Greenhouse Gas Emissions Trading Market Emerges in Chicago
CHICAGO, Illinois, May 30, 2001 (ENS) - The world's first emissions trading market for greenhouse gases is materializing in Chicago. A diverse group of 25 large corporations and nonprofit organizations has agreed to participate in the design phase of a voluntary pilot trading market, the Chicago Climate Exchange.
The project is spearheaded by Dr. Richard Sandor, CEO of Chicago based Environmental Financial Products, who is known for developing innovative commodity and environmental markets and has designed revolutionary market mechanisms for environmental protection programs.
Sandor said today that the results of a feasibility study he conducted to test interest in the Chicago Climate Exchange show that a voluntary pilot market starting in seven midwestern states, "is feasible and can be expanded over time."
"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," Sandor said.
Sandor is a visiting scholar at the Kellogg Graduate School of Management at Northwestern University. The feasibility study was funded by the Chicago based Joyce Foundation through a $347,000 Millennium Initiative grant.
The idea of trading carbon emissions has been debated for at least a decade, but the proposed Chicago Climate Exchange offers the first test of the concept on a scale that has global potential.
The Midwest is a promising location for starting the market because of its 20 percent share of the U.S. economy and greenhouse gas emissions, its mix of manufacturing, transport, energy, agriculture and forestry sectors, and its extensive international linkages.
Dr. Sandor's study suggests a goal of reducing participants' emissions of six greenhouse gases, including carbon dioxide, by five percent below 1999 levels over five years. These emissions, created by the combustion of coal, oil and gas, are linked by most scientists to climate change.
This market based approach may be particularly attractive to U.S. corporations after President George W. Bush announced in March that U.S. would not participate in the international agreement governing the emission of these six greenhouse gases known as the Kyoto Protocol.
"Most of the actions needed to begin reducing the risk of climate change will have to be undertaken by the private sector, so a market developed by a private association can be an important part of the overall solution," said Sandor.
Trading would help reduce greenhouse emissions in a cost effective manner and offers new opportunities for environment based income for farmers, foresters and renewable energy firms.
As proposed, the Chicago Climate Exchange could demonstrate that greenhouse gas trading can achieve real reductions in emissions across different business sectors. It could help discover the price of reducing greenhouse gases.
It would develop the standard frameworks for monitoring emissions, determining offsets and conducting trades needed for a successful market.
Sandor's study proposes starting the market in seven Midwest states - Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio and Wisconsin - including emission offset projects in Brazil, and expanding over time.
Participating companies would be issued tradable emission allowances. Emitting firms would commit to a phased schedule for reducing their emissions five percent by 2005.
They could then either directly cut their emissions, or buy allowances from companies that have achieved surplus reductions. Or the market traders could buy credits from agricultural or other projects that produce power without emissions or offset greenhouse gases by holding them out of the atmosphere.
Potential offset projects include renewable energy systems, such as wind and solar power, 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, which remove carbon dioxide from the atmosphere.
Twenty-five companies and non-profits have agreed to participate in the market design phase, including manufacturers, electric utilties, agricultural cooperatives, and conservation groups.
The participants include Ford, DuPont, Suncor Energy, The Nature Conservancy, STMicroelectronics, Temple-Inland, International Paper, the Iowa Farm Bureau Federation, Alliant Energy, Calpine, Cinergy, NiSource, PG&E National Energy Group, Wisconsin Energy, ZAPCO, Agriliance and GROWMARK. (A complete list can be found at the foot of this page.)
An advisory board consisting of academic, business, environmental and public sector leaders has been formed with the objective of gathering strategic input.
Board members include Maurice Strong, former under-secretary general of the United Nations who led the 1992 Earth Summit in Rio de Janeiro; James Thompson, a former four term governor of Illinois; Jonathan Lash, president of the World Resources Institute, a non-profit research organization based in Washington, DC; Joseph P. Kennedy II, chairman and president of the Boston based Citizens Energy Group; Dr. Thomas Lovejoy, a world renowned tropical and conservation biologist, and Israel Klabin, president of the non-governmental Brazilian Foundation for Sustainable Development. (A complete list is given below.)
