A global financial institution advancing social, environmental and economic goals



© 2008 Chicago Climate Exchange, Inc ...
Climate Exchange Plc (
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                          ...
Dr. Richard Sandor, Founder and Chairman
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© 2008 Chicago Climate Exchange, Inc Reproduc...
1st Half Exchange Volume Growth
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                                        ...
Full Year Exchange Volume Growth
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                                          ...
ECX Exchange Volume Comparisons
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                                        ...
CLE.L 2008 Performance*




© 2008 Chicago Climate Exchange, Inc performance is not an material is expressly forbidden wit...
Exchange Sector 2008 p
                                g              performance*




© 2008 Chicago Climate Exchange, In...
Wealth creation in the U.S. since WW II
                  1950’s Manufacturing

                  1970’s Commodities

    ...
Regulatory Tools
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                    T...
Impact of Trading on SO2 Pollution




- The US Acid Rain Program’s annual benefits in the year 2010 are expected to be $1...
European vs. Potential US Carbon Market*
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      * Under Lieberman/Warner Bill


© 2008 Ch...
Market Observations



          quot;I can certainly see carbon becoming the biggest of any derivatives product in
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Cap and Trade Legislative Activity
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2008 presidential campaigns proposed climate change plans*

                                                             O...
2008 presidential campaigns proposed climate change plans*

                                                             O...
Presidential Support in 2009?
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                    “I kno...
Presidential Support in 2009?
                                                             pp


          “As part of my c...
Presidential Support in 2009?
                                                             pp


        “I will implement ...
Presidential Support in 2009?
                                                             pp



          “To deal direct...
What is the Chicago Climate Exchange?
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               Chicago Climate Exchange...
CCX® Members are Leaders in Their Sectors




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© 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this ma...
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                                          CCX Membership Highlights
                                                    ...
CCX® Market Architecture (2003-2010)
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Phase I: Members made legally bindi...
CCX Emission Offset Types
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          Verified off...
CCX® is the Largest Volume Carbon Market
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© 2008 Chicago Climate Exchange, Inc Reproduction or...
CFI Historic Volumes (metric tons)
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“Super Tuesday Effect”
                                                                p         y ff

                 An...
Compliance, Pre-Compliance and CCX Markets                                                                                ...
Contact Information


            Rob McAndrew                                                                            ...
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Introduction to Chicago Climate Exchange

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An introduction to the Chicago Climate Exchange (CCX) and how "cap and trade" emmissions trading works. CCX is a global financial institution advancing social, environmental and economic goals.

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Introduction to Chicago Climate Exchange

