© 2007 Reproduction or quotation is prohibited without the express written consent of Chicago Climate Exchange, Inc.

Chicago Climate Exchangebriefing for

American Public Power Association CEO Climate Change

Task Force Washington DC, January 29, 2007

Michael J. Walsh, Ph.D.Executive Vice President

Chicago Climate Exchange312-554-3380

The Growing CCX Family

Chicago Climate Exchange (CCX)• Launched 2003 with 14 members, now 220+ members (US, CA, MX,

BR, NZ, AU, CH)

European Climate Exchange (ECX)• FSA-regulated futures market for European CO2 Allowances• Launched April, 2005 – accounts for 80-90% of total exchange traded

volume in the EU ETS

Chicago Climate Futures Exchange (CCFE)• CFTC-regulated futures exchange for U.S. SO2 allowances• Launched in December 2004, world’s first environmental derivatives

exchange

Montreal Climate Exchange (MCeX)• Joint venture with the Montreal Bourse• To host Canadian GHG trading, other environmental markets

New York Climate Exchange™ and Northeast Climate Exchange™ • Developing instruments for northeast Regional Greenhouse Gas

Initiative (RGGI)

Indiaa Climate Exchange• (In development)

0

100

200

300

400

500 Live Market

Market in development

Under discussion

Included emisisons

On hold

Size of Live, Emerging, Possible GHG Markets

2009

2012

2003 start

CCX is the second largest active carbon market in the world

What is Chicago Climate Exchange?

Chicago Climate Exchange (CCX ™)

is the world’s first and North America’s

only voluntary, legally binding

integrated greenhouse gas reduction

and trading system for all six

greenhouse gases, with offset projects in

North America and worldwide.

Chicago Climate Exchange MembersAerospace and Equipment

Rolls-Royce

AutomotiveFord Motor Company

Beverage ManufacturingNew Belgium Brewing Company

ChemicalsDow Corning

DupontRhodia Energy Brasil, Ltda

Electric Power GenerationAmerican Electric Power

Associated Electric CooperativeCentral Vermont Public Service

Duquesne Light CompanyGreen Mountain Power

Manitoba HydroTECO Energy, Inc.

ElectronicsMotorola, Inc.

Square D/Schneider Electric N.A

Environmental ServicesWasatch Integrated Waste

Management DistrictWaste Management, Inc.

Food ProcessingPremium Standard Farms

Forest Products CompaniesAbitibi-Consolidated

Aracruz Celulose, S.A.Cenibra Nipo Brasilliera, S.A.

International PaperKlabin, S.A.

MeadWestvaco Corp.Stora Enso North America

Temple-Inland, Inc.

Information TechnologyIBM

ManufacturingBayer Corporation

Interface, Inc.Knoll, Inc.

Ozinga Bros., Inc.United Technologies*

State & Local GovernmentsThe State of Illinois*

The State of New MexicoKing County, WA*

City of Aspen City of BerkeleyCity of BoulderCity of Chicago

City of Melbourne, Australia*City of OaklandCity of Portland*

PharmaceuticalsBaxter International, Inc.

UniversitiesThe University of Iowa

Hadlow CollegeMichigan State University *The University of MinnesotaThe University of Oklahoma

Tufts University

RecreationAspen Skiing Company

RetailSafeway Stores

SemiconductorsFreescale Semiconductor

STMicroelectronics

SteelRoanoke Electric Steel Corp.

TransportationAmtrak

San Joaquin Regional Rail

*in process

CCX Associate MembersArchitecture/Planning

Mithun, Inc.

Brokerage ServicesAmerex Energy

ConsultingDomani, LLC

Global Change AssociatesNatural Capitalism, Inc.

RenewSource Development,  L.P.

Rocky Mountain Institute

Documentary ProductionCloverland, Inc.

Energy and Management Services

Orion Energy Systems LtdSieben Energy Associates

Thermal Energy International

EngineeringRumsey Engineers, Inc.

Vanasse Hangen Brustlin, Inc.

