CCX's Richard Sandor on Financial Innovation and the Protection of our Air and WaterPublished: June 17, 2010 in Knowledge@Emory
This past spring, Richard Sandor, chairman and founder of the Chicago Climate Exchange (CCX), the world’s first voluntary, legally binding greenhouse gas emissions cap and trade system, visited Emory University's Goizueta Business School as part of the school’s Dean’s Leadership Speaker Series.
Dubbed the “father of carbon trading,” Sandor was honored by TIME magazine in 2007 as one of its “Heroes of the Environment.” The chief economist for the Chicago Board of Trade in the 1970s, Sandor contributed to the creation of financial futures and the commoditization of interest rates. In the late 1980s and early 1990s, his efforts led to the invention of cap-and-trade programs for sulfur dioxide emissions, the pollutant that causes acid rain.
The objective of the CCX is to apply financial innovation to advance social, environmental, and economic goals. According to a recent World Bank report, the world carbon market was over $144 billion in 2009. Capping emissions, Sandor explains in Knowledge@Emory’s video podcast of his Goizueta presentation, reduces emissions in a cost-effective manner and creates a healthy way to make money. Carbon trading in the U.S. is “bigger than soybean . . . [and] more active than pork bellies,” he says. And since its inception in 2003, members of the CCX have cut their emissions by more than 450 million metric tons. “You can do good and do well,” he tells his audience. “They’re not incompatible.” (A CCX offshoot, the Chicago Climate Futures Exchange (CCFE), launched in 2004, is the world’s first and leading environmental derivatives exchange and provides a way to hedge against price fluctuations in environmental markets.)
In Knowledge@Emory’s video, Sandor gives Goizueta students and faculty a history of the commoditization of markets and of emissions trading. He predicts the future commoditization of air and water, where entities—if they’ve used their allotments—can “buy from someone else, bargain or trade,” Sandor says. “Otherwise, there’s no efficiency.”
Sandor, also a research professor at the Kellogg Graduate School of Management at Northwestern University, relates stories from the early days of creating a climate exchange, including the securing a much needed $1.6 million grant from an unlikely source: the Jesuits of the California Province. Sandor recalls a conversation with the priest who oversaw the funding. Says Sandor, “He’d ask, ‘Richard, how’s your burn rate?’”
Sandor isn’t content to rest on his accomplishments. As he notes in the video, he’d like to see more open energy exchange in the U.S. and he’s in talks with representatives from Canada, Australia, China, and India to establish exchanges like CCX in those countries.
To hear the complete lecture, click here.