The Chicago Climate Exchange closure, a vote for robust GHG MRV?

November 10, 2010, by Tim Stumhofer

In the wake of last week’s “wave” election in the United States significant attention has turned to sifting through the new political realities for climate policymaking in the US and beyond. As the climate world grapples with this political shift we would like to offer a slightly different take on the state of GHG management by pausing to examine a separate announcement that came out of the US just in advance of the elections, the meaning behind which is particularly instructive in this time of change and upheaval.

The stepwise shut down of the Chicago Climate Exchange (CCX) follows the purchase of its parent company Climate Exchange Plc (CLE) by the Intercontinental Exchange Inc (ICE). In addition to the CCX, CLE runs a network of financial exchanges, including an exchange in Europe, on which carbon commodities are traded. The CCX itself consists of two components: (1) a series of voluntary, yet legally binding, corporate emissions mitigation commitments embedded in an emissions trading program; and (2) a GHG emission offset program. (More on the specifics of the design and operation of CCX can be found here.)

Following ICE’s acquisition of CLE, market analysts identified two key factors that led to the deal: (1) that ICE wanted to expand into carbon trading in Europe’s regulated market vis-à-vis CLE’s profitable flagship London-based European Climate Exchange, and (2) with sentiment on the future prospects of carbon trading depressed on the heels of failure in Copenhagen and the US Senate, CLE was available at a bargain price.

The narrative of one company acquiring another followed by operational retooling is hardly unusual business-page fodder and not a news item we’d generally choose to highlight in this blog; however, wrapped up in this example of carbon market consolidation is the decision to effectively shut down the CCX’s pioneering corporate cap-and-trade scheme.

The CCX’s unique voluntary-yet-binding structure and atypical for-profit administration have served to catalyze significant debate on the program’s merits. Yet the timing of ICE’s decision to unwind the CCX has led commentators to tie the closure to a narrative related to sagging US climate policy sentiment. While there is truth to this analysis, there’s more insight to be gleaned from ICE’s decision-making. Indeed, counterintuitive as it may sound, the shuttering of CCX’s voluntary cap-and-trade experiment may stand as one of the more constructive milestones in the history of corporate climate initiatives. The real story here? The triumph of the next generation of climate programs, characterized by a fundamental shift toward more robust methods and systems to measure, report, and verify GHG emissions.

Breaking up CLE into its component parts —a network of commodity bourses, the CCX offset scheme, and the CCX corporate GHG program— provides a useful framework against which to both evaluate the significance of the CCX closure and handicap the present state of play in climate policy.

The exchanges

CLE operates a global network of carbon exchanges. An aggressive first-mover, the company was not shy about expansion, moving into new markets well in advance of the formulation of substantial trading regimes. The CLE network is best known for its bourses in Chicago and London, on which a range of carbon commodities are traded, though emission allowances and offsets destined for compliance use in the European Union’s Emission Trading Scheme make up the lion’s share of traded volumes. CLE also runs exchanges in more nascent markets in Canada (Montreal), Australia (Syndney), and China (Tianjin).


The development and administration of the CCX —the company’s original venture— extended well beyond the marketing and maintenance of financial infrastructure. Whereas CLE’s subsequent exchange network was developed to serve as regional clearinghouses for carbon commodities —credits developed through a range of third-party climate programs, administered by NGOs, intergovernmental bodies, and governments at all levels— the CCX took a more active role in policymaking, creating its own market from the ground up. Writing their own rules, they initiated an innovative and untested experiment: a privately administered voluntary cap-and-trade program.

Central to the effectiveness of environmental policy is trust. Insufficient buy-in and support from the public and other stakeholders can erode policy to the point of ineffectiveness. With respect to the CCX, operating as a venture of a private for-profit entity, the program faced a credibility gap from its inception. This shortfall, critics have argued, was never appropriately addressed, leaving open nagging concerns related to trust in the program. At scrutiny here was the program’s approach to transparency and information sharing. While government and NGO administered programs often strive for openness in their operations, the CCX operated an opaque regime.

The CCX’s closed process exacerbated discord amongst observing experts and advocates regarding a range of program design issues, including the stringency of the CCX’s organizational targets, the rigor of the MRV requirements for its offsets, and its treatment of key concepts such as additionality, leakage, and permanence. The CCX consequently became a lightening rod for criticism within practitioner communities and failed to achieve buy-in from key stakeholders, including several influential NGOs. (Some environmental NGOs even went as far as to actively discourage potential participants from joining the scheme. See for example the National Resource Defense Council’s memo “States and Cities Should Not Join the Chicago Climate Exchange” [PDF].)

