AGL Energy Ltd recently became the first Australian company to list on the Chicago Climate Exchange (CCX). As a condition of signing up to the exchange, AGL had to sign a contractual agreement that it will reduce its greenhouse gas emissions by 1 per cent per year for six years.

Graeme Dennis, a partner at Johnson Winter & Slattery, said this rate of reduction is equivalent to the broadly accepted rate being committed to by several countries, including the UK, which has set a target of a 60 per cent reduction on 1990 levels by 2050.

“What’s interesting about the exchange from an Australian corporation’s point of view is that if [they] reduce their emissions faster than the 1 per cent per annum, then it is a way of getting value for that that you can’t get in Australia,” he said.

“You can effectively earn revenue by reducing your emissions, and receive revenue by selling the additional allowance that you don’t require; you can sell them on the exchange and in that way receive value for the reductions in emissions that you make.”

AGL is also planning to sell carbon credits on the exchange from its hydro and wind electricity generating plants.

Dennis, who advised AGL on its decision to join the CCX, said the contractual obligation under the “cap and trade” scheme meant the CCX could sue those that sign up if they don’t meet the targets set for annual reductions.

Although the initial commitment only lasts six years, he said he presumed the CCX would then allow companies to sign on for another six years.

Australia hasn’t ratified the Kyoto Protocol and doesn’t have any mandatory targets set as yet, so Australian companies can just choose not to sign up to the exchange, and avoid incurring any cost at all by continuing to emit greenhouse gases at their present rate.

Dennis pointed out, however, that joining the exchange is a way to prepare for any reductions in emissions that might be required by the Australian Government in future.

“The reason corporations principally are signing up to the exchange is to impose a discipline on themselves to help them move to a lower emission world,” he said.

“By imposing that discipline it forces them to measure their emissions — they have to undergo audits of their emissions — and so they are getting their business ready for that sort of regime.”

There are two ways companies can join the CCX: either as a standard member, as AGL did; or as an offset provider, which is for firms that are extracting greenhouse gases from the atmosphere, or preventing them from being released.

Offset providers include those that own forest plantations or capture methane from landfill sites.