"The Chicago Climate Exchange would represent a major step forward while an appropriate regulatory framework for greenhouse gases evolves," said Joyce Foundation president Paula DiPerna. "A regional success on a global challenge like climate change could be transformational. Because of its variety of economic activities, including its strong agricultural sector, the Midwest is the perfect place to begin demonstrating the regional-global interface."
The Joyce Foundation has a tradition of catalyzing new ideas, said DiPerna, who acted as vice president of international affairs for the late oceanographer and conservationist Jacques Cousteau.
DiPerna says Dr. Sandor's interest in the trading approach to environmental problems is what attracted the support of the Joyce Foundation.
"He, being a trader par excellence, said we have to discover the price at which greenhouse gas emissions credits will trade," DiPerna told ENS. "The way to do that is to try it and see. We never know if it will work until we try. Now that we know we have enough players in the game, the game will start as early as next year."
The Joyce Foundation is now considering a request to be involved in the second phase of the Chicago Climate Exchange - the phase that would launch the trading.
DiPerna and Sandor believe that a representative carbon trading market can yield lessons that may be relevant for economies worldwide for the next century.
"The beauty of this emissions trading mechanism is that it's both practical and philosophical," DiPerna said. "We must solve the problem in a practical manner and retain the philosophical value that motivates us all."
Companies Participating in the Design Phase of the Chicago Climate Exchange
Agriliance: Agriliance is a partnership of agricultural producer-owners, local cooperatives and regional cooperatives. Agriliance offers crop nutrients, crop protection products, seeds, information management, and crop technical services to producers and ranchers in all 50 states as well as Canada and Mexico.
Alliant Energy: Alliant Energy Corporation is a growing energy service provider with both domestic and international operations. Headquartered in Madison, Wisconsin, Alliant Energy provides electric, natural gas, water and steam services to more than two million customers worldwide. Alliant Energy Resources Inc., the home of the company's non-regulated businesses, has operations and investments in the United States, Australia, Brazil, China, Mexico and New Zealand.
Headquartered in San Jose, California, Calpine has an energy portfolio comprised of 50 energy centers, with net ownership capacity of 5,900 megawatts, enough energy to meet the electrical needs of close to six million households. Calpine was ranked 25th among "Fortune" magazine's 100 fastest growing companies and it was recently ranked by "Business Week" as the 3rd best performing stock in the S&P 500.
Carr Futures/Crédit Agricole Indosuez: Carr Futures, a subsidiary of Crédit Agricole Indosuez, is a global institutional brokerage firm headquartered in Chicago. Carr holds memberships on all major futures and equity markets worldwide, and consistently ranks among the largest futures brokerage firms in the world.
Cinergy Corporation: Based in Cincinnati, Ohio, Cinergy is a diversified energy company. Its largest operating companies, The Cincinnati Gas & Electric Company of Ohio, Union Light, Heat & Power of Kentucky, Lawrenceburg Gas of Indiana, and PSI Energy, Inc. of Indiana, serve more than 1.5 million electric customers and 500,000 gas customers. The interconnections of Cinergy's Midwestern transmission assets give it access to 37 percent of the total U.S. energy consumption.
DuPont: DuPont is a science company, delivering science based solutions in the areas of food and nutrition, health care, apparel, home and construction, electronics, and transportation. Founded in 1802, the company operates in 70 countries and has 93,000 employees.
Ford Motor Company: Ford is the world's second largest automotive company. Its Automotive operations include: Ford, Mercury and TH!NK brands; wholly owned subsidiaries Volvo, Jaguar, Aston Martin and Land Rover; Mazda (33 percent ownership); and Quality Care and Kwik-Fit. Ford Financial Services, providing automotive financing and other services, and The Hertz Corporation, providing car rental services, are the other major components of Ford Motor Company.
GROWMARK, Inc.: GROWMARK, headquartered in Bloomington, Illinois, is a federated regional cooperative that provides agriculture related products and services in Illinois, Iowa, Wisconsin and Ontario, Canada. FS brand farm supplies and services are marketed to farmers in these areas by nearly 100 GROWMARK member cooperatives.
