‘CCX offers market solutions to environmental issues’

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Michael J Walsh is an old associate of Richard Sandor, who is better known as the father of carbon credits trading. So, when Sandor founded the Chicago Climate Exchange (CCX) in 2003, he chose Walsh as the executive vice-president. An accomplished economist, Walsh has been involved with carbon credits trading on behalf of CCX’s predecessor, Environmental Financial Products. He has also conducted auctions of sulphur dioxide emission allowances for acid rain reduction. He spoke to FE’s Rajiv Tikoo during his recent visit to India. Excerpts:

How did Chicago Climate Exchange come into being?

It was in late nineties that Richard Sandor saw the need for building a bottom-up system to offer market-based solutions to solve environmental problems. So, he set up the world’s first climate exchange in Chicago. It’s a voluntary, but legally binding trading system to reduce greenhouse gas (GHG) emissions.

What does voluntary, but legally binding mean?

The exchange members make a voluntary, but legally binding commitment to reduce their GHG emissions. If members more than meet their targets, they sell additional allowances to those who fall short of their targets.

The US has not ratified the Kyoto Protocol. Is it hampering trading?

Probably, our activity would have been higher if the US had a mandated system, but we didn’t set up the exchange in the hope that the US would ratify the Kyoto Protocol.

Even the future road map leading to the new climate change treaty is not clear yet. How do you cope with this long-term uncertainty?

The space is completely saturated with uncertainty both at the national as well as at international levels. We are taking a lead to reduce the uncertainty by providing rules on emission reduction goals, standardised audits, standardised quantification and standardised trading rules.

Do you think such market moves put pressure on political establishment to act?

I don’t know whether it puts pressure or not, but it does provide working examples of proven rules and methodologies to ensure that significant emission reductions can be made immediately.

How is your affiliate European Climate Exchange doing?

The European exchange has been active for three years now. Its mission is to provide low-cost trading for instruments that have been established by government action.

It has already become the focal point for carbon credits Markets in Europe and has captured large chunks of trading, offering transparency and low transaction costs.

Are any more exchanges coming up in the near future?