Carbon Credits and the Chicago Climate Exchange

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• Carbon Credits and the Chicago Climate Exchange
• Neil Sampson

Augusta, Maine June 18, 2009
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Chicago Climate Exchange - CCX

• North Americas only greenhouse gas (GHG) trading
  system.
• Launched in 2001. Modern web-based trading
  platform.
• Only Members can buy and sell on CCX.
• Trading launched in 2003 Currently trading
  emissions dated 2003 through 2010.
• Trading rules managed by expert committees drawn
  from CCX members.
• Info at www.chicagoclimatex.com

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CCX Membership

• Members have significant, direct GHG emissions
  (corporations, cities, states, etc.)
• Legally commit to reduce 2000 GHG emissions by 6
  prior to 2010.
• If they reduce more than needed, they can sell
  the excess. If they reduce less than needed,
  they must buy from the trading platform.
• Offset Providers organizations without
  significant direct emissions can join CCX as
  offset providers.
• Aggregators organizations that pool small
  projects together for trading on the CCX.

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Current CCX Members

• Industrial Members
• Ford Motor Co.
• DuPont
• Allegheny Energy, Inc.
• International Paper
• Public Members
• City of Chicago
• State of New Mexico
• Non-Governmental Members
• World Resources Institute

• Offset Providers
• CNX Gas Corp.
• Gallo Cattle Company
• Vessels Coal Gas Inc.
• Aggregators
• AgraGate Climate Credits Corporation
• Carbon Farmers LLC
• National Carbon Offset Coalition (Red Rock)

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Vintage Years

• Carbon credits on the CCX are sold by vintage
  year. That means that carbon sequestered in
  2008 can be used to offset GHG emissions created
  in 2008.
• With proper documentation and proof, landowners
  can claim some prior year credits on practices
  such as afforestation.
• A landowner joining a CCX pool in 2009 can sell
  credits for 2009 and 2010 under the current
  market situation.

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Prices on CCX

• All prices are quoted in terms of U.S. per
  metric ton of carbon dioxide equivalent. (tCO2e)
• Prices may change daily as trading proceeds.
• Prices are posted daily on the CCX web site.
• CCX has established a futures market that may, as
  it matures, dampen price variation.
• Aggregators will decide when to sell their carbon
  pools, based on when they are registered and how
  they read the price signals. Landowners agree to
  let the aggregator make these sale decisions.

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Recent Price Trends
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Selling Credits on CCX

• Most landowners will work through an Aggregator
  that can assist them in meeting CCX rules, and
  sell the credits on the CCX trading platform.
• Local Organizations and the National Carbon
  Offset Coalition can work together to aggregate
  projects.
• There will be costs associated with the
  aggregation and trading, such as
• A CCX registration and trading fee (currently
  .20 per ton)
• A CCX verification fee (set by the aggregator)
• An aggregation fee (set by the aggregator)

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General CCX Rules

• Project must provide explicit documentation on
  the ownership and rights to the carbon credits.
• Project owner must submit required reports.
  Aggregator will provide report formats and rules.
• Project must place 20 of earned credits in a
  Reserve Pool, and agree that Reserve Pool credits
  can be used to cover future shortfalls, if any.
• Landowner will receive a pro-rated share of
  remaining pool credits at the end of the trading
  period.
• Project owner will provide access to project land
  and records for verification auditors.

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Application Requirements

• Landowners will need to provide the following
  information to apply for project status
• Proof of ownership of carbon credits
• Land location and description, acres involved
• Maps showing lands included in the project
• Description of land condition and use before the
  project
• Description of management planned under the
  project

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Projects to earn Forest Offsets

• Afforestation Planting trees on land that has
  not been in forest for the previous 10 years or
  more. A land use change that creates new forest
  lands.
• Reforestation Planting trees on forest land
  where the forest was destroyed and is not
  naturally regenerating.
• Sustainable Forest Management Changing forest
  management so as to increase forest biomass and
  retain it for long periods.
• Harvested Wood Products Credit for the amount
  of wood that will remain in use or in landfills
  100 years after it is harvested.