IGF Insurance Company: IGF is the fifth largest crop insurance company serving farmers in 46 states from eight service offices nationwide. IGF develops niche products for farmers' risk management needs.
International Paper: With over 12 million acres of land managed in the United States alone, International Paper is one of the world's largest private landowners. International IP has global businesses in paper and paper distribution, packaging, building materials and other forest products.
Iowa Farm Bureau Federation: The Iowa Farm Bureau is a federation of 100 county Farm Bureaus in Iowa. Founded in 1918, it now takes in more than 154,000 member families. Legislative, educational and service programs are provided to help farm families prosper and improve their quality of life. An independent, non-governmental organization, the federation is local, statewide, national and international in scope and is nonpartisan, nonsectarian and nonsecret in character.
IT Group, Inc.: The IT Group is a provider of consulting, engineering and construction, remediation and facilities management services through its group of highly specialized companies. Its broad range of services includes the identification of contaminants in soil, air and water and the design and execution of remedial solutions.
Midwest Generation: Headquartered in Chicago, Midwest Generation, a subsidiary of Edison Mission Energy, owns 13 electricity generating units in Illinois and Pennsylvania with a generating capacity of over 11,400 megawatts, enough power for more than 13 million homes. Midwest Generation sells wholesale power in competitive electricity markets. The company is undertaking a major program to reduce emissions from its coal fired plants.
National Council of Farmer Cooperatives (NCFC): NCFC'is the only organization serving exclusively as the national representative and advocate for America's farmer owned cooperative businesses. It aims to protect the public policy environment in which farmer owned cooperative businesses operate, promote their economic well being, and provide leadership in cooperative education.
NiSource Inc.: NiSource is a holding company with headquarters in Merrillville, Indiana, whose operating companies engage in all phases of the natural gas and electric business from exploration and production to transmission, storage and distribution of natural gas, as well as electric generation, transmission and distribution. Its companies provide service to 3.6 million customers from the Gulf of Mexico through the Midwest to New England.
ORMAT: ORMAT is the world leader in distributed reliable remote microturbine power units, also known as Closed Cycle Vapor Turbo Generators. ORMAT's operations use locally available heat sources, including steam and hot water generated by geothermal sources, industrial waste heat, solar energy, biomass, and low grade fuels.
Pinnacle West Capital Corp.: Based in Phoenix, Arizona, Pinnacle West is the parent company of APS and Pinnacle West Energy. APS is Arizona's oldest and largest electric utility, serving more than 857,000 customers, and Pinnacle West Energy is the company's unregulated wholesale generating subsidiary. Among the utilities listed in the S&P 500, Pinnacle West is ranked in the top 10 percent for environmental performance by an international investment advisory firm. "Fortune" magazine ranks the company in the top 10 percent for total shareholder return over the last five years.
PG&E National Energy Group: Headquartered in Bethesda, Maryland, PG&E National Energy Group develops, owns and operates electric generating and gas pipeline facilities and provides energy trading, marketing and risk management services in North America. The National Energy Group operates power production facilities with a capacity of about 7,000 megawatts, with another 10,000 megawatts under development, and more than 1,300 miles of natural gas transmission pipeline with a capacity of 2.7 billion cubic feet per day. PG&E National Energy Group is not the same company as Pacific Gas and Electric Company, the California utility, and is not regulated by the California Public Utilities Comission.
STMicroelectronics: STMicroelectronics is the world's third largest independent semiconductor company. Shares in the company are traded on the New York Stock Exchange, on Euronext Paris and on the Milan Stock Exchange. The company designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and devices used in a wide variety of microelectronic applications, including telecommunications systems, computer systems, consumer products, automotive products and industrial automation and control systems. In 2000, the company's net revenues were $7.8 billion and net earnings were $1.45 billion.
Suncor Energy, Inc.: Suncor is a Canadian integrated energy company that explores for, acquires, produces, and markets crude oil and natural gas, refines crude oil, and markets petroleum and petrochemical products. Suncor has three principal business units: Oil Sands, Exploration and Production, and Sunoco.
