Cash for Carbon


The Chicago Climate Exchange is taking off. But will it soar?


By Kiera Butler



Illustration by Christopher Silas Neal

Traditionally, the giant chemical manufacturer DuPont has not exactly been an insider in environmental circles. But it is one of a growing number of companies that realize green measures save money; since 1990, DuPont’s energy reduction program has saved the company $3 billion. And in the past few years, the company’s reductions have not only made for savings—they’ve also generated income. In January of 2003, DuPont became a founding member of the Chicago Climate Exchange (CCX), the nation’s only voluntary greenhouse gas emissions trading marketplace. Although DuPont will not discuss the specifics, it is public knowledge that every year the company has surpassed its reduction targets. What’s more, DuPont has sold its extra allowances and made a profit. “We wanted to see whether trading works, whether it can be done efficiently, in a way that makes sense,” says Ed Mongan, the company’s energy and environment programs director.

Economist Richard Sandor founded CCX on the belief that it could—and that the most effective way to fight global warming is a carbon dioxide cap-and-trade system. The “cap” refers to an overall limit on the amount of carbon a particular company, city, state, or country can produce. If a member stays under the limit, it can “trade,” or sell, its extra allowances to other companies—similar to the New York Stock Exchange, except that instead of shares in companies, CCX members trade emissions. Those who don’t meet their reduction requirements must either buy allowances from others or purchase “offsets”—credits from approved sources, such as organizations that plant trees. CCX regulates members by setting reduction goals and requiring yearly third-party audits.

It’s not a new idea. In the ’70s, the federal Acid Rain Program led to a significant reduction in sulfur emissions in the U.S. Cap-and-trade, economists say, works because it provides financial incentive for businesses to curb pollution. What’s more, says Tom Tietenberg, an economist at Colby College, companies are more likely to warm to the idea of a cap-and-trade system than to a tax, which he points out, “is a four-letter word in the U.S.”

In 2003, with two grants from the Joyce Foundation, a Great Lakes–based philanthropic organization, Sandor started the exchange. Later that year, CCX had its initial public offering, and to date, members have traded almost 14 million tons of carbon, representing about $60 million. Already, CCX has more than 200 members, including Rolls-Royce and New Belgium Brewing Company, six cities (Aspen, Berkeley, Boulder, Chicago, Oakland, and Portland), and the state of New Mexico.

Since CCX is voluntary, some wonder whether companies with high carbon outputs would even consider joining CCX. Though right now about 75 percent of members have extra emissions credits to sell, the fact that it’s a seller’s market isn’t necessarily a bad thing, experts say, since emissions credits retain their value indefinitely.

And at this stage in the game, not everyone is in it for the cash. “Baxter Healthcare thinks they can’t be in the pharmaceutical business without demonstrating to their shareholders that they are at the forefront of the environmental movement, which has healthcare implications,” says Sandor. “The city of Chicago joined because they want to be the greenest city in America. Universities join because they’re committed to the environment.”

Peter Goldmark, director of Environmental Defense’s climate and air program, believes that CCX’s greatest strength is that it introduces companies to carbon reduction. “A lot of these CEOs think ‘carbon caps, oh no!’ ” says Goldmark. “But now some companies have learned that this is a manageable problem.”

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Issue 25



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