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Carbon Trading Comes Online

by Curtis Runyan, World Resources Institute
Environmental News Network, March 18, 2004

Last December, the World Resources Institute became the first group to purchase carbon credits for 2003 on the newly launched Chicago Climate Exchange (CCX). The environmental research organization joined a number of corporations -- including American Electric Power, DuPont, and Ford -- in using the exchange to buy and sell "carbon credits" aimed at reducing the amount of carbon dioxide (CO2) being released into the atmosphere.

In the past century atmospheric levels of CO2 (and several other greenhouse gases responsible for causing a global warming) have dramatically increased. Over that period CO2 concentrations have grown by more than 30 percent, causing global average surface temperatures to rise by about 1 degree F, according to the Intergovernmental Panel on Climate Change (IPCC).

The climate exchange, which opened for business in September 2003, is working to help corporations and other groups reduce their net greenhouse-gas emissions in the most efficient way possible. The trading scheme allows companies that are able to reduce their emissions beyond their stated goal to sell the extra reductions as credits on the market. Companies that cannot easily reduce their emissions can buy those credits to cover their reduction commitment.

"Emissions trading has proved to be an efficient and flexible approach to reducing levels of pollution when it's done well," said Dr. Jonathan Pershing, head of WRI's climate program.

While the CCX trading system is now underway, several organizations have expressed concerns about its environmental effectiveness because it was established on the basis of voluntary rather than binding emissions limits. The Kyoto Protocol, an internationally binding agreement that would require countries to reduce CO2 and other greenhouse-gas emissions, remains in limbo since it was rejected by the United States. And Russia -- whose support could bring the protocol's emission caps into force -- continues to postpone its decision on whether to ratify Kyoto.

Without a binding cap on greenhouse-gas emissions, there is relatively little demand for carbon credits and the market for buying and selling the credits is very limited. It is in this context that CCX members have committed to reduce their carbon emissions 4 percent by 2006 -- a level that is significantly below those called for under the Kyoto Protocol. Still, the effort is an important step in pioneering programs to mitigate climate change.

Credits for about 15,000 tons of CO2 have been traded on the CCX exchange since it opened its doors. The credits sold at just under $1.00 per ton. "The private sector's response to the initiative has been incredible," said Dr. Richard Sandor, the chief executive officer and chairman of CCX. "These companies really believe that a proactive approach to climate change advances everyone's long-term interests."

Different companies have different motivations for the voluntary program -- from increasing efficiency and energy savings in their offices and plants to building better relationships with local communities. In addition, these corporations are hoping to be well ahead of their competitors when, and if, governments outside Europe and Japan issue mandates to reduce greenhouse-gas emissions.

"The Chicago Climate Exchange is not as robust or stringent as we would like it to be in a perfect world," said Dr. Pershing. "But we can't afford to wait for mandatory reductions before we start to implement the mechanisms needed to address this very serious and immediate problem. The CCX helps set us on the right course."

WRI joined the trading scheme in order to meet its 100 percent emissions-free goal, which it achieved in 2003. In addition to operating in an energy-efficient office and paying for green power generated by wind turbines, the organization purchases credits to offset emissions from other polluting practices, such as employee airplane travel. "Being the first NGO to voluntarily commit to reduce its greenhouse-gas emissions through CCX is indicative of WRI's leadership and vision," said Dr. Sandor. (WRI Features)

Curtis Runyan, World Resources Institute
Carbon Trading Comes Online
Environmental News Network, March 18, 2004

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