The Chicago Climate Exchange (CCX), which operated from its launch in 2003 to its sale to the Intercontinental Exchange (ICE) in 2010, was the world’s first and still only cap-and-trade system covering all six major greenhouse gases (GHGs) Membership in CCX was voluntary, but all emissions reduction commitments, auditing and trading rules were mandatory via a legally binding civil contract, a first in history. The goal was to use a market-based solution to reduce carbon emissions at the lowest possible cost, and CCX drew more than 400 members to its system at the time when there were no mandatory greenhouse gas reduction policies in place in the United States or abroad. The question is why did major emitters, market participants, cities, states and other entities choose to act to use emissions trading to mitigate climate change when there was no requirement for them to do so? This paper examines the question, suggesting that the CCX model embodied aspects of theories put forward by economists such as Knetsch, Buchanan and Coase and that CCX could serve as a bridge between theory and practice for economists interested in further study of markets and public goods. The paper also highlights the influence of CCX as a rules-based single coherent entity that significantly influenced the development of what has become known as the “voluntary carbon market” (VCM), while being quite different from the VCM. In the process of building its operations, CCX also generated a number of firsts, including creating the world’s first GHG registry, and inventing the world’s first carbon-based tradeable unit, the carbon financial instrument (CFI), equivalent to one hundred metric tonnes of CO2e, and spearheaded a landmark joint venture in China that created China’s first pilot carbon market, the Tianjin Climate Exchange (TCX). Given the start-up nature of CCX, its significant global membership and international coverage is notable. The paper suggests the evolution and growth of CCX represents perhaps the largest ever experiment in behavioral economics relevant to contemporary climate change and environmental issues, yet one of the least understood and studied other than by those who had been involved. The paper will explore the origins, rationale, structure, framework, rules and legacy of CCX, including recommendations based on lessons learned, as the world faces the compounding crisis of climate change and the urgency of meeting the objectives of the Paris Agreement to stem climate change, the myriad of disparate Net Zero pledges to reduce emissions, and additional international environmental agreements aimed to protect biodiversity and other natural systems and processes.
