Aug
27
2006

How to buy and sell pollution

Pollution exchange: photo from  Wikimedia Commons
Pollution exchange: photo from Wikimedia Commons

Marketing pollution on the Chicago Climate Exchange

Most people will agree that something needs to be done about the pollution and greenhouse gasses resulting from our consumption of petrochemicals. One solution would be to encourage reducing emmissions by financially rewarding those that meet their quotas and penalize those that don't.

How it works

To illustrate, the American Electric Power's Mountaineer coal plant is America's single largest emitter of greenhouse gases - sending as much out from its stacks as Canada.

Last year the Mountaineer plant generated 10.5 million megawatt-hours of electricity, and a corresponding 8.6 million tons of CO2e. That would make its emissions, in CCX terms, a $39 million cost. If improvements yield just a 1 percent cut, the plant has almost $400,000 of emissions to sell. Looked at another way, the emissions are suddenly 20 percent of the cost of Mountaineer's fuel. CNN Money

The Chicago Climate Exchange (CCX) is the world’s first and North America’s only voluntary, legally binding greenhouse gas (GHG) reduction and trading system for emission sources and offset projects in North America and Brazil. Members make a voluntary but legally binding commitment to reduce GHG emissions.

By the end of Phase I (December, 2006) all Members will have reduced direct emissions 4% below a baseline period of 1998-2001.Phase II, which extends the CCX reduction program through 2010, will require all Members to reduce GHG emissions 6% below baseline. CCX website about page

AEP Mountaineer plant uses the CCX in three ways. If its emissions are below its allowance, it can sell the difference, meaning the company has an incentive to emit as little as possible. If it needs to emit more, it can buy the difference from another member. Or AEP can invest in an offset program - say, planting carbon-sucking trees - that would earn the company new credits. The goal of the CCX is to create a market for pollution that, in effect, becomes a mechanism for reducing it.

The cost to pollute has doubled in six months

The currency at the Chicago Climate Exchange is a Carbon Financial Instrument contract, otherwise known as a CFI contract. One CFI contract is equal to 100 metric tons of CO2. The price of a CFI unit was less than $1 in 2004, rose to $1.75 in Jan. 2006, and now (Aug) are over $4.

To see what Europe is doing

go to European Union Greenhouse Gas Emission Trading Scheme (EU ETS)

Your Comments, Thoughts, Questions, Ideas

Gene's picture
Gene says:

A recent article in the Financial Times claims that most current carbon-trading programs are ineffectual -- they take money from users but do little to help the environment. They also found companies getting "carbon credits" for changes they were planning to make, anyway. The article does not mention the Chicago Climate Exchange specifically.

posted on Fri, 04/27/2007 - 9:53am

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