How the Chicago Climate Exchange Works

Chicago Climate Exchange Projects

Offset projects can help fund renewable energy like wind power.
Offset projects can help fund renewable energy like wind power.
John MacDougall/AFP/Getty Images

Members with emission reduction goals aren't the only ones trading on the CCX, nor are exchange allowances the only type of trades. All members also have the opportunity to buy exchange offsets from offset providers and offset aggregators, as well as members with a qualifying project proposal. Offset providers could be farmers, waste management operators, renewable energy suppliers or any other company or individual proposing a GHG emission-reducing project. Offset aggregators manage multiple projects, all emitting less than 10,000 metric tons (110 tons) of CO2e annually.

Offset projects are evaluated and approved by CCX staff based on standardized CCX rules, and CFI contracts are issued once the project's viability has been reviewed by a third-party independent verifier. Project types include methane capture and combustion for agricultural, coal mine and landfill methane; agricultural soil carbon management, improved rangeland soil management; forestry; renewable energy (wind and solar power) and ozone depleting substance destruction. Additional project types that are reviewed and approved on a c­ase-by-case basis include energy-efficiency and fuel-switching projects, as well as clean development mechanism (CDM)-eligible projects that allow industrialized countries to invest in emission-reducing projects in developing countries rather than in their own.

Just as members voluntarily agree to join the exchange and reduce their GHG output, eligible offset projects must be voluntary (not required by law). A forestry GHG offset project may, for example, include maintaining or increasing a forest area through reforestation. To kick things off, the project initiator would submit a proposal to the CCX committee on offsets for review and approval. Upon that approval, the project owner would then have the project independently verified by a CCX-endorsed third party.

Projects, just like allowances, are also subject to third-party verification to determine three things:

  • That the project is eligible
  • That the equipment generating the GHG displacement credit is owned by the offset provider (giving the provider the right to propose the project)
  • That the project is performing effectively.

The CCX provides a list of third-party verifiers to its members. Once verified, reports are reviewed for accuracy by FINRA. Only then may they be set up as tradable CFI contracts in the CCX registry.

There's no limit to the number of projects an offset provider or aggregator can register and receive CFI contracts for trading on the CCX electronic trading platform. To mitigate duplicating sold credits, each project is assigned a unique identification number in the CCX system. According to the CCX, offsets aren't yet as popular a trade as are emission allowance credits: one offset is used for every 50 times a buyer needs a credit to comply with its emission schedule [source: World Business Council for Sustainable Development].

Though government regulations have yet to be defined, the global carbon trading market is expanding rapidly each year and is predicted to reach $200 billion by 2010 [source: Kennedy]. Is it effective environmentally? We'll see.

To learn more about the CCX and carbon trading, look over the links on the next page.