Snapshots of the nature of CCX’s challenges during its early years of operation have been anecdotally captured in a range of media reports. (One of the more comprehensive pieces published in the New York Times in 2006 is available here.) With the benefit of hindsight, it now seems obvious that it was only a matter of time until the CCX’s programs were replaced. But an examination of shortcomings only tells half the story. While the CCX’s credibility gap loomed large as a potential challenge to the notion that CCX credits would be recognized in a future compliance regime, it was not until more sophisticated, open programs that seriously addressed the CCX’s technical shortfalls emerged that the scheme’s fortunes began to wane.


What does the case study of CLE and its CCX tell us about the state of play in climate policy? First, while sentiment on climate policy may seem bearish here in 2010, major mainstream actors are still making long-term bets. ICE may have acquired CLE for a relative low price, but their outlay still represents a significant expenditure.

In contrast to the relatively straightforward wager on future carbon trading volumes embodied by ICE’s interest in CLE’s bourse network, the CCX’s proprietary cap-and-trade program demands a more nuanced business analysis. In addition to the frequently parroted line that the CCX closure is a referendum on US climate policy sentiment, ICE’s decision to keep only the offset program running at bare bones administration can be viewed as a direct reflection of the CCX’s failure to satisfy the confidence of its stakeholders. Conversely, this development also reflects the success of peer programs in keeping up with these demands.

The Institute welcomes the increasing orientation of carbon markets towards technical sophistication. This quiet period for climate policy, we believe, represents an opportunity for the community to “double down” on robust MRV systems and capacity. Perhaps consolidation will be the unlikely force clearing the path for such action.

9 responses to “The Chicago Climate Exchange closure, a vote for robust GHG MRV?”

  1. Julie says:

    An interesting take on what otherwise might pass as a one-dimensional event (ie, CCE closure). I’m not sure I grasp a couple of references, however. Could you elaborate please? I suspect there will be a single answer to my 3 questions, but here goes:

    “The triumph of the next generation of climate programs, characterized by a fundamental shift toward more robust methods and systems to measure, report, and verify GHG emissions.” Which climate programs?

    “…it was not until more sophisticated, open programs that seriously addressed the CCX’s technical shortfalls emerged that the scheme’s fortunes began to wane.” Which programs?

    “Conversely, this development also reflects the success of peer programs in keeping up with these demands.” Which programs?

    More generally, well done to all the GHGMI team for some very thought-provoking articles.

  2. @Stanley: Thanks for the kind words.

    @Julie: Thank you for the thoughtful question. You bring up a good point. …or actually three points, which can, as you suggested, be squarely addressed in one broad response.

    My sweeping reference to “more sophisticated, open programs,” “next generation programs,” and “peer programs” is an allusion to what I think are best categorized as a number of “classes” of climate programs.

    Looking first at the offset side, in its pre-ICE existence the CCX straddled several segments of the voluntary carbon market:

    • As regards geography the CCX took an early foothold in the US and as a first mover had a significant impact in domestic US offset development (though international offsets were also permitted in later years);

    • With respect to end-use, CCX’s offsets have been used for the following: (1) for compliance purposes to meet the CCX’s voluntary but legally binding organizational targets (let’s call this quasi-voluntary); (2) retired in a true voluntary capacity to meet “carbon neutrality” or similar objectives outside of the CCX’s organizational program and not obligated under force of law; and (3) as a pre-compliance speculative bet that the credits might be recognized under a future regulatory program.

    A number of programs have emerged in these “classes” (with a good deal of overlap). Looking at market share it is worth noting the impact the Climate Action Reserve (CAR), for instance, has had on the US offset market primarily as a pre-compliance bet, but also with true voluntary buyers looking for US-based credits. Similarly, in the true voluntary space the Voluntary Carbon Standard (VCS) and the Gold Standard both hold significant market share. Additionally, a number of smaller often niche-focused programs round out the ever-shifting outlook for the voluntary/pre-compliance carbon market. (For more on the voluntary carbon market I recommend reading EM/BNEF’s always excellent annual report on the subject:

    Using these three programs as a point of reference (though they are by no means the only “next generation” programs) gives an opportunity to highlight the general openness of their respective administrations and their attitudes to measurement and verification issues. There is a good deal of variation between the three programs, but I would (and I suppose I have) posit(ed) that they have all taken a more progressive and serious approach to measurement and verification. For specifics on these and more offset programs I’d encourage you to visit:

    The registry side of this question is a shorter answer. As we’re referring to US-based voluntary registry programs, by far the largest organizational program still in operation is The Climate Registry ( Again I would refer you to the openness of their process and their serious approach to MRV.

    I hope that answers your question, Julie (and perhaps sheds some light on the issue for other curious readers). Thanks again for the note and your support of the Institute.



