Post on 10-Apr-2018
8/8/2019 Eec0808 Ccx Overview
1/28
August 8, 2008Stephen McComb
Chicago Climate Exchange, Inc. 2007
conom s
312-229-5134
8/8/2019 Eec0808 Ccx Overview
2/28
In r i n X
Structure of the Market
Example revenue Risk management and project finance
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
3/28
Proven, least-cost, and comprehensive tool for managing emissions:
Environmental stewardship that rewards environmental innovationand strate ic lannin
Flexibility, market efficiencies
Multiple successes: US SO2, lead phase-out (gasoline), NOx, ETS
Establish value to scares resource
Reveals true cost of emissions
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
4/28
Chicago Climate Exchange (CCX) , , , ,
European Climate Exchange (ECX) FSA-regulated futures market for European CO2 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. SO2 allowances
Launched in December 2004, worlds first environmental derivatives exchange
Montreal Climate Exchange (MCeX) Joint venture with the Montreal Bourse To host Canadian GHG trading, other environmental markets
Multi-Commodit Exchan e MCX
Agreement with MCX to trade European Carbon Financial Instruments in India
Insurance Futures Exchange (IFEX) Catastrophic event linked futures Launched in 2008
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
5/28
What is Chicago Climate Exchange?prem er an un que nanc a ns u on es gne o a vance us ness, env ronmen a an soc a goa s.
Chicago Climate Exchange (CCX) is the worlds ,
legally binding integrated trading system to reduceemissions of all six greenhouse gases, with offset
worldwide.
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
6/28
To create shareholder value
To limit threats to shareholder liability
To demonstrate corporate and environmental
transparency
To obtain first-mover advantage in emissions trading
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
7/28
CCX
Members are leaders in their sectorsA Selection:
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
8/28
400
540
400
500
nsCO2
Live Market
300
245
237
232
174
71
1200
300
edMi
llionMetricto
Market in development
Under discussion
15
130
94
86
71
60
56
45
37
33
31
30
29
22
22
19
11
9 4 3
15
0
100
X y a d y n eI) c s e d l k a y d a a a a g
Hund
C
C
German
Canad
UnitedKingd
o
Polan
Ital
Australi
Sp
ai
Franc
USNEStates(RG
Califor
ni
CzechRepu
bli
TheNetherland
Greec
Belgiu
NewSouthWale
Finlan
Portu
g
Austri
Denm
a
Slova
ki
Hungar
Swed
e
Irelan
Esto
ni
Lithua
ni
Slove
ni
Latvi
Luxembor
Chicago Climate Exchange, Inc. 2007
20122003 start 2009
8/8/2019 Eec0808 Ccx Overview
9/28
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
10/28
Phase I: Members made legally binding commitments to reduce or trade 1% per year from 2003-2006,
for a total of 4% below baseline.
Baseline = Avg. emissions from 1998-2001, emissions in 2000 (Phase II)
Phase II: Members make a legally binding commitments to reduce to 6% below baseline by 2010.
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
11/28
CCX employs independent verification throughout itsgreen ouse gas re uct on an tra ng system to
guarantee transparency, rigor and integrity, and to provideMembers with standardized procedures for managing
.
Corporate Inventories: et o o og es FINRA Verification
set ro ects: Accepted Methodologies (CCX, CDM etc.) Approved Expert Verification
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
12/28
CCX Comprehensive Market Structure
Electronic Market Registry Comprehensive Rules System
Emitters: Standard baseline,multi-year allowance stream
Offset Providers (project credits) Emission audits, project verification Liquidity Providers Associate Members
Web-
accessibleElectronic
Trading
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
13/28
8/8/2019 Eec0808 Ccx Overview
14/28
8/8/2019 Eec0808 Ccx Overview
15/28
Verified offset ro ects se uester or eliminate GHGs to
earn CFI contracts sold on CCX electronic platform toCCX Membership.