Financial ServicesAccess Industries, Inc. MB Investments, LLC

Financing AgenciesOhio Air Quality Development Authority

Green Power MarketersGreen Mountain Energy Company

Information TechnologyOpen Finance LLC

Intercontinental Exchange

Legal ServicesFoley & Lardner, LLP

Sullivan & Cromwell, LLP

Non-Governmental OrganizationsAmerican Coal Ash Association

American Council on Renewable EnergyDelta Institute

Houston Advanced Research CenterMidwest Energy Efficiency Alliance

World Resources Institute

Private CollegesPresidio School of Management

Risk ManagementThe Professional Risk

Managers’International Association

Religious OrganizationsJesuit Community of Santa

Clara University

Renewable EnergyAirtricityIntergy

Reknewco, Ltd.

Retiring/OffsetsCarbonfund.orgTerrapass, Inc.

Social InvestmentKLD Research & Analytics

Pax World

TechnologyMillennium Cell

Polar Refrigerant Technology

Trade AssociationsConfederation of British

Industry

CCX Participant Members

Offset AggregatorsC-Green Aggregator, LLC

Delta InstituteEnvironmental Carbon Credit Pool,

LLCEnvironmental Credit Corp.

First Capital Risk Management, LLCIowa Farm Bureau

National Carbon Offset CoalitionNorth Dakota’s Farmers Union

Offset ProvidersBeijing Shenwu Thermal Energy Trading

Hubei Sanhuan Gallo Cattle

Granger HoldingsIntrepid Technologies, Inc.

Lugar Stock FarmPrecious Woods Holdings

Sexton EnergySustainable Forestry Management, Ltd.

AGS Specialists, LLCAmerex Energy

Breakwater Trading, LLCCalyon Financial, Inc.

Cargill Power Markets, LLCEagle Market Makers, LLC

Evolution Markets, LLCEXO InvestmentsFCT Europe, Ltd.

First New York Securities, LLC.Friedberg Mercantile Group,

Ltd.

Liquidity Providers

Galtere International Master Fund, LP

GFI Securities, LLCGoldenberg, Hehmeyer & Co.

Grand Slam Trading, Inc.Grey K Environmental Fund, LP

Haley Capital ManagementICAP Energy, LLC

Kottke Associates, LLCThe League Corp.

Marquette Partners, LPNatsource, LLC

Peregrine Financial GroupRand Financial Services, Inc.

Serrino Trading Co.Shatkin Arbor, Inc.S.R. Energy, LLC

SwissRe Financial Products Corp.

TEP Trading 2 Ltd.TradeLink, LLC

Tradition Financial Services, Ltd.

TransMarket Group, LLC

Practical and strategic drivers:

obtain practical expertise through “hands-on” participation

build institutions: first-mover; global linkages

get ahead of disparate regulations, prepare for policy

reduce long-term mitigation costs

build carbon price into minds of operators and planners

trading profits, possible early action crediting

serve your stakeholders

Meet fiduciary commitments

Why Become a CCX® Member?

CCX Market Architecture (2003-2010)

Reduction Schedule For Phase I + II Members100.00%

99.00%

98.00%

97.00%

96.00% 95.75% 95.50%95.00%

94.00%

92%

93%94%

95%96%

97%98%

99%100%

98-01 2003 2004 2005 2006 2007 2008 2009 2010

Phase I: Members made legally binding commitments to reduce or trade 1% per year from 2003-2006, for a total of 4% below baseline.

Baseline = Avg. emissions from 1998-2001, emissions in 2000 (Phase II)

Phase II: Members make a legally binding commitments to reduce to 6% below baseline by 2010.

Economic Growth Provision limits recognized emission increase to 2% above baseline in 2003, 2004, 3% above baseline 2005-2010

CCX Market Architecture: Phase 2 Only

Reduction Schedule For Phase II Members100.00%

98.50%

97.00%

95.50%

94.00%

92%

93%94%

95%96%

97%98%

99%100%

baseline 2007 2008 2009 2010

Phase II: Members made legally binding commitments to reduce or trade 1.5% per year from 2007-2010, for a total of 6% below baseline.

