1. Chicago Climate Exchange ®, Inc. © 2008 Murali Kanakasabai, Ph.D Vice President & Senior Economist mkanak@theccx.com Carbon Expo Cologne May, 2008

2. Chicago Climate Exchange ®, Inc. © 2008 Recent CCX Volume/Price 2

3. Chicago Climate Exchange ®, Inc. © 2008 CCX Baseline Emissions Greater than Largest EU National Allocation Plan 2012 2003 start 2009 Size of Live, Emerging, Possible GHG Trading Markets 3

4. Chicago Climate Exchange ®, Inc. © 2008 CCX: A Global Exchange Platform 4 In development: New York Climate Exchange™ and Northeast Climate Exchange™ : Developing financial instruments for northeast Regional Greenhouse Gas Initiative (RGGI) California Climate Exchange™: Developing financial instruments relevant to the California Global Warming Solutions Act, AB32 India Climate Exchange™

5. Chicago Climate Exchange ®, Inc. © 2008 How do we reduce CO 2 Emissions Lower carbon fuel: natural gas, CO 2 neutral fuel, nuclear More efficient fuel use: MPG, lighting, insulation Methane capture/combustion Abatement devices, alternative chemicals Carbon sequestration: – reforestation, carbon accumulation – agricultural soils, geologic How to orchestrate these to maximize benefits per dollar?

6. Chicago Climate Exchange ®, Inc. © 2008 CCX Market Architecture

7. Chicago Climate Exchange ®, Inc. © 2008 CCX Legally Binding Reduction Schedule For Direct-Emitting Members (2003-2010) Phase I: Members made legally binding commitments to reduce or trade 1% per year from 2003-2006, for a total of 4% below Baseline. Phase II: Members make a legally binding commitment to reduce to 6% below baseline by 2010. Baseline = Avg. emissions from years 1998-2001 (Phase I), emissions from year 2000 (Phase II) 7 CCX is synergistic with and complementary to all emerging policy, precludes none – Whether state, regional, national, voluntary or mandatory.

8. Chicago Climate Exchange ®, Inc. © 2008 CCX Emission Offsets Purpose: − Low cost mitigation option − Participation from sectors not amenable to cap and trade Eligibility: − Beyond regulation, rare, recent − Verifiable: eligibility, quantities, ownership − Avoid perverse incentives − No cherry picking – emitters must take entity-wide reductions 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, renewable General provisions: − Conservative crediting − Reserve pools for sequestration assurance NB: Only the planet is carbon (source) neutral!

9. Chicago Climate Exchange ®, Inc. © 2008 CCX Emission Offset Projects Verified Offset projects sequester or eliminate GHGs to earn Carbon Financial Instruments (CFI) sold on CCX electronic platform to CCX membership Minnesota dairy farmer receives first check from sales of CCX Offsets for methane destruction (Approx. $10k for 1 year) Current pre-defined offset types: Agricultural Methane Landfill Methane Agricultural Soil Carbon Forestry Renewable Energy Coal Mine Methane Rangeland Soil Carbon Ozone Destruction Others in development Independent verification required by authorized entities: SGS, DNV, First Environment, BvQi 9

10. Chicago Climate Exchange ®, Inc. © 2008 CCX Offsets for Continuous Conservation Tillage and Grassland Planting Conservation tillage removes carbon from air (IPCC, Kyoto etc.) Rare practice (<5% of U.S. cropland) Avoid perverse incentives No offsets for historic practices, reduced fuel burn, reduced run off and improved land value Revenue potential in Colorado crediting rate (at $4.50 per metric ton): No till: 0.2 to 0.6 mt/acre-yr = $0.90 to $2.70/ac-yr Grassland: 0.4 to 1.0 mt/acre-yr = $1.8 to $4.50

11. Chicago Climate Exchange ®, Inc. © 2008 Carbon Financial Instrument (CFI) Carbon Financial Instrument (CFI) = 100 metric tons of carbon dioxide equivalent (CO 2 e) “Allowances” pre-issued to emitters in declining blocks “Offsets” from eligible verified reduction projects Allowances and Offsets treated equally in annual compliance Cash Contract =100 mtons (overnight delivery/settlement) 11

12. Chicago Climate Exchange ®, Inc. © 2008 Web- accessible Electronic Trading Platform CCX ® Comprehensive Market Structure Electronic Market Registry Comprehensive Rules System Emitters: Standard baseline, multi-year allowance stream equal to reduction targets Offset Providers (project credits) Emission audits, project verification Liquidity Providers Associate Members