  1. 1. A global financial institution advancing social, environmental and economic goals © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  2. 2. Climate Exchange Plc ( g (CLE.L) ) European Climate Exchange® Leading d i i h f E b di d E i i T di – L di derivatives exchange for European carbon credits under EU Emissions Trading Scheme (EU ETS) **EUA Futures and Options **CER Futures and Options Chicago Climate Exchange® – North America’s only Greenhouse Gas emissions allowance trading system. This CFTC Exempt Commercial Market is members-only. **Spot CO2 contract Chicago Climate Futures Exchange® – A CFTC designated contract market that offers standardized and cleared futures and g options contracts on emission allowances and other environmental products. ** SO2 futures and options, NOx futures, CFI Futures, CER futures, IFEX futures, ECO Index Futures © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  3. 3. Dr. Richard Sandor, Founder and Chairman , © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  4. 4. 1st Half Exchange Volume Growth g 1,200,000 1,000,000 800,000 , ontract Volume 2006 600,000 2007 2008 Co 400,000 200,000 0 CCX CCFE ECX Exchange © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  5. 5. Full Year Exchange Volume Growth g 2,000,000 1,800,000 1,600,000 1,400,000 ract Volume 1,200,000 2006 1,000,000 2007 Contr 2008 800,000 600,000 400,000 200,000 0 CCX CCFE ECX g Exchange *As of close 09/23/2008 © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  6. 6. ECX Exchange Volume Comparisons g p EUA and CER Volumes Excahanges July 2008 y ECX / ICE Nordpool 91.4% 2.7% Bluenext 3.6% EEX 2.1% Green Exchange 0.2% ECX / ICE Nordpool Bluenext EEX Green Exchange © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  7. 7. CLE.L 2008 Performance* © 2008 Chicago Climate Exchange, Inc performance is not an material is expressly forbidden without the consent of the author *Past Reproduction or quotation of this indicator of future results
  8. 8. Exchange Sector 2008 p g performance* © 2008 Chicago Climate Exchange, Inc performance is not an material is expressly forbidden without the consent of the author *Past Reproduction or quotation of this indicator of future results
  9. 9. Wealth creation in the U.S. since WW II 1950’s Manufacturing 1970’s Commodities 1980’s Interest Rate Derivatives, Mortgage –backed Securities, Junk Bonds 1990’s Information 2000’s Air and Water © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  10. 10. Regulatory Tools g y Tax Command and Control Cap and Trade © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  11. 11. Impact of Trading on SO2 Pollution - The US Acid Rain Program’s annual benefits in the year 2010 are expected to be $122 billion (Yr. 2000 $) - Based on EPA’s latest air quality trends data the national composite average of SO2 annual mean ambient concentrations decreased 48 percent between 1990 and 2005. 11 Chicago Climate Exchange, Inc © 2008 Reproduction or quotation of this material is expressly forbidden without the consent of the author
  12. 12. European vs. Potential US Carbon Market* p * Under Lieberman/Warner Bill © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  13. 13. Market Observations quot;I can certainly see carbon becoming the biggest of any derivatives product in I the next four to five years. And that would of course mean overtaking T- bills [Treasury] and any contract that is out there right now.quot; Commissioner Bart Chilton, US Commodity Futures Trading Commission, Financial Times, March 10, 2008 © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  14. 14. Cap and Trade Legislative Activity p g y * • Boxer Lieberman Warner Boxer-Lieberman-Warner • Kerry-Snowe Kerry Snowe •Lieberman-Warner Climate Security Act of 2008 – 10/18/2007 •Global Warming Pollution Reduction Act – 2/1/2007 •Calls for 71% cap below 2005 in 2050 •Calls for 62% cap below 1990 in 2050 •Recognizes Early Action •Recognizes Early Action • Bingaman-Specter • Olver-Gilchrest •Low C b E L Carbon Economy A t – 07/11/2007 Act •Climate Stewardship Act – 1/22/2007 Cli t St d hi A t •Calls for 1990 level emissions in 2030 •Calls for 70% cap below 1990 in 2050 •Recognizes Early Action •Recognizes Early Action • McCain-Lieberman • Waxman •Climate Stewardship and Innovation Act – 01/12/2007 •Safe Climate act of 2007 – 3/20/2007 •Calls for 60% cap below 1990 in 2050 C ll f b l 20 0 C ll f l l •Calls for 1900 level in 2020 •Recognizes Early Action •Recognizes Early Action • Sanders-Boxer •Global Warming and Pollution Reduction Act – 01/16/2007 •Calls for 80% cap below 1990 in 2050 •Recognizes Early Action © 2008 Chicago Climate Exchange, Inc Reproduction orCenter of this Global Climate Change *From the Pew quotation For material is expressly forbidden without the consent of the author
