The CCX is North America's first voluntary, legally binding GHG reduction and trading system for emissions sources and offset projects in North America and Brazil.

Market Features and Rules

The Chicago Climate Exchange (CCX) defines itself as "the world's first and North America's only voluntary, legally-binding, rules-based greenhouse gas emission reduction and trading system." It is a membership-based cap-and-trade system which members join voluntarily and sign up for its legally-binding reductions policy. Emissions reductions requirements vary by membership category. Like the Kyoto markets, CCX trades 6 different types of GHGs converted into a common unit of tCO2e.

The CCX's unit of trade is the Carbon Financial Instrument (CFI), which represents 100 tCO2e. CCX CFIs can be either allowance-based credits, issued by emitting members in accordance with their emission baseline and the exchange's reduction goals, or offset credits generated from qualifying emission reduction projects. Members can meet their commitments through internal reductions, by purchasing allowances from other members, or by purchasing credits from emission reductions projects (offsets). Offset based credits can only be used to offset 4.5% of members' total emissions to meet the required cap reductions, so the vast majority of credits traded on the CCX are allowance-based.

Eligible offset project categories are:

• Agricultural methane
• Agricultural soil carbon
• Energy efficiency and fuel switching
• Forestry carbon
• Landfill methane
• Renewable energy
• Coal mine methane
• Rangeland soil carbon
• Ozone depleting substance destruction

Carbon Forestry Rules

The CCX accepts forestry-based carbon offsets in three categories:

• Afforestation
• Long-lived wood
• Managed forest projects

Afforestation projects are eligible to earn CCX credits for direct human-induced conversion of non-forests or degraded areas into forested regions. Projects must start on or after January 1, 1990 and should not involve the removal of tree biomass, including harvesting or thinning, during the CCX market period. Additionally, landowners must sign a contract with their offset aggregators agreeing that the land will be managed as forest land for at least 15 years from the date of enrollment in the CCX.

Long-lived wood products have the potential to store carbon for centuries (such as in houses or furniture). CCX entities are eligible to receive offsets for carbon stored in long-lived wood products if the source land has been certified as sustainably managed, and if carbon rights are retained through a sales contract. Any offsets issued will be equal to the fraction of the carbon stored in the wood products in use and in landfills at the end of 100 years. Sustainably managed forests are eligible to earn offsets for the additional net carbon sequestered during the previous year (i.e., carbon sequestered from additional forest growth minus the carbon lost due to harvesting activities). Forest owners must show proof that all of their land holdings have been certified from agencies or schemes endorsed by the PEFC Council or another certification scheme approved by the CCX Committee on Forestry. Sequestered carbon must be quantified using a growth-and-yield model or by calculating the inventory on an annual basis.

The CCX also has rules for issuing offsets from widely-spaced tree planting and forest conservation that is combined with afforestation. Joint projects of forestation and avoided deforestation "are credited on the basis of avoided deforestation rates specified for eligible geographic regions," and forest conservation (avoided deforestation) projects must be located on a site that is contiguous to the afforestation project site.

Market Participants

As of July 2008, the CCX had over 350 members (in all three categories) ranging from major US corporations and municipal governments to aggregators and farmers unions. There are three levels of membership:

Full Members are entities with significant direct greenhouse gas (GHG) emissions and whose commitments are audited by NASD." Members who joined in Phase I committed themselves to each reducing GHG emissions 1% a year from a baseline determined by their average emissions from 1998 through 2001. The current goal (Phase II) is for members to reduce their total emissions to 6% below the baseline by 2010. Hence, members who have been participating for the past four years only need to reduce an additional 2%, while new members need to reduce 6% during this time.

Associate Members are entities with negligible direct GHG emissions, such as office-based institutions, businesses and service organizations. Associate Members commit to report and fully offset 100% of indirect emissions associated with energy purchases and business travel from year of entry through 2010 and are audited by NASD.

Participant Members are project developers, offset aggregators and liquidity providers, which trade on the Exchange for purposes other than complying with the CCX emissions reduction schedule.

Market Activity, Volume, and Value

Trading activity and prices per tonne have been growing steadily. In 2007, 22.9 million tCO2e were transacted on the CCX, with a market value of $72.4 million. As of July 2008, a total of 50.5 million tCO2e had been traded on the exchange.

Forestry Credits Registered As of mid-2008, 4,773, 700 tCO2e originating from forestry projects had been registered on CCX.