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Afforestation (Tree Planting)

• Trees planted after January 1, 2003 on land that
  had been un-forested (in another use) prior to
  that date.
• Project owner must contract with the Aggregator
  to keep the land in forest for at least 15 years.
• Project must not be thinned or harvested in the
  CCX contract period.
• If a tree planting project is to be harvested, it
  should be entered under the sustainable forest
  management rules.
• All projects must be accessible to CCX
  verification auditors.

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Regional Yield Table (NE)
Allowable yields in tCO2e per acre per year by
age group. For older trees or other species, see
CCX Protocol at www.chicagoclimatex.com
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Sustainable Forest Management

• Forests must be certified through American Tree
  Farm System (ATFS), Sustainable Forestry
  Initiative (SFI) or Forest Stewardship Council
  (FSC).
• Earn credits on the basis of verified annual
  increases in above- and below-ground portions of
  live trees.
• Baseline is carbon in above- and below-ground
  live trees on December 31 of the year prior to
  project initiation.
• Model can be used to project growth from
  inventory year. Model results are discounted
  20. No discount for projects with annual
  inventory.

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Sustainable Forest Management

• Projects must place 20 in Reserve Pool.
• If subsequent inventory reveals a decrease in
  forest carbon stock, project must provide
  additional credits to cover the loss, or use
  Reserve Pool.
• In the event of catastrophic loss, owners
  liability is limited to the credits in the
  Reserve Pool.
• If forest land is sold or purchased, the
  allowable carbon stocks will be adjusted to the
  new land area.
• Landowner agrees to maintain forest certification
  for 15 years and keep forest stocks in the
  project beyond the contract period.

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Harvested Wood Products

• Must come from sustainably managed (certified)
  forests.
• Credits are granted for the amount of wood
  estimated to remain in use or in landfills 100
  years after harvest.
• Forest Service methods and tables used to
  calculate.
• For landowners, allowable credits are based on
  the weight of wood delivered to the sale point,
  by timber type.
• Convert from volume measures to weight if needed.
• Multiply by 0.5 to adjust from green to dry
  weight
• Multiply by 0.5 to adjust from dry weight to
  carbon
• Multiply by (3.67)(0.9) to convert to tCO2e
  (metric)

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Harvested Wood Products

• For landowners, multiply the tCO2e calculated
  times the following factors to get the 100-year
  credits that will be eligible (NE Example)
• Softwood sawlogs 0.318
• Softwood pulpwood 0.090
• Hardwood sawlogs 0.316
• Hardwood pulpwood 0.261
• To claim HWP credits, landowners should
• Include a clause in their timber sale contract
  that reserves the carbon credit reporting rights
• Be prepared to provide mill receipts to document
  sales.

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Role of Aggregator

• Maintain a database of all projects at the stand
  level that reflects management activities, growth
  and yield, and other forest details.
• Arrange for verification of project records and
  lands.
• Obtain CCX-required reports from landowners
  submit summary reports to CCX.
• Assure CCX that all projects continue to meet CCX
  rules.
• Trade offset pools on the CCX trading floor pay
  net receipts to project owners.

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Role of Subaggregator

• Manage data, modeling, and reporting system
  required by CCX. (This is required of the
  aggregator in this example, it is done by the
  local subaggregator)
• Provide data guidelines for foresters who prepare
  inventories for participating landowners.
• Provide baseline inventory and modeling results
  for each participating landowner, in format for
  creation of CCX Pool.
• Incorporate data updates from landowners or
  foresters.

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The Subaggregator Will

• Work Directly with Landowners
• Baseline Forest Inventory done to CCX
  specifications, capable of entry into Forecon
  model
• Develop forest management plan if needed
• Assist with Tree Farm Certification if needed
• Plan manage forest harvests if needed
• Post-harvest cruises on partial harvests
• Provide data to landowner in professional format.

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Chicago Climate Exchange
CCX Verifiers
NCOC
Subaggregator
Foresters
Pool 1
Pool 3
Pool 2