Sunday, January 8, 2012

The Chicago Climate Exchange and the "cap and trade" market in the US

Here is a quick follow-up on the 2009 post called Death of market. It discussed the collapse of the voluntary carbon emissions credits market on the US based Chicago Climate Exchange (CCX), as the proposed "cap and trade" legislation got derailed.

In 2010 the UK parent of CCX called Climate Exchange Plc (CLE) was sold to ICE.
Futures Mag: Under the agreement, CLE shareholders would receive £7.5 ($11.26) for each share of CLE at the closing of the scheme (sale), valuing CLE at £395 (approximately $593 million). According to a release, the acquisition represents a premium of 56.9% from the April 29 closing price of CLE.

The deal expands the competition between ICE and CME Group, which is part of the Green Exchange joint venture. The Green Exchange trades on the CME Globex and Clearport platforms and clears through CME Group's clearinghouse.

In a statement, Climate Exchange Chairman Richard Sandor said, “We believe that a combination with ICE makes strategic sense and look forward to addressing continued opportunities together.”
Apparently these "opportunities" were quite limited. Even though carbon trading is still somewhat active in Europe, the US carbon futures exchange is shutting down. It was a great idea by Richard Sandor to create a market based solution to a global problem, but in the US it makes little sense politically. Republicans are not too keen to tax corporations in order to "address" global warming, while some Democrats and many environmentalists are not too happy with market based solutions.  Both have an incentive to kill the program.

Unfortunately the project is ending on a sour note. The futures arm of CCX had sold a number of exchange seats which are now worthless. In order to recoup some funds, the owners are suing Richard Sandor, claiming fraud. The claim states that Sandor promised to keep the number of seats fixed, and the seats were transferable and could be leased. None of those promises were kept according to the claim.
Crain's (Dec 15th): Traders at the Chicago Climate Futures Exchange, which plans to shut down early next year, are suing founder Richard Sandor and other exchange officials, alleging a fraud that impaired the value of their trading privileges. ...

The suit, filed in Cook County Circuit Court on Wednesday by two dozen individuals and trading firms, claims that they were told that only 250 trading privileges would be sold at the short-lived exchange and that their seats could be resold or leased when 250 were purchased. Mr. Sandor and other defendants made false representations, it alleges, because the exchange never intended to limit sales to only 250 seats or to allow them to be transferred or leased.
There is some good news on the carbon trading front in the US however. Seems California is getting into the game of carbon trading.
Businessweek: California air regulators approved the final design for what will become the country’s first economy-wide program to regulate greenhouse gas emissions.

The Air Resources Board approved 252 pages of rules governing how the state will cut carbon emissions from power generators, oil refineries and industrial plants roughly 15 percent by 2020. The plan will now be reviewed by the state Office of Administrative Law.
It's hard to see how California could make much of an impact on global carbon emissions with China and India pumping enormous amounts of CO2 into the atmosphere to support their growth, but one's got to respect them for trying.
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