World’s first greenhouse gas emissions market emerges

A diverse group of major firms, including Ford, DuPont and Suncor Energy have indicated their intent to participate in the design phase of a voluntary pilot trading market, the Chicago Climate Exchange. The aim is to reduce participants’ greenhouse gas emissions by 5% below 1999 levels over 5 years and the scheme will offer new opportunities for environment-based income for farmers, foresters and renewable energy firms.

The proposed Chicago Climate Exchange is touted as offering the first test of emissions trading on a scale that has global potential, with the US Midwest chosen for its location because of its 20% share of the US economy and greenhouse gas emissions, its mix of manufacturing, transport, energy, agriculture and forestry sectors, and its extensive international linkages.

As proposed, the Exchange is supposed to:

• demonstrate that greenhouse gas trading can achieve real reductions in emissions across different business sectors;
• help discover the price of reducing greenhouse gases; and
• develop the standard frameworks for monitoring emissions, determining offsets and conducting trades needed for a successful market.

The proposed market would begin in the seven Midwestern states of Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio and Wisconsin, and include emission offset projects in Brazil. Participating companies would be issued tradable emission allowances with the firms committing to a phased schedule for reducing their emissions by 5% by 2005. Firms could then either directly cut their emissions, or buy allowances from companies that have achieved surplus reductions, or buy credits from agricultural or other offset projects. Potential offset projects include renewable energy systems, and capture and use of agricultural and landfill methane. Offsets can also be generated by carbon sequestration projects such as forest expansion and conservation soil management. However, two research projects have recently cast doubt on the effectiveness of forests to store carbon (see related story).

The project is spearheaded by Dr. Richard L. Sandor, president of Environmental Financial Products, a company specialising in developing and trading in new environmental, financial, and commodity markets, and has been funded by a $347,000 grant from the Joyce Foundation, an organisation working for the environment of the Great Lakes. “Our findings suggest that a voluntary pilot market, starting in the US Midwest, is feasible and can be expanded over time,” Sandor commented. “The widespread corporate interest in preparing rules and regulations for this voluntary market affirms the private sector’s demand for flexible, market-based mechanisms to address climate change.”

“Carbon trading is a creative and efficient way of moving toward meaningful reductions in greenhouse gas emissions,” said US Senator Joe Lieberman. “I commend the companies for their willingness to participate in this cutting edge endeavour.”