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Carbon Trading: How the Chicago Climate Exchange Works

I’m Shep O'Neal with the VOA Special English Agriculture Report.

A carbon exchange is like a stock exchange for pollution. The idea of trading in greenhouse gases has its roots in the Kyoto Protocol. This is the international treaty to reduce levels of gases that trap heat and are linked to climate change.

The Chicago Climate Exchange is known as the CCX. It provides a market for businesses to trade on the release and capture of carbon dioxide and other greenhouse gases.

Agricultural businesses can earn credits because plants remove carbon dioxide from the air. The process is called carbon sequestration.

Six different polluting gases are traded on the CCX. These include carbon dioxide, methane and nitrous oxide.

So how do people trade in greenhouse gases? The system is called cap and trade. Members agree to reduce the amount of greenhouse gases they release into the atmosphere by a percentage. That limit is the cap.

Trading takes place when members release less than their limit. That leaves them with a surplus of emission credits. These credits can then be sold to members that have released more than their limit.

Market forces drive the price of the credits. The credits are called Carbon Financial Instruments. Each credit is equal to one hundred metric tons of carbon dioxide, the most common greenhouse gas.

By this December, members of the CCX are supposed to have reduced their emissions four percent below levels in a baseline period. That period is nineteen ninety-eight to two thousand one. A six percent reduction is the target for two thousand ten.

The CCX was the first carbon exchange when it opened in two thousand three. Today it is the only exchange of its kind in North America. In Europe, big producers of greenhouse gases are required to take part in emissions trading. The CCX owns the European Climate Exchange, in the Netherlands.

No one is required to take part in the Chicago Climate Exchange. But those who do are legally required to observe their emission agreements and the rules of the exchange.

Richard Sandor started the CCX. He helped develop the financial futures market for the Chicago Board of Trade. Mister Sandor has said he thinks the market for carbon credits could one day be larger than the market for oil.

This VOA Special English Agriculture Report was written by Mario Ritter. Read and listen to our reports at I'm Shep O'Neal.