Eec0808 Ccx Overview

8/8/2019 Eec0808 Ccx Overview

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August 8, 2008Stephen McComb

Chicago Climate Exchange, Inc. 2007

conom s

312-229-5134


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In r i n X

Structure of the Market

Example revenue Risk management and project finance



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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



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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



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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.



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To create shareholder value

To limit threats to shareholder liability

To demonstrate corporate and environmental

transparency

To obtain first-mover advantage in emissions trading



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CCX

Members are leaders in their sectorsA Selection:



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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


20122003 start 2009


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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.



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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



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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



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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


t ers case y case


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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%



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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



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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


an enro men

Beginning, end and periodicverification


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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


Long term maintenance of land under forestry


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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



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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

*


ase on a cu a or


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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%



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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



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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


.option and ensure revenue of $4.00/ton less option cost of $1.50 =

$2.50


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$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



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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


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Stephen McComb- -

[email protected]


Documents

Eec0808 Ccx Overview