Tuesday, June 16, 2009

Richard Sandor, Barack Obama and the Founding of the Chicago Climate Exchange (CLE.L)

UPDATE April 30, 2010: "Al Gore, Score!: InterContinental Exchange, Inc. Buying Climate Exchange PLC (CLE.L; ICE; GS)"
Update above:
some thoughts on traders and markets.
Original post:
One of the key concepts of the carbon offset biz is additionality. The reasoning is: a project developer should only receive money for a project if the project would not have been developed in the absence of the extra cash incentive. That's why the Chinese didn't get Clean Development Mechanism carbon credits for the Three Gorges Dam, they were going to do it anyway.

Richard Sandor is the founder of and largest individual shareholder* in the Chicago Climate Exchange.
Here's my favorite Richard Sandor quote via the Wall Street Journal's Jeffrey Ball:
...But the exchange acknowledges that on some of those outside projects, it is authorizing the sale of credits for cleanups that had been performed anyway. Richard Sandor, the exchange's chairman, says that doing so rewards "early action" and encourages other landfills to capture methane too.

Mr. Sandor says the exchange's main goal is to help develop a commodity that has financial value under any possible future U.S. law that to regulates greenhouse-gas emissions.

The debate over whether or not a polluter would have cut its greenhouse-gas emissions without the financial incentive of credit sales is "quite interesting, but that's not my business," Mr. Sandor says.

"I'm running a for-profit company."...

Here's some backround from Bloomberg:

Sandor Got Obama Nod on Seed Money for Chicago-Type Climate Law
A Brooklyn-born economist who gave up teaching at the University of California at Berkeley in 1973 to trade the first Treasury-bond futures is getting his way with the biggest change in U.S. environmental policy in 20 years. And he has an unwitting ally from Chicago.

Legislation to let polluters buy and sell carbon-dioxide emissions like pork bellies is the outgrowth of Richard L. Sandor, founder of the Chicago-based network of people trading pollution permits from Beijing to Brussels known as Climate Exchange. It doesn’t hurt that the six-year-old market got $1.1 million of seed money from the city’s Joyce Foundation, whose board included a little-known state senator named Barack Obama. Now the 44th president is determined to enact America’s first limits on greenhouse gases.

That the 67-year-old Sandor finds himself working with Henry Waxman, the California Democrat sponsoring the bill to cap emissions from refiners, utilities and manufacturers, is a belated recognition that Chicago-style pragmatism may prevail in the battle between business and environmentalists.

Richard Sandor talked to people personally,” said Stuart Eizenstat, a director of Sandor’s Chicago exchange who was former President Bill Clinton’s lead climate-treaty negotiator.

Global trade in carbon emissions reached $120 billion in 2008, according to a May 21 report from Ecosystem Marketplace, a Washington-based research company that tracks environmental markets.

Free Pollution Permits

Waxman, 69, chairman of the House Energy and Commerce Committee who has taken on everyone from drugmakers to the tobacco lobby in three decades in Congress, agreed to give free pollution permits to utilities and allow manufacturers and refiners to meet CO2 targets by investing in so-called offset credits championed by Sandor. Companies offset their emissions by paying someone else to reduce greenhouse gases.

American Electric Power Co., Duke Energy Corp. and other carbon emitters are counting on the offsets to help reduce the cost of complying with the new pollution rules.

The original bill, the cornerstone of Obama’s environmental agenda, began “way, way to the left,” Sandor said in an interview, with provisions he said would push U.S. utilities into bankruptcy.

“The Waxman bill, to those of us who are students, was a joke from the inception,” said Sandor, who at the Chicago Board of Trade helped develop interest-rate futures such as the Treasury-bond contract, which began trading in 1977. He received his bachelor’s degree from the City University of New York’s Brooklyn College, and a doctorate in economics from the University of Minnesota.

Validity Questioned

The changes backed by Sandor, industrial polluters and farmers may undermine the goal of reducing emissions blamed for global warming, according to Peter Shattuck, a research analyst with the consulting company Environment Northeast of Rockport, Maine.

Some projects “aren’t as rigorous and don’t have the environmental integrity that you’re hoping for,” Shattuck said. “The crux of the issue is, are you getting paid for something you’re providing anyhow?”

The carbon credits in question involve agricultural projects that reduce CO2 in the atmosphere by planting trees or not tilling cropland. Emissions avoided through such methods are represented by carbon credits that can be traded....MORE

*Goldman Sachs owns 19% of the CCX's parent, Climate Exchange Plc (CLE: London).

Some of our previous posts on Mr. Sandor in reverse chronological order:

Meet The Energy and Environmental Markets Advisory Committee (EEMAC)

Carbon Trading: How to (Maybe) Make Money Out of Thin Air: And One of my Favorite Carbon Cowboy Quotes