CCX: The U.S. Carbon and Environmental Deriviatives Exchange

CCX ® : The U.S. Carbon and Environmental Derivatives
Exchange
© 2008 Chicago Climate Exchange®, Inc.

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

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 projects in North America and
worldwide


Climate Exchange Plc. (CLE.L)

Tianjin Climate Exchange


Dr. Richard Sandor, Founder and
Chairman


Global Carbon Emissions growing over 35 billion metric tons

Global Carbon Emissions (Billion Metric Tons)

Rest of World, 8.0 Europe, 5.0

Australia, 0.5
United States, 7.2
Japan, 1.4

Russia, 2.0

India, 3.0 China, 8.5

© 2008 Chicago Climate Exchange

US Appetite for Carbon Trading is Strong
• 1st RGGI Auction: 12,565,387 Allowances
• 2nd RGGI Auction: 31,505,898 Allowances
• 3rd RGGI Auction: 33,689,278 Allowances
• 4th RGGI Auction: 33,060,160 Allowances
• Total Auctioned: 110,820,723 Allowances
• RGGI Derivatives Traded on CCFE: 325,352,000 Allowances

160,000 7,000
140,000 RGGI Options Volume 6,000
120,000 5,000
RGGI Futures Volume
100,000
4,000
80,000 Avereage Daily Volume
3,000
60,000
40,000 2,000
20,000 1,000
- -

© 2008 Chicago Climate
*As of close 06/30/2009 Exchange®, Inc.

THE AGENDA · ENERGY & ENVIRONMENT

Reduce our Greenhouse Gas Emissions 80 Percent by
2050
• Implement an economy-wide cap-and-trade program to reduce
greenhouse gas emissions 80 percent by 2050.
• Make the U.S. a Leader on Climate Change.

www.whitehouse.gov


CCX Market Architecture (2003-2010)

Phase I: Members made legally binding commitments to reduce or trade 1% per year from 2003-2006, to result
in 4% below baseline by end of 2006.
Phase II: Members make a legally binding commitment to reduce to 6% below baseline by 2010.
Baseline = Avg. emissions from 1998-2001, emissions in 2000 (Phase II)

8 © 2008 Chicago Climate Exchange®, Inc.

CCX Membership Highlights
®

• Represents 17% of the Dow Jones Industrials, including:
– Bank of America
– DuPont
– Intel
– IBM
– United Technologies

• Represents 11% of the Fortune 100, including:
– Ford
– Motorola
– Safeway
– International Paper
– Honeywell International Inc.

• Represents 20% of the largest CO2 emitting utilities in the US, including:
– AEP - Mirant
– Reliant - Dynegy
– Allegheny Energy - TECO
– DTE - Alliant
– NRG Energy - American Electric Cooperative, Inc

Price

© 2008
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*As of close 07/07/2009
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CCX CFI Historic Price Chart

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CFI® Historic Volumes (metric tons)

120
ADV CCX (contracts)
2005 60
100
2006 400
2007 900
2008 2,900
Options
80 2009 2,420
Million (metric tons)

Futures

60 Cash

40

20

0

2004 2005 2006 2007 2008 2009

© 2008 Chicago Climate
*As of close 07/07/2009 Exchange®, Inc.

Recognition

“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.”
President (then Senator, D-IL) Barack Obama, April 3, 2006

“Offsetting the House of Representative’s greenhouse gas
emissions through CCX is a hat-trick for the Country – a win for the
government, a win for industry, and a win for our Nation’s expanding
economy.”
White House Chief of Staff (then Congressman, D-IL) Rahm Emanuel,
November 5, 2007

© 2008 10 Chicago Climate Exchange®, Inc.

CCX Emission Offset Types

• Verified Offset projects sequester or eliminate GHGs to earn Carbon Financial
Instruments (CFI) sold on CCX electronic platform to CCX membership
Current pre-defined offset categories:
• Agricultural Methane
• Landfill Methane
• Agricultural Soil Carbon
• Forestry
• Renewable Energy
• Coal Mine Methane
• Rangeland Soil Carbon
• Others in development

Independent verification required by
authorized entities: SGS, DNV, First
Minnesota dairy farmer receives first check from sales of
Environment, BvQi CCX Offsets for methane destruction (Approx. $10k for 1
year)

13 © 2008 Chicago Climate Exchange®, Inc.

Forest Carbon: Global Perspective

2007 Intergovernmental Panel on Climate Change Working
Group III Report Mitigation of Climate Change:

“Forestry can make a very significant contribution to a low-cost
global mitigation portfolio that provides synergies with adaptation and
sustainable development. However, this opportunity is being lost in
the current institutional context and lack of political will to implement
and has resulted in only a small portion of this potential being
realized at present (high agreement, much evidence).”


CCX Forest Carbon Rules Overview

• Current CCX rules recognize all four mitigation options outlined by IPCC

– Maintaining or increasing forest area: afforestation/reforestation

– Maintaining carbon stored in forests: reducing deforestation and
degradation

– Sustainable forest management to increase stand- and landscape-level
carbon density

– Increasing off-site carbon stocks in wood products, enhancing product
and fuel substitution (biofuels treated as carbon neutral when
combusted)


Important Features of CCX Forest Carbon Rules

• Annual third party verification required on all carbon pools

• Discounts applied based on robustness of quantification techniques

• Forest carbon reserve pools maintained in event of catastrophic loss

• Sales limits imposed on commercial forest companies (market balancing
provisions are applied to all members)

• Entities with emissions not allowed to enroll forest carbon without taking the
CCX legally binding emission reduction commitment


Range of CCX Forest Carbon Crediting

CCX rules allow crediting on basis of increased forest carbon stocks depending
on the entity’s emissions profile:

• Commercial forest companies having industrial facilities
– Must include emissions in CCX reduction commitment
– Option to realize crediting for management that increases live tree
carbon stocks
– Option to realize crediting from carbon stored in Long-Lived Wood
Products
– These two options are separate

• Offset providers (do not have significant emissions)
– Afforestation / Reforestation
– Management to increase live tree carbon stocks
– Long-Lived Wood Products


CCX U.S. Forestry Aggregators

• Agragate
• Delta P2/E2
• FORECON Ecomarket Solutions
• MACED
• National Carbon Offset Coalition
• Valley Wood


Eligible Forest Practices in House Bill
• Afforestation / reforestation of unforested acres
• Forest management (including harvested wood
products)
• Management of peatland / wetland
• Conversion of grassland and forested land
• Reduced deforestation / avoided forest conversion
• Urban tree planting
• Agroforestry
• Adaption of plant traits / technologies that increase
sequestration by forests


Eligibility Requirements in House Bill
• 20 year crediting period for forestry
• Must be in eligible state or voluntary
program for early action
• Jan 1 09 starting date requirement
– Projects starting after Jan 1 01 that are
registered are eligible for compensation equal
to average price between 1/1/06 thru 1/1/09


CCX Offsets Eligibility
• Chairman Waxman:
– “The gentlewoman is correct in that the provisions of sections
795 and 740 are intended to fairly compensate farmers and their
partners who have enrolled in voluntary programs with strong
standards for environmental integrity would meet the
requirements of section 740. We expect that offset credits
registered with the Chicago Climate Exchange, along with
credits from other recognized voluntary programs, will provide an
important source of offset credits in the early years of the
program.”


CCX: The U.S. Carbon and Environmental Deriviatives Exchange

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