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Rapport for Newsweek
Sandor Says: 'So many tell you what can go wrong, instead of building things and learning by doing'
THE FUTURE OF ENERGY
How to Blow Less Smoke
The founder of the world's first carbon-offsets exchange would like to clear the air.
Published Sep 6, 2008
From the magazine issue dated Sep 15, 2008
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Barack Obama and John McCain agree on one thing: the need to cut carbon emissions. With both candidates backing that idea, smoke-spewing factories and power plants can expect big changes soon. Some have prepared by joining the Chicago Climate Exchange, a voluntary market that functions like the NASDAQ but trades emission rights instead of Google stock. Richard Sandor, an economist who's spent decades at the intersection of environmentalism and finance, founded the CCX—the world's first, and America's only, carbon market—in 2003. NEWSWEEK's Fareed Zakaria spoke with him about the exchange and the world's up-and-coming carbon emitters, China and India. Excerpts:
How does the climate exchange work?
The CCX is what is called a cap-and-trade system: there is a cap on the total amount of emissions. In our case, companies have to reduce emissions in the aggregate by 6 percent between 2000 and 2010. If any particular company reduces emissions more than that, they are free to sell those extra credits on the market. Companies that can't make the necessary reductions can buy somebody else's excess.
Why not just mandate that everyone individually cut emissions by 6 percent?
Let's say you're particularly good at reducing emissions—you can change technologies or switch fuels easily. And let's say I can't—I don't have the acreage around my plant [to make renovations], or it will take three years to get permits. I can buy your reductions until I'm capable of doing it. You get the same systemwide reduction, but it's done by those who can do it most cost-effectively and quickest.
Who's involved with the CCX?
We have 17 percent of the Dow Jones industrial average, including IBM, DuPont, United Technologies, Intel. We have 11 percent of the Fortune 100, including Ford Motor Co., Honeywell and International Paper. We have about 25 percent of the top power companies in America, including AEP, the biggest burner of coal in the Western hemisphere. We also have eight cities, from Chicago to Portland, and eight universities from Tufts in the east to UC San Diego in the West.
Why are they agreeing to cut emissions when there's no law requiring it?
Some do it because they see an easy way to make reductions [beyond the minimum 6 percent]. They can then sell the credit and make extra money. There are also many companies who just want to be involved in the process—if you're not at the table, you're on the menu. If there's going to be legislation, they want to get an early start.
They're betting America will institute a mandatory cap-and-trade system.
Exactly. Some companies, like Ford, joined because they knew they were going to be involved in other cap-and-trade systems around the world—they have manufacturing plants in Manchester and Marseilles and Japan, and they were operating in countries that were subject to the Kyoto Protocol [whose signatories must start cap-and-trade systems by 2008].
What has happened to the price of carbon in the United States?
The price of carbon started out at a dollar a ton. It hung around there for a while, but the world changed on Super Tuesday. When it became clear that all three candidates—Clinton, Obama and McCain—all favored a national cap-and-trade system, the price of carbon went from $1.90 to $7.
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