Chicago Climate Exchange 101
by Nick Aster, San Francisco on 05.19.06
I've been talking about The Chicago Climate Exchange a lot over on Triple Pundit, but I thought it was time TreeHugger readers got a little 101 on this very interesting cap and trade program to reduce CO2 emissions.
One of the most effective methods of reducing a particular pollutant is to create a cap and trade program. This means that an authority such as government states that only some amount of the pollutant will be permitted, per year, and that each company in the country or state is permitted some amount, generally a bit less than their historical norm. After that, if a company manages to reduce its emissions by a greater amount than they were legally bound to, they may sell the "right to pollute" to other companies who have been unable to meet their target.
The United States created a very effective cap and trade program to deal with Sulphur Dioxide in1990, and the EU has now begun using cap and trade as a way to reduce CO2 - in keeping with the Kyoto accord. But what's a country to do if they're not a Kyoto signatory, and their government doesn't want to create a market for a particular emission, say CO2?
Simple - get a bunch of companies together and create your own market! A growing group of companies, including DuPont, Dow, Ford, Bayer and numerous city governments (see the impressive list here) have signed on to a legally binding contract to reduce their emissions, and trade their right to pollute on a free market exhange based in Chicago - the CCX.
So what would possess a major corporation to voluntarily do anything a long these lines, much less legally bind themselves to do so? Read on for the reasons...
1) It's a proactive response to future government regulation.
Smart companies already realize that increased regulation of emissions by government is likely, if not inevitable. By taking the steps now to comply, sheltered by an association of like-minded companies, the likelyhood of draconian government action is reduced.
2) Streamlines ease of doing business with Europe
Many US companies are already losing business in Europe as their cross Atlantic counterparts become leaner and more competitive in response to Kyoto. Furthermore, they are needing to comply with stricter regulations overseas if they choose to sell products there.
3) It's profitable now
Reducing emissions means making your operations more efficient. More efficient operations cost less. Lower costs mean higher profits. By selling your carbon savings on the open market, you then get a double bonus - direct income given to you from less efficient companies.
4) Believe it or not, some companies are starting to see the light.
Companies are made up of people of all kinds. Many of them are as interested in making the world a better place as they are in making a living (after all, without a planet, you won't have much of a living). These people are starting to move their companies in a greener direction. There's a long road to go, but joining the CCX looks like a great start.
How does the cap get lowered?
You might also want to know how the cap gets lowered in a free market. In any cap and trade system, simply adding a cap does not actually lower emissions. The cap, and thus emissions, can only be lowered in two ways - One, if the governing authority lowers it by some percentage. In the case of CCX, there is a binding agreement when signing on to reduce the cap by a certain percenage annually. Secondly, emissions credits can actually be permanently retired so they can't be used the next year. Many "carbon offset" companies such as TerraPass or DriveNeutral do this by buying emissions rights on behalf of their customers, then retiring those rights - therefore the overall cap gets lowered by an amount equivalent to the emissions of a driver's yearly car use.
Pretty smart eh?
For more reading, check out this article on WBCSD.
Here's a thought about your site. Some of the people who love to visit your such (I being one of them) might like to be able to view the text in larger letters. However, at the present I am unable to do so with the viewer taht I have on my computer. Is there some way you could enable surfers to make the text larger? Thanks for taking my suggestion under consideration.
Very interesting program. I've never heard of a cap and trade program before. It seems like a program like that could probably be pretty effective.
I don't know if I agree with #3 though. I don't know if I believe that reducing emissions means that the operations are going to be more efficient. If efficiency increased when emissions decreased, companies would already be doing it. Companies do anything they can to save money.
"Companies do anything they can to save money."
Hmm, no.
In the abstract, the idea certainly seems to makes sense, but in the real world, absolutely not. I can think of tons of examples just off the top of my head...
Larry Langley: I suggest downloading firefox http://www.mozilla.com/firefox/ it allows you to increase the text size.
so...
how do I get [b]paid[/b] to not pollute?
You get paid when you sell your excess credits.
I think a cap and trade system in a capitalist economy with limited will for environmental regulation is a great idea. However, implementing such a system can be tricky and sometimes fraudulent. I have in my mind the current tumble in prices for carbon credits in the European exchange. Prices dropped to half when recent reports showed that CO2 emissions had not dropped siginificantly. It is widely concluded that the reason for this was that way too many carbon credits were given out freely to industry at the beginning. In effect, industry was given a lot more CO2 than it was actually pumping into the atmosphere. Rather than give the credits for free as they did, they should have auctioned off a limited number of carbon credits. Cap and trade is a good idea if implemented wisely; otherwise, it can turn out to be a dud.
I read that Senator Lugar was the first Hoosier to sell his tree carbon reducing credits on the exchange. He owns a 640 acre farm in Marion County Indiana and gets about $12000 for his credits.
Does anyone know how we can use our own 40 acre forestry operations to receive these credits through the Chicago Climate Exchange?
can you buy carbon credits via e-trade!?
The way that the CCX has been growing, perhaps it will be adopted by the US as the Default cap and trade system for CO2.
Re: Nick Aster's comment; "industry was given a lot more CO2 than it was actually pumping into the atmosphere"
Would you say that this happened because a certain critical mass of research on greenhouse gas emissions has not yet been reached?
I am not sure about the details of the sulphur dioxide cap&trade system, but it strikes me as a slightly more straightforward one. There are 6 times as many compounds to account for with greenhouse emissions, and I am not sure where the research money comes from and/or how that research is standardized and deemed accurate. Is it just up to the individual companies to research their emissions?
this is a clever scam and a load of garbage
paid not to pollute?!! selling polluting credits?!!!
the greedy capitalists of the world have no decency
keep up the party
Does anyone know where I can find information on the ratio between the COST of project offsets (per metric ton of a pollutant reduced) versus the average CREDIT gained. For example. For each $100.00 dollars spent on a project the average credit created for brokering is $110.00