The Chicago Climate Exchange has created a voluntary emissions trading market that provides a framework for possible linkage with other emission trading schemes in the future. According to the mission statement on the CCX website, one of the goals of the Exchange is “to encourage improved emissions management; harmonize and integrate with other international or sovereign trading regimes.” The CCX is a self-regulatory exchange that administers the world's first multi-national and multi-sector marketplace for reducing and trading greenhouse gas emissions. CCX represents the first voluntary commitment by a cross-section of North American corporations, municipalities and other institutions to establish a rules-based market for reducing greenhouse gases. At present the CCX has 100 Members. CCX members reflect a cross–section of major North American public and private sector entities, including Ford Motor, International Paper, IBM, American Electric Power, Manitoba Hydro, Amtrak, the City of Chicago and Oklahoma University, as well as non-industrial environmental innovators such as the World Resource Institute, Pax and the Rocky Mountain Institute.
Design of the CCX
All CCX members made a voluntary, legally binding commitment to reduce their emissions of greenhouse gases by four percent below the average of their 1998-2001 baseline by 2006. Emission targets are 1 per cent below baseline during 2003, 2 per cent below baseline during 2004, 3 per cent below baseline during 2005, 4 per cent below baseline during 2006. Emission sources and offset projects in the United States, Canada, Brazil and Mexico are included in the scheme. CCX reduction commitments and trading will apply for a pilot phase that runs from October 2003 until 2006. However, at its second annual membership meeting in June (’05), the CCX Board of Directors unanimously approved the extension and expansion of the programme for an additional four years (2007 through 2010). The extended reduction commitment schedule involves annual emission reductions that result in a 6 per cent emissions reduction below baseline by the year 2010. Baseline methodologies will be updated to enlarge the program’s participation and effectiveness. The CCX covers all six-greenhouse gases, with non-CO2 emissions expressed in CO2 equivalents.
Unit Allocation and Distribution
The CCX utilises two units for its emissions trading - the “Exchange Allowance (XA)” and the “Exchange Offset (XO)”. These two units are known as “Carbon Financial Instruments”, with each unit representing one hundred metric tons of carbon dioxide equivalent (CO2e). CCX Members were allocated Exchange Allowances at the inception of the programme for a four-year period. The allocation was based on the CCX emission reduction schedule and each Member’s emission baseline. Member's emission baselines were the annual average emissions from facilities during 1998, 1999, 2000 and 2001. They are also allocated additional allowances on the basis of forest carbon sequestration and reductions in carbon-based electricity use.
Emission Offsets are issued after an emissions mitigation project occurs and the required documentation detailing project eligibility, project baselines, emissions quantification, monitoring and verification have been presented to the CCX. Emission Offsets will be allocated on the basis of mitigation tonnage realised during 2003 – 2006. With the exception of forestry projects, which are eligible if undertaken on or after January 1st 1995, projects in the specified categories will qualify if they were placed into operation on or after January 1, 1999. The initial categories of eligible offset project categories are:
- landfill methane destruction in the United States;
- agricultural methane destruction in the United States;
- carbon sequestration in U.S. forestry projects;
- carbon sequestration in U.S. agricultural soils;
- fuel switching, landfill methane destruction, renewable energy and forestry projects in Brazil.
As with most emissions trading programmes, at the end of each year participants (Members) must ensure that they have enough exchange allowances and offsets to cover their emissions. If they do not possess sufficient exchange allowances or offsets to cover their emissions then they must enter the market and buy additional allowances and offsets from other Members. A Member failing to hold sufficient allowances or offsets to cover their emissions will incur a financial penalty.