Swiss Re: Founded in 1863 in Zurich, Switzerland, Swiss Re is the world's second largest reinsurer, with roughly 9,000 employees and gross premiums in 2000 of US$15.3 billion. Standard & Poor's gives the company its AAA rating; Moody's rates it Aaa. From over 70 offices in 30 countries, Swiss Re offers insurers and corporates classic (re)insurance covers, alternative risk transfer instruments, and supplementary services for comprehensive risk management.
Temple-Inland Inc.: A diversified forestry, forest products and financial services company, the three main operating divisions of Temple-Inland include a paper group, which manufactures corrugated packaging products; a building products group, which manufactures a wide range of building products and manages the Company's forest resources consisting of approximately 2.2 million acres of timberland in Texas, Louisiana, Georgia and Alabama; and the financial services group, which consists of savings bank, mortgage banking, real estate, and insurance brokerage activities.
The Nature Conservancy: A nonprofit organization founded in 1951, The Nature Conservancy is the world's largest private international conservation group taking in over one million members. The conservancy has protected over 12,089,000 acres of land in the United States.
Wisconsin Energy Corporation: Headquartered in Milwaukee, Wisconsin, Wisconsin Energy Corp. is an $8.4 billion holding company with a portfolio of subsidiaries engaged in electric generation; electric, gas, steam and water distribution; pump manufacturing and other non-utility businesses. The corporation's utilities subsidiaries serve more than one million electric and 950,000 natural gas customers in Wisconsin and Michigan's Upper Peninsula.
ZAPCO: Zahren Alternative Power Corporation (ZAPCO) is among the largest developers of landfill gas projects in the United States. ZAPCO develops, finances, and operates waste-to-energy electricity systems, and has executed international trades of greenhouse gas reductions involving over two million tons CO2 equivalent. ZAPCO operates 10 of its 27 landfill gas projects in the Midwest.
Chicago Climate Exchange Advisory Board Members
David Boren is the president of the University of Oklahoma. He served as a member of the Oklahoma House of Representatives (1967-1975), Governor of Oklahoma (1975-1977) and as a U.S. Senator (1979-1994). Senator Boren was the longest serving chairman of the Senate's Select Committee on Intelligence. Boren was educated at Yale and attended Oxford University as a Rhodes Scholar and earned a law degree from the University of Oklahoma College of Law.
Lucien Bronicki is the chairman of Ormat International, an Israeli company in the field of innovative technology solutions to geothermal power plants, power generation from industrial waste heat, and solar energy projects. Chairman of Ormat since he founded the company in 1965, Bronicki chairs the World Energy Council's Israeli National Committee, is a member of the Executive Committee of the Weizmann Institute of Science, and member of the board of Ben Gurion University.
Ernst Brugger is founding partner and chairman of Brugger Hanser & Partner Ltd. in Switzerland, a business consulting firm with international experience and range. He is also a professor at the University of Zurich, chairman and member of the board of various companies and a member of the International Committee of the Red Cross (ICRC). Dr. Brugger serves as chairman of the Board of Directors of Sustainable Performance Group, an investment and risk management company which invests in pioneering companies which have taken up the cause of sustainable business.
Jeffrey Garten is Dean of the Yale School of Management. Formerly, Garten served as undersecretary of commerce for international trade in the first Clinton administration and has held senior economic posts in the Ford and Carter administrations. From 1979 to 1992 he was a managing director first at Lehman Brothers, where he oversaw the firm's Asian investment banking activities from Tokyo, and then at the Blackstone Group. Currently Dr. Garten writes a monthly column for "Business Week" magazine. His latest book, "The Mind of the CEO," was published this year.
Donald Jacobs is dean of the Kellogg Graduate School of Management and its Gaylord Freeman Distinguished Professor of Banking. Jacobs is a former chairman of the board of Amtrak and currently serves on several corporate boards. His work on banking, corporate governance and international finance has been published in many scholarly journals and he holds several honorary degrees and professional awards.
Dennis Jennings is the global risk management solutions leader for PricewaterhouseCoopers' global energy and mining industry practice. Jennings previously served as the Dallas/Fort Worth energy industry market leader, co-chairman of the U.S. oil and gas industry program, and on the steering committee of the international energy practice. He handles PwC's global risk management practice for the energy and mining industry, providing financial advice and performing due diligence reviews on merger, acquisitions and divestiture efforts by major international corporations.
