Financial Times

“Companies plan greenhouse gas market”

By Nikki Tait in Chicago
May 30, 2001

About two dozen US companies - including Ford, DuPont, International Paper and a number of large electricity utilities and farm co-operatives - have agreed to help design a pilot scheme for trading "greenhouse gas" emissions.

If the project - called the Chicago Climate Exchange - succeeds, it would be the first broadly based emissions trading scheme in the US.

It reflects concern among some US companies to maintain a momentum on tackling carbon emissions, in spite of the decision by the Bush administration to abandon the Kyoto international agreement on combating global warming.  The Kyoto protocol included provisions for an international emissions trading system.

On Tuesday, US congressmen offered bipartisan support.  Senator Joe Lieberman, the Democrat vice-presidential candidate in last year's election, described carbon trading as "a creative and efficient way of moving toward meaningful reductions in greenhouse gas emissions".  He added that he commended the companies "for their willingness to participate in this cutting-edge endeavour". For the Republicans, Senator Richard Lugar suggested that environmental trading could be "a successful way of reducing the cost of environmental compliance". 

The US accounts for about a quarter of all emissions of carbon dioxide and other greenhouse gases, which are widely believed to cause climate change.

An assessment of the feasibility of starting a voluntary, Midwest-based market for carbon emissions has been under way at the Kellogg School at Northwestern University, Illinois, for several months.  Richard Sandor, in charge of the project and also head of the privately-owned Environmental Financial Products group, said preliminary findings suggested that such a market was feasible and "could be expanded over time".  He estimated the design stage would take about 12 months and that the trading system could be ready by mid-2002.

The study proposes starting the market in seven Midwest states, including some emission offset projects in Brazil.   Mr Sandor said the Brazilian projects - which could involve re-forestation or wind/solar energy schemes - were partly designed to test the market's international viability.

Companies that participated would be issued with tradable emissions allowances, while those companies that emit carbon dioxide would also commit to a phased schedule for reducing their emissions by 5 per cent from 1999 levels by 2005. Mr Sandor described the 5 per cent goal as a suggested starting proposal, to be considered in the design phase. The businesses would then have the option of cutting emissions directly; buying allowances for other companies that had achieved surplus reductions; or buying credits from agricultural or other offset projects.

Mr Sandor said 25 companies and institutions had indicated that they intended to participate in the design phase. These include DuPont, one of the world's largest chemicals companies; Ford, the second-biggest vehicle maker; and utilities such as PG&E, NiSource, Wisconsin Energy and Cinergy.  On the agricultural front, potential participants include Argiliance, the Iowa Farm Bureau and International Paper, one of the biggest private landowners in the US.