  15. 15. 2008 presidential campaigns proposed climate change plans* Obama McCain Climate Change Climate Policy should: Principles •Be built on scientifically-sound, mandatory emission reduction targets and timetables •Utilize a market-based cap and trade system •Include mechanisms to minimize costs and work effectively with other markets •Spur the development and deployment of advanced technology •Facilitate international efforts to solve the problem Cap and Trade •Implementation of an economy-wide •Implement a cap-and-trade system regulating GHG emissions from the electric Program cap-and-trade system power, transportation fuels, commercial business and industrial business sectors •Require 100% of pollution credits to be (small business would be exempt) auctioned to ensure that all industries pay •Permit the purchase of offsets; but the fraction of the reductions permitted via offsets for every ton of emissions they release would decline over time. rather than giving valuable emission •Establish commission to recommend the percentage of “free” allowances and the p g rights away to companies on the basis of percentage to be auctioned, and develop a schedule for transition from allocated to their past pollution maximum auctioned allowances (program would include early action allowances). Cost Mitigation •McCain’s plan will use a portion of the eventual auction proceeds to establish the Measures following cost mitigation measures: –Emissions trading program –Program f “banking” and “b P i ” f it for “b ki ” d “borrowing” of permits so th t emission reductions that i i d ti may be accelerated or deferred to more economically efficient periods. –Integrate US trading system with other international markets –Establish a “strategic carbon reserve” as a national source of permits during periods of economic duress Greenhouse Gas 2050: 80% below 1990 levels by 2050 2012: 2005 levels (18% above 1990) Emissions Reduction 2020: 1990 levels (15% below 2005) Targets 2030: 22% below 1990 levels (34% below 2005 levels) 2050: 60% below 1990 levels (66% below 2005 levels) *From campaign websites www.barackobama.com; www.johnmccain.com © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  16. 16. 2008 presidential campaigns proposed climate change plans* Obama McCain Technology •A small portion of the receipts generated •A portion of the eventual auction proceeds will be used to develop and deploy Development and by auctioning cap-and-trade allowances advanced energy technologies, including carbon capture and sequestration, nuclear Deployment ($15B per year) used to support the power and battery development. Mechanisms development of: •Funds will also be used to provide financial backing for a Green Innovation Financing Clean Energy and Transfer (GIFT) program to facilitate commercialization. Energy Efficiency improvements •Will establish a permanent tax credit equal to 10% of wages spent on R&D to provide Next Generation Biofuel an incentive to innovate and remove uncertainty to energy technology development. Clean Energy Vehicles •Remaining receipts used for rebates and other transition relief •Extend the renewable energy production tax credit (PTC) for 5 years •Establish the “Clean Technologies g Deployment Venture Capital Fund” Partner with existing investment funds and National Laboratories to ensure promising technologies move beyond the lab to commercialization. International Climate •US leadership in United Nations Negotiations Change Efforts •Capturing the market on low-carbon energy production and exports to developing countries – including government incentives and partnerships for sales of clean technology to developing countries. •Providing incentives for rapid participation by India and China while negotiating an agreement with each. g *From campaign websites www.barackobama.com; www.johnmccain.com © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  17. 17. Presidential Support in 2009? pp “I know John McCain well enough to know that this is one of the first issues he would turn to if he wins on 4 November,” said James Woolsey, McCain’s i d i “H M C i ’ senior energy advisor. “He would move out smartly toward cap- ld t tl t d and-trade and getting the US in the leadership position in international (climate change) negotiations.” James Woolsey, former director CIA and current foreign policy and energy advisor to John McCain, Point Carbon, September 12, 2008 © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  18. 18. Presidential Support in 2009? pp “As part of my cap-and-trade incentives, I will also propose to include the purchase of offsets from those outside the scope of the trading system. This will broaden the array of rewards for reduced emissions, while y , also lowering the costs of compliance with our new emissions standards. Through the sale of offsets, and with strict standards to assure that reductions are real, our agricultural sector alone can provide as much as forty p y percent of the overall reductions we will require in g q greenhouse g gas emissions. And in the short term, farmers and ranchers can do it in some of the most cost-effective ways” Senator John McCain (R AZ) May 12, 2008 (R-AZ), 12 © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  19. 