  3. This was indeed a refreshing outlook on the closure of the Chicago Climate Exchange. I’m hopeful that the market will learn from the case study of CCX that a rigorous monitoring, reporting and verification system is absolutely essential in order to maintain positive public perception and most importantly uphold the programs environmental integrity.

  4. David Dwyer says:

    Thanks for a great article Tim.
    One of the unavoidable downsides to the closure is the fodder it gives to the talking heads. Quite a few of the neo-liberal media types are using this closure to hammer home their points that carbon credit trading is a sham, global warming and climate change are a sham, etc.

    It will take some time for the general public who are not involved directly in the environmental sphere to regain confidence in a “market driven” cap and trade system.

    • Ellie Mae says:

      It is a scam. How is it possible to alter human activity enough to reduce CO2 levels by 25 – 30ppm, when human activity accounts for only .50 ppm??

  5. Tim – thank you for your thought provoking article suggested that our activities need a more substantial MRV. I agree completely.


  6. Michael Walsh says:

    This column is complete and utter rubbish. It is an embarassment of errors that could have easily been avoided with even a minor effort to check facts.

    It states: “The triumph of the next generation of climate programs, characterized by a fundamental shift toward more robust methods and systems to measure, report, and verify GHG emissions.” Had the author bothered to check, he would have easily learnerd that CCX widely reported that over three-fourths of the GHG emissions data included in CCX is publicly-accessible data generated by EPA-mandated continuous emision monitors. The remainder was calculated using WRI protocols. All emissions and baselines were subject to a full review by FINRA, and ot has been widely reported that these audits were exceptionally demanding.

    I guess EPA CEMs data and WRI are not good enough. You might want to tell that to RGGI and California.

    One of the key lessons CCX generated ten years ago is that companies can readly conform to audit-quality GHG data reporting requirements provided you give them clear instructions. There is no need for a GHG Institute.

    Regarding offsets, the Stockholm Environmental Institute evaluated real-world mitigation projects under rules in various program and found CCX typically issued the same amount or fewer offsets compared to other prominent regulatory and voluntary systems.

    As for NGO complaints about CCX, in the years after NGOs publicly advised emitters to not take on GHG reduction commitments, CCX enrollemnt, traded volumes and prices all soared. And if you are sure that including NGOs in the rulemaking is such a good idea, you might want to consider how little has been acheived over so many years by the Duke ag carbon efforts. Nothing useful. Waiting to please NGOs means you likely never actually get going, because they thrive only on the debte stage, and offer nothing for those who wish to implement. As but one example, California promises it will launch exactly ten years after CCX started.

    As for “next generation programs”, they appear to use the same emissions calculation protocols CCX used. Sadly, not a single NGO-backed program has yet to require, you know, GHG emission reductions.

    As the NGOs were experiencing total failure in their policy mission, it is no surprise that CCX, the newcomer that stole their turf without kissing their rings, would come under cricicism. When you can’t achieve, you ridicule others who do. Nice business model for Washington, but not so much for the real world.

    Michael J. Walsh, Ph.D.
    Co-founder and EVP for Research, Climate Exchange plc

  7. Michael:

    Thank you for sharing your passionate comments. However, you will not be surprised that we disagree with you on several points. I’ll get to those in a moment, but as this piece was published some time ago, let me step back and remind anyone who is now coming to this post that it was written just following notice of the close of the CCX in November 2010.

    The November timing of the announcement is important as it put the CCX closure squarely into a news cycle dominated by the recent “wave” U.S. election in which distance from cap-and-trade seemed to be an electoral asset. (This sentiment was perhaps best captured by a campaign video developed by a West Virginia Democrat —the U.S. political party that has championed, albeit with mixed success, action on climate change— in which cap-and-trade legislation was affixed to a shooting target and fired at with a rifle. …not exactly subtle imagery.) The fact that the CCX announcement coincided with the election led a number of commentators to chalk up the CCX closure to a casualty of the political process. We thought that analysis was overly simplistic and wrote this blog post to put the closing in context to the climate landscape we were witnessing on the ground.

    To your comments, you have taken us to task on a number of issues about which we, frankly, have quite a lot to say. For the sake of keeping this reasonably short and digestible we’ll try to summarize our response in a few points rather than address every individual issue you have raised. If you think we’ve overlooked something important please follow up and say so.

    “Robust MRV”
    You made a number of comments related to some of the specifics of MRV, calling out out CEMs and WRI guidelines for inventory work and pointing to the results of “road testing” for offsets. I’ll take your word on the percentage of CCX emissions calculated with CEMs (I assume this is a reflection of the size of AEP’s inventory relative to the total program emissions; otherwise, it seems the CCX had a number of non-utility participants less likely to employ CEMs) and likewise I won’t quibble with your reference to WRI methods (though, by itself, “WRI protocols,” which I assume is a nod to the Corporate Protocol, is really better classified as open-ended guidance, not an auditable standard). But really the inventory side was damaged more by challenges endemic to voluntary cap setting (even legally binding voluntary caps) and the CCX’s opaque approach to target negotiation, which has been criticized by a number of folks. (I understand the argument that a closed approach was a tradeoff to increase participation, but this process was ill equipped to address concerns of “gaming” and bred skepticism.)

