A reprint from NataliePace.com, vol. 1, issue 50.
Dr. Richard L. Sandor, Chairman and CEO of CCX
The Kyoto Protocol didn’t fail. It became a spark plug for a market place solution that has been alive and growing since 2000, when it began with a grant from the Joyce Foundation. The Chicago Climate Exchange (CCX) is North America's only and the world's first global marketplace for integrating voluntary legally binding emissions reductions with emissions trading and offsets for all six greenhouse gases. Time magazine has called the founder, Chairman and CEO of CCX a Hero of the Planet and the "father of carbon trading." Dr. Richard L. Sandor is an economist and financial innovator who has convinced hundreds of corporations and cities around the world to voluntarily reduce pollution and to promote a clean, healthy atmosphere through “offsetting” behavior, such as reforesting Brazilian rain forest.
CCX emitting Members make a voluntary but legally binding commitment to meet annual greenhouse gas emission reduction targets. Those who reduce below the targets have surplus allowances to sell or bank; those who emit above the targets comply by purchasing CCX Carbon Financial Instrument® (CFI™) contracts. Current member corporations include: Amtrak, Ford Motor Company, Knoll, Rolls-Royce, Dow Corning, Dupont, Motorola, Sony, Bank of America, Bayer, the cities of Aspen, Berkeley, Boulder, Chicago, Oakland, Melbourne, Australia and Portland. Click for a complete listing of members.
Goals of CCX:
* To facilitate the transaction of greenhouse gas allowance trading with price transparency, design excellence and environmental integrity
* To build the skills and institutions needed to cost-effectively manage greenhouse gas
* To facilitate capacity-building in both public and private sectors to facilitate greenhouse gas mitigation
* To strengthen the intellectual framework required for cost effective and valid greenhouse gas reduction
* To help inform the public debate on managing the risk of global climate change
I first spoke with Dr. Richard Sandor about his nascent project in 2002 before all of his acclaim, before the world took global warming seriously and before Al Gore became the winner of the Nobel Peace Prize. Certainly, if you haven’t already heard of the Chicago Climate Exchange and Dr. Sandor yet, you will. See below for Dr. Sandor’s description of what the Exchange can and should do now and going forward.
This is a reprint from NataliePace.com, vol. 1, issue 50.
Natalie Pace – Citizens around the world have seen startling photos of deforestation and melting ice sheets, yet so many of us continue with old habits. What does it take to convince consumers and companies to give up a little comfort now for the sake of our children?
Sandor-- What kind, if any, discomfort results from lower greenhouse gas emissions? Is it possible to have a net gain? We are in the business of trying to develop financial institutions and infrastructure to deal with pricing carbon. The debate can’t be brought to an adequate conclusion until we know what the price of carbon is. We’re here to inform the debate more than anything else. Rather than, basically, hypothesize or build models, we really need to be Orville or Wilbur Wright. We need this thing to fly for 56 seconds to prove that you can use the price system to effectively allocate air, water, etc. That’s the part of the debate that we’re participating in.
Are the technology and development needed to reduce emissions prohibitively expensive for companies? How do you tempt corporations, which have just now returned to capital spending, to sign on? Are corporations signing on because they believe in the cause or because they want to be on the right side of the “green” debate?
Sandor--I think they’re signing on for both of those reasons. They’re signing on because, as one of the companies said it, "We really want to learn about energy efficiency and carbon pricing and how they’re related." When asked, what side of the debate he was going to be on, he justifiably answered, "It depends on what the price is." It depends upon the company’s abilities to learn and what incentives are provided. We’ve got to paint the picture. Another motivation is that corporations see a trend among their shareholders. Over $2 trillion is environmentally screened in the U.S. capital markets. There’s a school of thought that companies have a 1-2% "sustainability" premium in their stock price. There seems to be customer demand on that side.
Some people may be able to be low-cost providers of carbon credits. Another facet of the issue is a desire to participate in the policy debate, to learn what kinds of things should be included in the trading systems, and what form that debate takes. [Corporations] want to have an opinion that is based upon experience and data, and to advocate their positions with solid information. And a very important reason is that pro-active action on climate change is being perceived as the right thing to do. There is growing scientific evidence suggesting there is a significant problem, and they want to be seen to be on the right side of the issue. There are also threats to shareholder value in the form of growing demand for corporate disclosure on climate change action, shareholder resolutions and increased liability. You have risks and rewards driving the process, as well as people believing in the right thing. So, the primary incentives are:
A. Increased shareholder value and demand from stakeholders;
B. Threat to shareholder values; and
C. The desire to be on the right side of an issue with potential global implications.
What is a carbon credit? Please explain how these credits are traded, and what kind of real world offsetting behavior can be expected.