19. Presidential Support in 2009? pp “I will implement a market-based cap-and-trade system to reduce carbon emissions by the amount scientists say is necessary: 80% below 1990 levels by 2050. ill d i i i b 2050 I will start reducing emissions i immediately b establishing strong di l by bli hi annual reduction targets with an intermediate goal of reducing emissions to 1990 levels by 2020. I will restore U.S. leadership in strategies for combating climate change and work closely with the international community. We will re-engage with the U.N. Framework Convention on Climate Change, the main international forum dedicated to addressing the climate change problem. problem.” Senator Barack Obama (D-IL), Science Debate 2008, September 20, 2008 © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  20. 20. Presidential Support in 2009? pp “To deal directly with climate change, something we failed to do in the last To change energy bill, we should use a market-based strategy that gradually reduces harmful emissions in the most economical way…Right here in Chicago, the g g y Chicago Climate Exchange is already running a legally binding greenhouse g g y gg gas trading system.” Senator Barack Obama (D-IL), April 3, 2006 (D-IL) 3 © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  21. 21. What is the Chicago Climate Exchange? g g Chicago Climate Exchange® (CCX ®) is a financial institution that administers North America s only America’s legally-binding cap and trade market for reducing, registering and trading greenhouse gas emissions. © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  22. 22. CCX® Members are Leaders in Their Sectors 22 © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  23. 23. ® CCX Membership Highlights p g g • Represents 17% of the Dow Jones Industrials, including: – Bank of America – DuPont – Intel – IBM – United Technologies g • Represents 11% of the Fortune 100, including: – Ford – Motorola – Safeway – International Paper – Honeywell International Inc. • Represents 20% of the largest CO2 emitting utilities in the US, including: – AEP – Reliant – Allegheny Energy g y gy – DTE – NRG Energy © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  24. 24. CCX® Market Architecture (2003-2010) ( ) Phase I: Members made legally binding commitments to reduce or trade 1% per year below baseline from 2003- 2006, for a total of 4% below baseline. Phase II: M b Ph II Members make a l k ll binding it legally bi di commitment t reduce t 6% b l t to d to below bbaseline b 2010 li by 2010. Baseline = Avg. emissions from 1998-2001, or emissions in 2000 (Phase II Only) 24 Chicago Climate Exchange, Inc © 2008 Reproduction or quotation of this material is expressly forbidden without the consent of the author
  25. 25. CCX Emission Offset Types yp Verified offset projects sequester or eliminate GHGs to p j q earn CFI contracts sold on CCX electronic platform to CCX Membership. Current pre-defined offset categories: • Methane destruction: Landfills, agricultural operations and coal mines • Carbon sequestration: forests, soils (conservation tillage, grassland planting, rangeland management) • Ozone depleting substance destruction • Energy efficiency • Renewable energy • Others case b case h by © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  26. 26. CCX® is the Largest Volume Carbon Market g © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  27. 27. CFI Historic Volumes (metric tons) ® 100 90 80 70 etric tons) 60 Options 50 Futures Million (me Cash 40 30 20 10 0 2004 2005 2006 2007 2008* *As of close 09/23/2008 © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  28. 28. ® ® CCX CFI Prices $8.00 $7.50 $7.00 $6.50 $6.00 $5.50 $5 50 $5.00 $4.50 Price $4.00 $3.50 $3 50 $3.00 $2.50 $2.00 $1.50 $1.00 February 5, 2008 $0.50 Super Tuesday $0.00 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 03 04 04 05 05 06 06 07 07 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 /20 /20 /20 /20 /20 /20 /20 /20 /20 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 /12 /12 /12 /12 /12 /12 /12 /12 /12 2/1 4/1 6/1 8/1 2/1 4/1 6/1 8/1 2/1 4/1 6/1 8/1 2/1 4/1 6/1 8/1 2/1 4/1 6/1 8/1 12 10 12 10 12 10 12 10 12 *As of close 09/23/2008 © 13 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author 2008
  29. 29. “Super Tuesday Effect” p y ff Analysts attributed the increased activity to US political developments, as the CFI price rose right after Super Tuesday, the US primary election in which Arizona Senator John McCain pulled ahead of rivals toward the Republican presidential candidacy. “Look at when the prices increased – they basically went up from $2.75 before Super Tuesday to over $4.50 by 7 h b i ll f $ b f d $ b February. McCain was the one candidate on the Republican side who clearly favoured cap-and-trade,” said Bruce Braine of power company AEP, AEP a CCX member. The correlation of CCX’s price and volume surge member with election news is “too coincidental to be a coincidence,” he added. Point Carbon 02/19/08 © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  30. 30. Compliance, Pre-Compliance and CCX Markets * $40.00 $35.00 $30.00 $25.00 EUA $20.00 AUS CCX $15.00 $10.00 $5.00 $- Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 *Source for AUS: Point Carbon © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author
  31. 31. Contact Information Rob McAndrew Megan Morgan rmcandrew@theccx.com mmorgan@theccx.com 312.229.5124 312.229.5139 © 2008 Chicago Climate Exchange, Inc Reproduction or quotation of this material is expressly forbidden without the consent of the author

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