Baseline = Avg. emissions from 1998-2001 OR emissions in 2000

Economic Growth Provision limits recognized emission increase to 3% above baseline 2007-2010

CCX Operations and Governance

CCX Operations include:Use of CEMs and WRI/WBCSD emission calculation methods CCX Registry: official holder, transfer mechanism for CCX Carbon Financial Instruments Trading platform integrated with Registry; all trades guaranteed NASD provides market surveillance and emission verification

CCX Governance:Self-regulatory organization overseen by Committees comprised of Exchange Members, directors and staff

Committees include: Environmental Compliance, Forestry, Membership, Offsets, Trading and Market Operations

CCX Emission Offsets Program

• Verified Offset projects sequester or eliminate GHGs, earn Carbon Financial Instruments marketable to CCX members

• Pre-defined offset projects:− Landfill and agricultural methane destruction − Carbon sequestration: reforestation, agricultural soils− Renewable energy, fuel switching, energy efficiency− Independent verification by authorized entities: SGS,

DNV, First Environment, BvQi− Others in development

Minnesota dairy farmer receives first check from

sales of methane-destruction CCX Offsets

Defining CCX Offsets: Principles

• Target Actions with Major Mitigation Potential

− Non-CO2 gasses: low-cost, multi-benefit

− Agriculture: soils hold 183 years of global CO2

emissions

− Forestation: forests hold 75 years of global CO2 emissions

− Advance broader societal goals: sustainable agriculture and forestry, energy efficiency, renewables

SES Field Inspector conductingsoil sampling in no-till corn

CCX Registry

CCX Trading Screen

bids and offers

completed trades(each contract is 100mt CO2)

CCX Price* and Volume History 2003 - 2006

2004 Q12004 Q2 2004 Q3

2004 Q4

2005 Q1 2005 Q2 2005 Q3

2005 Q4

2006 Q1

2006 Q2

2006Q3

2006Q42007Q1

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50$

per m

etric

ton

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Met

ric to

ns o

f CO2

(projected)

* End of quarter pricesquarterlyvolume

CCX® Progress to Date• Complete operation implemented: rulebook, trading, clearing, registry, market, governance

• Member Baselines and 2003, 2004, 2005 Emissions Independently Audited

• Program-wide emission reductions achieved

• Trading and clearing mechanisms fully functional

• > over 15 million tons exchanged

• prices now in range of $4.00/metric ton CO2

• Offsets from methane, ag soils, forestry, renewables verified, issued and sold

Conclusions: CCX Big Picture Results

• Major pool of private and public sector talent engaged• Members• Other experts

• Thousands of individuals now far more informed on carbon management and trading

• Detailed rules and methods tested and refined• many second generation procedures now in place• hands-on experience for emissions and project verification experts• detailed expertise accumulated by members• practical experience now informing policy discussions

Views on CCX“What would be wrong, at least on a theoretical basis, with taking

what you have come up with by way of requirements for your (CCX) members and essentially mandating that everybody in the country comply with those?”

Senator Jeff Bingaman (D-NM), ranking minority member, Senate Energy & Natural Resources Committee, April 4, 2006

“the Chicago Climate Exchange is providing an innovative means of involving American businesses and citizens in the effort to protect the environment. Our nation’s leading companies are buying and trading units of carbon as a way to reduce their impact on climate change. I am hopeful that the economic opportunities provided by the Exchange will enhance the incentives farmers already have to participate in the sequestration of carbon.”

Senator Richard Lugar (R-IN), Chairman of Senate Foreign Relations Committee, May 18, 2006

“The CCX is leading the way toward a future in which reducing greenhouse gases could bring not only environmental rewards, but financial ones too.”

Al Gore, from An Inconvenient Truth (book version), 2006

How to become a CCX Member

1. Inventory and baseline – Gather energy data for CCX baseline period (1998-2001, or just year 2000)

for significant emitting activities

2. Develop Baseline with CCX. CCX staff provides preliminary analysis and GHG conversions

3. Weigh reduction trends planned; establish reduction schedule

4. Make legally binding CCX reduction commitment – Join CCX

5. Demonstrate progress through annual True-up – Buy, Sell, Trade

6. Participate in CCX governance committees (optional)