Tufts was one of the first universities to join a carbon exchange. An advisor to Tufts’s climate initiative says participating in carbon-trading schemes can teach organizations how to measure and reduce emissions, but more is needed to combat climate change.
Jennifer Weeks
Global markets in which companies and governments can buy and sell carbon-emissions credits are still at an early stage, but Tufts University already has five years of experience with carbon trading. Tufts was the first university to join the Chicago Climate Exchange (CCX), the only active, legally binding system in North America for trading greenhouse gas emission reductions. Launched in 2003, CCX is a voluntary exchange with roughly 100 members, including corporations, cities, states, and counties.
In 2005, the European Union began its Greenhouse Gas Emission Trading Scheme to help companies and governments meet mandatory emissions limits. Established financial exchanges such as the New York Mercantile Exchange and the Montreal Exchange are launching new ventures to trade the carbon allowances that companies generate to fulfill EU or Kyoto Protocol reduction requirements. Global demand for carbon trading will likely expand as observers widely expect that the US government will place binding limits on greenhouse gas emissions in the next several years.
William Moomaw, professor of international environmental policy at Tufts and an advisor to the university’s climate initiative, recently spoke with Nature Network Boston about CCX and the growth of carbon trading.
William Moomaw, senior director of the Tufts Institute of the Environment (Courtesy: Tufts)
Why did Tufts decide to join CCX?
Tufts pledged in 1999 to meet or beat the Kyoto protocol targets [which required countries to cut greenhouse gas emissions 7 percent below 1990 levels by 2012], and we also signed onto regional targets that the New England states adopted in 2001. So far we’re meeting those targets even though we’ve added two energy-intensive buildings, and we’re approaching our 1990 emission levels. When we joined CCX, there was no emissions trading going on at the national or regional level, so there was nowhere to go except for this private initiative.
What are members required to do?
Each member organization signs a contract that obligates it to reduce emissions by specific amounts. If you cut below that level, you can sell emissions allowances. In Phase I, from 2003 through 2006, members had to cut emissions 1 percent each year below a baseline level (their average emissions from 1998 through 2001). Now they’re in Phase 2, which requires them to be at least 6 percent below their baseline by 2010.
Members can make sales at any time, but they are audited at the end of each year to see whether they have met their reduction targets. If they haven’t, they are required to buy allowances from other members, so they go into the marketplace and buy however many additional units they need to cover their commitments.
Does participating in CCX affect what Tufts is doing to shrink its carbon footprint?
CCX hasn’t been a major driver for us to reduce emissions because we had already made commitments before we joined. That’s also true of other members. There are more credit sellers than buyers in the system, which is one reason why the price for CCX’s allowances has been low so far. [CCX allowances have traded recently for about $5.50 per metric ton of carbon dioxide, compared to roughly $30 for European allowances.]
So what are the benefits of participating?
CCX evolved out of commodity markets, and all of the reductions are verified by a third-party auditor [the Financial Industry Regulatory Authority, formerly the National Association of Securities Dealers]. The audits are very detailed—they call up bills and check them to make sure we’re reporting things accurately. I’ve served on CCX’s compliance committee, which reviews reports from the auditors with identifying information removed. Some firms didn’t have a clue about measuring and tracking carbon emissions when they joined, but they’re clearly learning. We see members improving both in their accounting and in making emissions reductions.
Will all of the emerging carbon exchanges be harmonized at some point so they can sell to each other?
In the best of all worlds, yes. They’re all selling the same commodity, but they’re selling them under different rules. For example, since the U.S. isn’t a party to the Kyoto Protocol, there’s some question about what our reductions are worth and what they mean. That’s ironic, because a contractual cap on emissions like CCX’s can be more stringent than a legal cap like the EU’s. Governments may or may not enforce laws, but we know how to enforce contracts in this country.
How much can voluntary carbon trading systems like CCX do to slow climate change, compared to mandatory systems like the EU’s?
That depends on how strict government-mandated reductions are, compared to the cuts that are pledged under voluntary agreements. The fact that the US government is doing nothing while CCX members are legally committed to reducing their emissions means that those companies will have reduced emissions by at least 6 percent below their baselines before the US government mandates anything. CCX members’ total emissions are comparable to those of the United Kingdom, so that’s not an inconsequential amount.
Now clearly, we can’t rely on those contractual agreements to solve global warming, since they are not comprehensive enough. But it will be interesting to see how they are treated if the US ever requires greenhouse gas reductions. Would they be allowed to go on reducing within their own closed market, as long as they kept up with statutory requirements? I don’t know the answer.
What do you think is the future of carbon trading?
Giant corporations like Ford and IBM are making real reductions through CCX. They produce a significant share of US emissions, and they are receiving direct economic benefits for those reductions. It’s also a learning experience to see how different various members’ greenhouse gas emission concerns are–Chicago cares about electricity generation, Amtrak is focused on diesel fuel consumption, and Tufts looks at energy use for building operations and transportation. There’s a lot of educating going on.