The Chicago Climate Exchange

This is the second installment of a paper I am currently writing.  More material will follow soon.  The paper is a comparison of the effectiveness of the Regional Greenhouse Gas Initiative and Chicago Climate Exchange to the Kyoto Protocol, the effectiveness of the United Nations Framework Convention on Climate Change to the Major Economies Forum, and an analysis of a small survey I performed of climate scientists and sustainability professionals.

The Chicago Climate Exchange

            In 2003, two Northwestern professors received a grant to develop a carbon market for private industry in the United States.  They partnered with various professionals and corporations and from that the Chicago Climate Exchange (CCX) was born.  The CCX originally had thirteen participants in 2003: American Electric Power, Baxter International Inc., the City of Chicago, DuPont, Ford Motor Co., International Paper, Manitoba Hydro Corp., MeadWestvaco  Corp., Motorola Inc., STMicroelectrics, Stora Enso North America, Temple-Inland Inc., and Waste Management Inc.  Since that time the total number of participants (in the direct emissions portion) has grown to 84.  “Participants include major corporations, utilities, and financial institutions with activities in all 50 states, 8 Canadian provinces, and 16 countries.” (Chicago Climate Exchange)

            There have been two phases to the Chicago Climate Exchange thus far, before it was sold to InterContinental Exchange and merged with various other cap and trade programs.  I will be focusing on those two phases.  Phase I ran from 2003 to 2006 and Phase II ran from 2007 to 2010.  What separates them are the starting point for the baseline emissions scenarios.  The baseline for Phase I had to be the organizations average annual emissions from 1998-2001, while the Phase II baseline could either be the average annual emissions from 1998-2001 or the single year of 2000.  This gave those entering the CCX at a later date greater leeway in determining their baseline emissions, allowing them an easier path to meeting their emissions reduction targets.  This should not take away from the magnitude of the CCX’s success however.

            Total baseline emissions, for which the CCX was ultimately responsible, came to 700 million Gt CO2e.  Every member, Phase I or II had to be 6% below their baseline by 2010.  Every member met that goal and as a whole the CCX surpassed the compliance requirement considerably.

            From 2003 to 2006, collectively known as Phase I, there were between 18 and 12 members in excess of the yearly economic growth provision level and from 2007 to 2010, Phase II, there were between 12 and 8 above the provision level.  With between 82 and 86 participants total however, at any given time, the errors of such offenders were easily outweighed by the clear success of the rest of the field.  For instance, the emissions baseline for 2006, with 85 participants, was 552,085,500 tons of CO2, the total compliance requirement was 552,081,200 tons of CO2, the total verified emissions for 2006 were 468,661,200 tons of CO2, and the emissions in excess were 180,400 tons of CO2.  The verified reduction from baseline is 83,423,900 tons of CO2 and the verified reduction from the compliance requirement is 61,173,600 tons of CO2.  With the total amount of emissions in excess for all participants in the program in 2006 coming to 180,400 tons of CO2, the excess makes up 0.22% of emissions cuts from baseline and 0.29% of emissions cuts from the compliance requirement.  It can thus be determined that the failures of the CCX in relation to its established goals are negligible, since the average overage for all 8 years is 0.28% of emissions cuts from baseline and 0.36% of emissions cuts from the program-wide compliance requirement.  In fact, at its lowest, additional emissions reductions under the CCX were 69% of total reductions, in 2007.  At its highest they accounted for 98%, in 2009.  Considering that the CCX was responsible for 550 million tons of CO2 during Phase I and 700 million tons of CO2 during Phase II, total reductions of verified emissions for the 4 years of Phase I average out to 465 million tons while the 4 years of Phase II average out to 550 million tons.  That’s a reduction of 85 million tons for Phase I and 150 million tons for Phase II, or put another way, a 15% reduction for Phase I and a 21% reduction for Phase II.  These are going to be the measures against which we will test the RGGI and the Kyoto Protocol.