    Putting the inventory piece aside for the moment, let’s focus on CCX’s offset scheme. This seems to be the program’s largest reputational liability. Yes, you point out that CCX protocols performed comparably to other standards in an SEI road test. (GHGMI hosted a webinar with the authors of that report outlining the results of the road test back in July 2010 if anyone reading this is curious to hear what they had to say.) Yet, it seems misleading to say that CCX performed as well across the board as you characterized with respect to conservativeness in calculating reductions (the SEI report, for instance, exposed oversimplifications in the manure protocol that overstated emission reductions). Even more glaring though, in pointing to the limited protocols covered in the SEI report you conveniently pass over perhaps the most flagrant accounting flaw in the CCX offset system: the soil carbon offset protocol. Relying on a simple look-up table for soil carbon uptake, the protocol sidestepped any possible consideration of complexities, a wholly inadequate approach to accurately measuring GHG effects. (For more on those complexities see the discussion of N2O emissions on p20-23 and again starting on p45 of this paper prepared for CAR last year.)

    While calculation methods are important, that conversation misdirects attention from the elephant in the room: additionality. As the NYT article linked to in the post outlines (a point again underscored by an equally damning article in the Washington Post two years later), CCX’s offset program was dogged by serious criticisms pertaining to additionality. Whether it was no-till farming projects in Iowa or Indian wind projects rejected by the CDM, CCX’s offset program was challenged by anecdotes of approving apparently non-additional projects.

    In the post we referred to the importance of trust in GHG programs. Here it seems the offset additionality issues and the disparaging comments you made regarding the DC NGO edifice tie neatly together. First, let me reiterate a point I hope we made quite clear in the blog: the CCX was innovative. It was a grand experiment that created an early working emissions trading program in advance of regulation. And it was not without its merits, if not for the emissions reductions, then as a “proof of concept” and experience “learning by doing.” Keeping this in mind, we certainly understand your antipathy toward those criticizing your work, particularly those from NGOs who sit in a position where it is so easy to tear down and, as you say, never actually build anything. (For what it’s worth I will point out here that GHGMI, as an NGO established to support program implementation, straddles your definition. Some of the individual programs we work with are listed here.)

    But I think your rant (yes, I don’t mean to be rude and call you out, but your comment did conclude in something approaching a screed) fundamentally missed our point. The new generation of GHG programs mentioned in the post are, yes, very much about better technical measurement, reporting, and verification (and integral related concepts like additionality). But that’s only half of it. The evolution of MRV is equally about governance, trust, and legitimacy. To be completely blunt: the CCX failed because —justified or not— people stopped believing in it. The market dynamics were weak already due to loose voluntary targets (exacerbated by the economic downturn) but it wasn’t until speculators finally gave up hope in the program’s credits being recognized by a regulatory regime or buoyed by possible future aggressive target-setting by CCX members that prices collapsed. Fundamentally, the program was never able to overcome challenges of trust in the commodities it minted. Further, eschewing stakeholders at the program’s start and developing a closed for-profit program design meant the program was less resilient to withstand reputational challenges. Even program changes —including attempts to increase transparency as the scheme evolved— weren’t enough to make up this trust deficit. As a result, the program was not seen as sufficiently credible and any early mover advantages the CCX possessed were ceded to programs that were able to better build and maintain trust — programs that, critically, institutionalized cultures of openness and engaged stakeholders to leverage greater legitimacy.

    The MRV practice
    The issues addressed in this response seem to be ultimately rooted in questions related to underlying theories of regulation. Clearly it appears we don’t see eye to eye here, a difference of opinion you could characterize as a philosophical disagreement.

    Polite disagreement, however, stops there. When you say the CCX proved “companies can readily conform to audit quality GHG data reporting requirements provided you give them clear instructions … there is no need for a GHG Institute” you are belittling the implementation challenges faced by those working on climate change mitigation across the globe and grossly misrepresenting through oversimplification the realities of the practice of MRV. Indeed, in suggesting there is no need for capacity building, training, or professionalization in MRV you are ignoring empirics and experience at all scales and geographies.

    Taken in sum with your cynicism with respect to the role of public participation, transparency, and importance of program legitimacy, your ignorance to the challenges of MRV has done more to candidly expose the hubristic decision-making that led to the CCX’s demise than we could have ever hoped to illuminate in our short blog post.

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