10/08 1/17/08 1/24/08 1/31/08 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 CCX CFI Prices Feb. 5. Super Tuesday 2/7/08 2/14/08 2/21/08 11/29/07 11/22/07 11/15/07 11/1/07 Price

14 The Role of Price Discovery To focus corporate financial decision-making To monetize hidden assets To stimulate inventive activity

15 CCX: A global exchange platform Chicago Climate Exchange (CCX ) Launched 2003 with 14 members, now 400+ members (US, CA, MX, BR, NZ, AU, CH) European Climate Exchange (ECX) FSA-regulated futures market for European CO 2 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. SO 2 allowances and U.S. NOx Ozone Season 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 financial instruments for northeast Regional Greenhouse Gas Initiative (RGGI) California Climate Exchange Developing financial instruments relevant to the California Global Warming Solutions Act, AB32 India Climate Exchange (In development)

16 Views on CCX 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 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, 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), Chairman Senate Energy & Natural Resources Committee, April 4,

17 Recycling & carbon emissions trading Industrial emissions reductions Substituting secondary for virgin materials as inputs Reduced fossil fuel or energy use? Offsets Avoided methane production Other?

18 Carbon emissions trading is here There is a clear business case for being in the market today Risk management Revenue opportunity Reputational gain Federal mandate is coming Get ready Credit for early action included in all major bills Membership in CCX = pre-compliance with anticipated federal law