Potsdam Climate Exchange (PCX)

The Potsdam Climate Exchange (PCX) is an online market where Bonds on physical, regulative, and business-related climate change risks can be traded with real and virtual money. The PCX managed by the Potsdam Institute for Climate Impact Research is part of the project "Mainstreaming of Climate Risks and Opportunities in the Financial Sector" and will officially start in 2008. Since December 1st, 2007 several test markets are internally open.

The PCX is separated into two markets. There is a public mass market, where people all over the world interested in climate change can join via internet. The other market is restricted to experts, handpicked by the PCX for specific climate risk markets.

Markets that will possibly be traded on the PCX are

• Markets on physical risks
• Number of hurricanes in the Atlantic Basin in 2008/20
• Sea level rise by 2020/50
• 2°C target missed by 2050
• Regulative risks
• USA/ India/ China sign Kyoto 2012+
• Global emission trading scheme in place in 2009/20 
• Business-related risks
• Tax on avgas in the EU by 2008/09
• CO2 emission restrictions on cars in 2008/20
• CO2 price in 2020

As the PCX is academic, it will be non-profit orientated. On the PCX all real money public markets are zero-sum games. All the money traders invest in a specific market will be payed out once the market will have been closed - the gains of some traders will be counterbalanced by the losses of other traders. The management and maintenance of the PCX is financed by the German Government.

On expert markets there will be real money markets with short and medium term maturity. Long term markets will purely work with virtually money. Together with industry and financial service providers, we will conceptualise real money expert markets on climate change related topics. 

In addition to this, there will be organized short time trading markets (1 - 2 weeks) on medium and long term topics. These markets will have no payoff for the traders and will complement expert interviews and focus groups on climate risk topics conducted by the project, too.

On this webpage, we will provide further information and a link to the Potsdam Stock Exchange in 2008.
 
 

How does an online market work? Online markets are trading platforms for stocks on a priori possible realizations of events. For a better understanding we give an example for such a market:  Number of Hurricanes in 2008 in the Atlantic Basin  On this market you can buy different stocks on the Number of Hurricanes. There exist the stocks 0, 1 - 2, 3 - 4,...,17 - 18, and 18 - infinity hurricanes. Just imagine, in 2008 there will have been 4 hurricanes, then the stock 3 - 4 hurricanes will payout in the end of the hurricane market exactly € 1, while the other stocks will pay out nothing.  When you have bought the 3 - 4 stock for € 0.11 on the market, you would gain € 0.89. In the case that the number of hurricanes differs from 3 or 4, you would lose your € 0.11 investment.  From the prices investors are willing to pay for the different stocks we can extract the appraisal of the market for the number of hurricanes in the Atlantic Basin in 2008. The real advantage of online markets is that the market opinion is created by the interaction of lots of different people that have access to a variety of information sources. According to economic theory (Hayek hypothesis), the results of online markets are superior to other sources.

Contact: pcx@pik-potsdam.de