V – Review of Chicago Climate Exchange (CCX)


Chicago Climate Exchange (CCX)

The Chicago Climate Exchange (CCX) is an emission trading scheme based in Chicago, USA where organizations voluntarily sign to a legally binding reductions policy. It is the only cap-and-trade system including all six greenhouse gases in the US. CCX issues Carbon Financial Instruments (CFI) and members make a voluntary commitment that is legally binding (CCX, 2009). In 2008, CCX was responsible for 44% of the transactions in the voluntary market and worth $307m (Hamilton, 2009).

The analysis below has been assessed from information available at the CCX website (CCX, 2009); the CCX Forestry Sequestration Protocol (Chicago Climate Exchange Inc., 2009) and information provided by Stephen Donofrio from CCX.

11 forestry projects have been verified so far.

Afforestation/ Reforestation            Score: 5

CCX accepts afforestation, reforestation and sustainable forest management projects.

REDD      Score: 5

CCX does accept REDD projects but does not have methodologies yet.

Location         Score: 5

Projects should be located either in the US or in non-Annex I countries.

Additionality        Score: 2

Projects must pass two criteria to pass the additionality test:

Regulatory criteria: a project must happen beyond any regulations.

Common practice criteria: technology or practice used in the area will determine the common practice baseline. In addition, reforestation can only happen when there has been no forest in the last 10 years in the area.

The additionality test is vague and does not ask if carbon finance is the only reason for the project to make sense economically, for these reasons CCX scores 3.

Methodology Approved       Score: 4

CCX methodology follows ISO 16065-2, indicates a high level of quality, but is only available for Afforestation and Reforestation projects. REDD projects have no methodology at the moment and follow a different process. A project developer must prepare information documents that cover the topics from the REDD template. This will then be reviewed for eligibility and a meeting will follow clarifying CCX approach to REDD projects.

The project documentations are not available to the public; therefore it was not possible to check if the project documentation provided enough information to ensure the quality of the credits. For this reason, CCX will receive 4 points.

Permanence        Score: 2

CCX requires three steps to ensure permanence:

– A buffer pool equal to 20% of the credits. The credits in the buffer will be released back into the project owner near the end of the CCX Market period if it has not been used.

– A commitment to keep the forest for at least 15 years.

– Sign a letter of intent (not legally binding) to preserve the forest beyond the 31st of December 2010.

The guarantee period of permanence is well below other standards and the commitment requirements are very poor. With these requirements it is very easy to implement project developments in an area, plant trees, receive the credits and then clear the land for other activities. Clearing the trees will release back to the atmosphere all the carbon that has been sequestered so far. For these reasons CCX will receive 2 points.

Leakage        Score: 2

Only leakage that occurs inside the boundaries are quantified. CCX does not expect that planting trees will produce external leakage; therefore it does not require any assessment.

This means that if a forest is planted in an agriculture area, the farmer may buy a new forest and clear the land to continue his agricultural activities. There is no assessment to prevent this from occurring. For only considering internal leakage, CCX will receive only 2 points.

Co-benefits       Score: 1

CCX does not quantify co-benefits.

Registry      Score: 4

CCX uses its own registry. Verifiers must confirm that the project is not listed in another registry. In addition CCX assigns a unique identification code for every CFI contract.

For not having a third party registry, CCX will not receive the highest score.

Transparency        Score: 1

CCX falls short on many aspects of transparency because it is not possible for the public to see any documents of the offset project, only project listing is available. No public consultation is required either. CCX gains the lowest score on transparency.

ICROA        Score: 1

ICROA does not accept CCX credits.

US Market        Score: 5

CCX is the most popular carbon trading scheme in the US and it is very likely it will remain so in the future.

Comments

CCX trades almost half of all voluntary market transactions in the world making it the most important platform for offset projects. However it is offering one of the worst services as a standard in the market scoring only 37 points.

There are many doubts over additionality which lacks a test to ascertain if the project would or would not have been possible without carbon finance. Like CCAR, CCX wants to address a sectoral additionality where clear rules define the boundaries between which a project must fall in order to be considered additional.

CCX does not seem to understand the meaning of permanence and the carbon cycle of forests. There are no guarantees that, after the 15 years commitment, the forest will still be managed properly, ensuring the forest will still be intact in the future and avoiding the release of the carbon sequestered during the crediting period. This also demonstrates the risk to the buyer if the standard stops activities. Due to the nature of forestry carbon credits, there is the risk that the carbon sequestered may be released into the atmosphere eventually. CCX should provide a guarantee that even if CCX closes the contract remains legally binding and that the project developer should guarantee the permanence of the credits.

CCX only accounts for leakage in the delimited area and does not expect external leakage so there is no need for assessment. A piece of land that is occupied by any form of economic activity and needs to relocate in order for a forest to be planted is very likely to produce an external leakage. This scenario is not covered.

CCX does not use a third party registry but double-checks with other registries for any double counting and issues a unique identification code for every CFI contract which is a positive aspect. However, CCX also lacks transparency as it is not possible to access the project documentation via the website. Customers or the public will have to contact the project developers individually to request the documentation.

CCX shows that the market alone is not able to provide the quality needed to guarantee that the money spent is actually reducing carbon emissions. More regulation is essential to oversee the market and make sure that the carbon credits are indeed reducing carbon emissions.

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