CNX Gas Corp. (CXG) – Hoping to Cash in On Offset Credits

CNX Gas Corp. (CXG) is registering with the Chicago Climate Exchange (CCX), a voluntary market for the registry, reduction and trading of greenhouse gases, for the ability to sell carbon offset credits. Nick DeIuliis, CXG president and CEO, said the company’s participation in the exchange will have a positive impact on the business. “We’ll have a significant presence with regard to the amount of offsets we provide to the Chicago Climate Exchange. We know from a cash flow and net income perspective, the dollar amount is going to be significant,” he said.

CNX, a spinoff of CONSOL Energy Inc. (CNX), which captures methane from coal beds, is still considering whether to sell the credits immediately or hold them to sell later. The decision will likely depend on the pricing of the credits, which could be affected by policies set after this fall’s presidential and congressional elections and potential future climate change legislation. The exchange, which has been operational since 2003, allows companies to buy and sell the carbon equivalents of the six greenhouse gases: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride.

All the gases are calculated to their CO2 equivalent and traded as carbon financial instrument, or CFI, contracts. One CFI contract represents 100 metric tons of CO2 and was trading for about $650 on May 14. The methane CNX captured in 2006 is the equivalent of 10.6 million metric tons of CO2, or the emissions from 2 million automobiles in a year, DeIuliis said. If all 10.6 million tons qualified for the exchange, it would be worth 106,000 CFIs or $68.9 million.

The exchange had more than 400 members at the end of 2007, including companies such as Bank of America Corp., IBM Corp., Intel Corp. and DuPont.

Stephen Kenney, manager of strategic planning for CNX, said the company is in the process of registering credits equivalent to the methane it has captured from its southwest Virginia operations between 2003 and 2007. However, Kenney says CNX may opt to hold the credits rather than sell them immediately, as legislative discussion and talk from presidential candidates has the industry expecting a mandatory cap-and-trade system to be installed in the United States within the next decade.

Under a cap-and-trade system, the government would impose a binding ceiling on carbon emissions and companies would be able to trade carbon credits at a price set by the market demand, said Jay Apt, executive director of the Electricity Industry Center at Carnegie Mellon University.

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