Sandor---A carbon credit is an allowance. This is a system of allowance and offsets. You are allowed to emit a certain amount, and then you would have a targeted reduction. Let’s say it was a million tons, and you promised to get it down to 990,000 tons. If you knock it down to 980,000, you have 10,000 allowances or credits. Those extra allowances can be sold to somebody who hasn’t met their commitment. The result of this will be that the people who can cut most efficiently will do so. They have an incentive to do so because they can sell their excess cuts. Those people who can’t are going to buy them. That will be the cheaper cost to society of reaching the lower level systematically.
Just how is the Chicago Claim Exchange poised to address the problems of environmental pollutants BETTER than the public sector?
Sandor--We believe in free markets, and we believe that the government shouldn’t be in the chip, semiconductors or financial exchange business. This is a voluntary approach. We’re multi-sector. We have the involvement of the agriculture and forestry sectors. We’re multi-national. This is just one more evolutionary step to a full-scale market.
Just how does the Chicago Climate Exchange bring sustainable farming and forestry practices into the equation? What are your plans for Brazil, and what other areas globally do you believe are ripe for reforestation?
In some other systems you are only allowed to buy or sell credits that come from emission reductions elsewhere in the system. We allow offsetting behavior. For example, if you are a utility, you can reduce net emission in your entity by doing offsetting behavior, such as planting trees or changing soil practices. In a hypothetical example, you can eliminate a million tons out of the smokestacks, or you can sequester 20 million by bringing in carbon sequestration from reforestation. Agriculture and forestry--we think that these are beneficial effects to society, in addition to the carbon in the trees, wetlands, etc., in the form of improved soil and water quality.
Describe the reforestation deal that you coordinated with the Montana Indian Bureau, how it works and what the results so far indicate.
This was a deal coordinated by our predecessor firm--Environmental Financial Products. We were engaged by the Salish and Kootenai tribes. They had lost some forest area to fires. We represented them and we sold the future carbon that would come from reforesting parts of their land. They took the proceeds and bought seedlings. The buyer was a European firm that wanted to own carbon credits. It was a novel, cross-border trade.
(NataliePace.com Note: The purchase of "greenhouse gas emissions offsets," aka reforestation, was a coordinated effort between Dr. Sandor, then Chairman of Sustainable Forestry Management, the Confederated Salish and Kootenai Tribes of Montana and the Montana Carbon Offset Coalition. Mr. Tom Corse, Supervisory Forester for the Montana Tribes was pleased to be part of the "win-win" deal, saying, "This first project will set the stage for a process that will help fund chronically under-funded tribal reforestation projects and start the ball rolling on market-based solutions to global warming.")
The fifteen companies that made up the Founding and Charter members of the Chicago Climate Exchange in 2002 had carbon dioxide emissions of 275 million tons annually, which was half of the annual CO2 emissions of the U.K. Was the commitment that they signed, binding them to reduce emissions by 4% by 2006, enough?
Again the purpose of this was initially as a pilot program. It was a demonstration project. The job was to build the institutions. It’s like saying to the Wright Brothers, "You only flew for 56 seconds. You couldn’t even carry mail on that plane, so what good is it?" We want to build the institutions. Markets are like personal computers. What Steven Jobs had in the garage in Berkeley was a very rough copy of what you have today. Financial innovation is like industrial innovation. It occurs with a big idea and then subsequent refinements. We hope to prove that it will fly. You can build the banking, verification, monitoring, protocol, and prove that the system works and will evolve over time.
If you have more questions about this program, how it works or how to sign up your corporation, go to http://www.chicagoclimateexchange.com.
Will Dr. Sandor save the world and win a Nobel Prize to boot? Will Americans catch on to the hybrid craze, started by Cameron Diaz, Harrison Ford, Susan Sarandon and Robin Williams, who began showing up at the Oscars in 2002 in their new Toyota Priuses? You know that your gas-guzzler is so last year, when General Motors has committed to selling e-flex electric cars, like the Chevy Volt, beginning in 2010.
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