Joseph P. Kennedy II is chairman and president of Boston based Citizens Energy Group, a non-profit company he founded in 1979 to provide low-cost heating oil to the poor and elderly. Before returning to Citizens Energy, Kennedy represented the 8th Congressional District of Massachusetts in the U.S. House of Representatives for 12 years. Citizens now encompasses seven separate companies, including the largest energy conservation firm in the U.S. Kennedy advises and serves on the boards of companies in the energy, telecommunications, and health care industries. He is the son of the late U.S. Senator and Attorney General Robert Kennedy.
Israel Klabin is the president of the Brazilian Foundation for Sustainable Development, a Brazilian non-governmental organization devoted to issues of environmental and sustainable development policy. He is the former chairman of Klabin SA, one of the largest forestry companies in Latin America. A former mayor of Rio de Janeiro, Klabin was one of the main Brazilian organizers of the 1992 United Nations Conference on the Environment in Rio de Janeiro.
Bill Kurtis has been a broadcaster for over 30 years, as a news anchor in Chicago and on the national CBS Morning News. He founded Kurtis Productions when he returned to Chicago in the mid-1980s and now hosts shows on the Arts and Entertainment network. Kurtis is involved in The National Science Explorers Program, Electronic Field Trips and the Electronic Long Distance Learning Network, and serves on the board of directors of the National Park Foundation, and the Nature Conservancy.
Jonathan Lash is president of the World Resources Institute, a Washington, DC based non-governmental organization. From 1993 until 1999, Lash served as co-chair of the President's Council on Sustainable Development, a group of government, business, labor, civil rights, and environmental leaders that developed recommendations for national strategies to promote sustainable development. From 1987 to 1991, he headed the Vermont Agency of Natural Resources, having served the previous two years as Vermont's Commissioner of Environmental Conservation.
Thomas Lovejoy, is a world renowned tropical and conservation biologist and author generally credited with having brought the tropical forest problem to the fore as a public issue. In 1987, he was appointed assistant secretary for environmental and external affairs for the Smithsonian Institution and is counselor to the Smithsonian's secretary for biodiversity and environmental affairs. Dr. Lovejoy is also chief biodiversity advisor to the president of the World Bank. From 1989 to 1992, he served on the President's Council of Advisors in Science and Technology, and acted as scientific adviser to the executive director of the United Nations Environment Programme from 1994 to 1997.
David Moran is vice president of ventures for the Electronic Publishing group of Dow Jones & Company and president of Dow Jones Indexes. He is president of Dow Jones Indexes, which includes all Dow Jones indexes for countries, regions, sectors and industry groups as well as the world index. He is also chairman of Dow Jones Sustainability Group Index GmbH.
Les Rosenthal is a former chairman of the Chicago Board of Trade and a principal of Rosenthal Collins, a Chicago based commodities and futures trading firm. He has been instrumental in advancing the cause of innovative exchange traded products such as Treasury Bond futures and insurance derivatives.
is a former secretary general of the 1992 United Nations Conference on Environment and Development, the Rio Earth Summit, and under-secretary general of the United Nations. He is currently the chairman of the Earth Council, a non-governmental organization dedicated to the cause of sustainable development. In June of 1995, he was named senior advisor to the president of the World Bank. From 1992 to 1995, Strong was chairman and CEO of Ontario Hydro, one of North America's largest utilities.
James Thompson is a former four term governor of Illinois and currently a managing partner of Winston and Strawn. During his last term as governor, Thompson was involved in the implementation of the sulfur dioxide (SO2) market created by the 1990 Clean Air Act and headed the Global Climate Change Task Force at the National Governors' Association. He is a director of the Chicago Board of Trade.
Brian Williamson is the chairman of the London International Financial Futures and Options Exchange, one of the world's largest exchanges. He has been involved in trading financial futures for almost three decades in London, New York and Chicago. He held senior executive positions for prominent trading firms and was a member of the International Advisory Board of the Nasdaq Stock Market, becoming Chairman in 1996. He was also governor-at-large of the National Association of Securities Dealers in Washington, DC from 1995 to 1998.
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