There is an inconvenient truth about carbon trading that is sinking in at the Chicago Climate Exchange (CCX). The truth is you just can’t make any money at it on a voluntary basis without the hammer of cap and trade legislation hanging over the heads of business. So the parent of CCX announced it will shut down operations at the end of the year.
Hoping to corner the market in trading another commodity, US-based Intercontinental Exchange, acquired UK-listed Climate Exchange last July for $634 million. Climate Exchange is the operator of the European Climate Exchange trading EU CO2 emissions allowances for the European Emissions Trading Scheme (EMTS). It also sought to create the same emissions trading exchange in the US betting Congress and the Obama Administration would push through the Waxman-Markey cap and trade legislation. But that plan went bust when Congress was unable to muster the votes to pass the bill in the Senate and recent mid-term election saw its supporters thrown out of office in the purge of Democrats by voters.
The Financial Times reported that the Fortune 500 firms that largely made up the CCX clientele did not want to continue to trade voluntarily in the absence of the cap and trade mandate on the horizon. CCX began in 2003 and had grown to about 450 members trading emissions of carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, perfluorocarbons and hydrofluorocarbons.
Most of the members had adopted sustainability strategies and used the trading process to present themselves as the advanced guard of clean energy companies by mitigating the environmental impact of their operations. Some may still seek to trade emissions voluntarily through the regional organizations set up to facilitate it such as the Regional Greenhouse Gas Initiative in the East and the Western Climate Initiative in the West and Canada but both are driven by the state regulatory policies in their regions. RGGI prices have persistently fallen as prospects for cap and trade diminished and, as a result, its performance has been disappointing to its proponents. The WCI has seen waning interest and defections and California’s AB32 mechanism seems largely to have supplanted efforts in the West.
Because they do not require buy-in from all fifty states, and because the politics of energy in the U.S. usually break down along regional divisions, as opposed to partisan ones, there may be more cohesion in smaller markets rather than a single national one.