Current pre-defined offset categories:
Methane destruction: Landfills, agricultural operations
Carbon sequestration: forests, soils (conservation tillage,grassland planting, rangeland management)
Energy efficiency Renewable energy
Chicago Climate Exchange, Inc. 2007
t ers case y case
8/8/2019 Eec0808 Ccx Overview
16/28
Methane Emissions in Context: US 2006 CO2
qu va en m ss ons n on e r c ons
CH4; 555.3; 8% N20; 367.9; 5%
HFC, PFC, SF6;
147.8; 2%
CO2; 5983.1; 85%
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
17/28
Landfill, coal mine and agricultural methane capture and combustion
Projects operational on or after January 1, 1999
Voluntary installation that is not required by law
Crediting Rate: 18.25 mt CO2 per mt CH4 destroyed
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
18/28
8/8/2019 Eec0808 Ccx Overview
19/28
Afforestation Avoided Deforestation
,or degraded
Commitment 15 years agreement
Deforestation and Forest Degradation)
Forest loss accounting for 20% of globalwarming / GHG emissions
Offsets for increase in carbon 2003- 2010period
Above and below ground biomass
Increases in soil carbon
Must occur in tropical, developing countrywith inadequate institutional support
Must account for leakage incurred by
Quantification based tables (DOE 1605btables)
Maintain 20% of earned offsets reserve pool
installation of project
Must have biodiversity and communitybenefits
reversals
Verification:
10% in-field sample of both acreage
Crediting for counterfactual emissions rateof what would occur had project not been
implemented
Chicago Climate Exchange, Inc. 2007
an enro men
Beginning, end and periodicverification
8/8/2019 Eec0808 Ccx Overview
20/28
Managed Forests Long Lived Wood
Baseline stock 2002 or 2006
Proof of sustainable forest management
Some carbon remains sequestered in wood
products after harvest
Credit for the fraction of stored carbon after, ,
Offsets issued: Growth Harvest + Long Lived
Wood
100yrs
Proof of sustainable forest management PEFC:ATF, SFI, FSC
Annual quantification based on CCX approvedmodel
Carbon rights must be retained through salescontract,
dispositions, harvesting and catastrophic losses
20% of issuance place into reserve pool
Chicago Climate Exchange, Inc. 2007
Long term maintenance of land under forestry
8/8/2019 Eec0808 Ccx Overview
21/28
Ozone Depleting Substance
Eligibility: n y t ose p ase -out o
production
Offset Issuance: Based in the GWP of the ODS (high
GWP between 144 and 10,720)
Resides with party paying for
destruction
Verification: Destruction in the U.S. in compliance
with CAAA and RCRA requirements
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
22/28
Value of Landfill Gas Capture and
Hypothetical landfill: 500 scfm or ~0.75 mmcf/da
50% methane
2,779 metric tons methane annually* , me r c ons 2 equ va en es roye
$203,000 annually at a $4.00/metric ton CO2
*
Chicago Climate Exchange, Inc. 2007
ase on a cu a or
8/8/2019 Eec0808 Ccx Overview
23/28
Same H othetical Landfill
1.4 MW generation capacity 90% Capacity factor
11,038 MWh/year
4,415 tons of CO2 awarded Power Revenue ~ $552,000 (at $50/MWh)
Carbon Revenue ~ $18,000 (at $4.00/mtCO2)
Carbon revenue increases total return on power projectb 3%
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
24/28
Risk: Risk Mana ement at CCX:
1. Market Rules Volatility 1. Standardized, published-
approval, known
verification
2. Market Volatility 2. Use of Futures and
. ro ec eve opmenCosts
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
25/28
Hypothetical Project online December 2009 ~ ~ , First full year of verified tons end December 2009
Toda ou can: Sell short (promise to deliver) 50 futures contracts (each 1,000t) Lock in a price of $4.35 per ton
Tons delivered in Dec 2009
Today you can:
Guarantees floor price of $4.00/ton for a cost of $1.50/ton If price is higher than $2.50/ton in December 2009 you simply let the
option expire unexercised
Chicago Climate Exchange, Inc. 2007
.option and ensure revenue of $4.00/ton less option cost of $1.50 =
$2.50
8/8/2019 Eec0808 Ccx Overview
26/28
$7.00 30,000,000
2008Q1
2008Q2
$5.00
$6.00 25,000,000
$4.00
15,000,000
20,000,000
2006 Q2
2007Q1
2007Q3
2007Q4 2008Q3$2.00
.
5 000 000
10,000,000
2006 Q1 2006Q3 2006Q42007Q2
$0.00
.
0
Chicago Climate Exchange, Inc. 2007
8/8/2019 Eec0808 Ccx Overview
27/28
Summary and Conclusions
Market is here at CCX
Market may be national and international
EUA value exceeds US Corn, US Soybean and US Wheatcrop
EUA is
8/8/2019 Eec0808 Ccx Overview
28/28
Stephen McComb- -
smccomb@theccx.com
Chicago Climate Exchange, Inc. 2007