European Union pollution cap fuels futures market for greenhouse gas emissions
Chicago Tribune --Sep. 6
Sep. 6--The Chicago Climate Exchange will team up with the International Petroleum Exchange to create a new futures market in Europe for greenhouse gas emissions.
The Chicago exchange began trading late last year, with participants that
included Ford Motor Co., DuPont Co., Schaumburg-based Motorola Inc. and the City
of Chicago.
Exchange members buy and sell the rights to emit greenhouse gases. That gives
companies an extra incentive to cut the emissions of carbon dioxide because
unused credits can be sold on the exchange. Participation in such efforts is
voluntary.
Demand for such an exchange in Europe is being driven by the European Union
Emissions Trading Scheme, a system that in January will begin regulating the
emission of carbon dioxide in the 25 EU countries, Iceland and Norway.
"It's a cap and trade system. Each company is given a maximum amount it
can emit under the cap," said Richard Sandor, chairman and chief executive
of the Chicago exchange. "Trade comes when you are aggressive in cutting
your emissions and are below your cap. Then you can sell [credits] to other
people who weren't able to achieve their cap."
Robert Reid, chairman of the International Petroleum Exchange, called the
emissions trading scheme a way to "meet environmental aims through economic
means."
The aim of his exchange's partnership with the Chicago Climate Exchange is to
"create the futures market of choice for the nascent European emissions
market," he said in a statement.
The European Climate Exchange will launch in the last quarter of 2004. It
will be traded on the International Petroleum Exchange's electronic platform.
London-based LCH.Clearnet Ltd. will clear trades.
Using the free market to help companies profit by reducing pollution is a
concept that ultimately can be expanded to other areas, Sandor said.
"We're beginning to understand that air and water have to be rationed,
and the best way to ration than is through a pricing system rather than through
what's called command and control."
But David Hawkins, director of the Natural Resources Defense Council's
climate center, said such programs only have limited success in the U.S. because
participation is not mandatory.
"As a program to deal with global warming, it just doesn't have enough
horsepower," he said. "The problem with voluntary programs is there
aren't enough volunteers."
The trading price at the Chicago Climate Exchange is about $1 per metric ton
of carbon dioxide, and "the reason it's so low is because there are lots of
sellers, but not many buyers," Hawkins said. "And there aren't many
buyers because there aren't policies established that require them to account
for their [carbon dioxide] emissions."
But David Sandalow, an enviromental scholar at the Brookings Institution, a
moderate think tank, said using markets to encourage reductions in greenhouse
gas emissions is an idea that could take hold over time.
The voluntary program at the Chicago Climate Exchange has given companies a
chance to "gain experience in order to help shape the regulatory programs
they expect will be coming," he said. "And they've probably been able
to gain credit with their customers for environmental performance."
Such concepts can be expanded, he said.
"The power of the market is very strong, and it's been used successfully
with a few air pollutants," Sandalow said. "That experience has given
us reason to believe it can be used for other air pollutants and for other
environmental problems."
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