Published: January 18, 2013
Economist Richard Sandor, the founder of the Chicago Climate Exchange (CCX), and the man often credited with founding the field of environmental finance, was at MIT Sloan recently in a talk co-sponsored by the MIT Sloan Sustainability Speaker Series and the Master of Finance program. In 2007, TIME magazine named Sandor as the “father of carbon trading,” but as he began his talk he joked, “I don’t know if there’s any DNA evidence of all of this ‘fathering.’”
Sandor talked about the origins of the CCX, North America’s voluntary greenhouse gas emission reduction program. The CCX rounded up a number of large, well-known major corporations, such as Ford, Bank of America, and DuPont, who all agreed in a private contract to cut their emissions by 6 percent in a pilot phase over eight years. This cap-and-trade concept meant that companies were given an allowance of how many greenhouse gases (GHGs) they could emit, also referred to as a “cap.” If another participating company didn’t meet its cap, it could buy unused allowances from another company to help offset its emission excess, otherwise known as the “trade.”
Voluntarily trading greenhouse gases in the United States was effective for several years, according to Sandor. “We had an expression in Chicago at the Climate Exchange,” he remembered. “If you are not at the table, you are going to be on the menu! A lot of the companies didn’t want to be on the menu, so they participated in this pilot program, and a lot of the companies did really well.” Sandor said the participating companies cut emissions by 400 million tons. They also created agricultural project-based credits by no-till farming, reforestation, and agricultural methane reduction. “All in all, more emissions were cut than the annual CO2 output in France. That was a very significant reduction,” he said.
The failure of cap and trade bills in the U.S. Congress, however, squelched interest in cap-and-trade at a national level. In 2010, CCX was acquired by Intercontinental Exchange.
“Cap-and-trade is dead in the United States,” Sandor said. “There is reasonable probability that China will beat the United States at the carbon game,” he added.
Nonetheless, Sandor is sanguine about what he claimed is the next big opportunity—water. “The United States, North America, South America, Europe, Africa, the Middle East, India and China are all short on water. Somehow, it’s got to be priced and has to be rationed. I think the next 40 years are very exciting. There will be enormous opportunities.”
He ended on an optimistic note and he encouraged MIT Sloan students to use their education to, “do good and do well. They are not incompatible.” Sandor is the author of “Good Derivatives: A Story of Financial and Environmental Innovation” (John Wiley & Sons).