Friday, February 8, 2008

Bank of America Backing Away from CCX

Many of you are familiar with the Chicago Climate Exchange (CCX) which is a voluntary climate market in the U.S. and Canada. As a pilot project for understanding carbon trading, CCX has been a very helpful platform. But as we move into the "end game" of climate policy resulting in a mandatory climate market, the forward value of CCX is debatable. This is especially true for the offsets that they offer since these offsets are not measured and therefore, buyers would take on great potential liability from environmental groups that already oppose all forms of offsets if they can not prove how much carbon they have actually reduced through their offset purchase.

The story below talks about Bank of America pulling out of a joint venture they were pursuing to commit to buy more carbon from CCX (for whom National Farmers Union and the Iowa Farm Bureau aggregate soil carbon offsets). There are likely many reasons for this turn of events -- but it brings up an important point to consider as farmers think about their carbon commodity. Why would you sell something that is likely worth 3 times the voluntary market price -- when a mandatory market is just around the corner??

Many farmers may not realize the strong likelihood that mandatory climate legislation will pass in the next 2 years. Businesses, however, are keenly aware of the state of climate policy and politics -- and it strikes me that this may be at least part of the reason why companies are starting to re-evaluate whether it makes sense to continue buying carbon from CCX when there is no guarantee that those reduced tons or offsets will be recognized by the mandatory law. In fact, it is more likely that they will not be recognized.

If you are a farmer -- you have to ask yourself if now is the right time to commit to selling a commodity whose true price is about to be discovered with the creation of a real market with real economy-wide demand.


Bank of America pulls out of Climate Exchange Deal

Greenwire 2/7/08

Bank of America has pulled out of an agreed joint venture with Climate Exchange and will not buy $25 million worth of shares in the company, a spokesperson for Climate Exchange said on Wednesday.

Bank of America said Climate Exchange, the company that runs the Chicago and European Climate Exchanges for trading carbon offsets, remains a strategic partner. Climate Exchange said the pair had ditched the venture because it was not needed "to pursue projects of mutual interest."

As part of the venture, Bank of America agreed to market the Chicago Climate Exchange's carbon offsets to its customers on the bank's own trading platform, and it committed to purchasing 500,000 tons of carbon on the CCX over three years. Bank of America said it was no longer obliged to purchase the carbon, but added that it remained committed to reducing its carbon footprint (Bowker/Wills, ReutersFeb. 6).

In July 2007, Bank of America announced that, as part of its $20 billion initiative to support the growth of environmentally sustainable business activities to address global climate climate change, it would join the CCX, making it the largest financial institution to claim membership in the exchange (Greenwire, July 25, 2007). --PR

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