INTERVIEW - US Emissions Pioneer Slowly Builds Market
Date: 18-Nov-05
Country: USA
Author: Timothy Gardner
Instead of coaxing the ghosts of baseball greats to play on his cornfield, Richard Sandor lures businesses to trade greenhouse gases voluntarily on the Chicago Climate Exchange, of which he is chairman and CEO.
The trick is that unlike companies in the European Union's emissions trading scheme launched this year, US companies are not required to reduce greenhouse gases. President George W. Bush refused to ask Congress to ratify the Kyoto pact.
Sandor said CCX members are taking early action that could serve them well if the United States ever regulates emissions.
"We've got dozens of companies who are... familiarizing their auditing firms with this new environmental asset and how to deal with it," Sandor, former chief economist at the Chicago Board of Trade, said in an interview.
CCX is building institutions to verify, monitor, and audit the gases, such as carbon dioxide and methane, so trade can take place.
In greenhouse gas trading, companies that have cut their emissions can sell credits to companies that have not. Sellers of credits usually cut the gases through greater efficiency or by switching from a dirty fuel to a cleaner one, such as from coal to natural gas.
While he does not expect the United States to change its stance against mandatory cuts at the upcoming UN meeting in Montreal this month, Sandor will attend and try to make links with officials from other countries. Some of those countries may have to join the European Union, Japan and Canada in cutting emissions when the next phase of Kyoto gets underway in 2012.
CRITICS
Sandor, who has long believed markets can profitably help reduce pollutants, helped create a successful trading program on sulfur dioxide, an acid rain component. The program, in which the federal government requires companies to cut emissions, provided the framework for Kyoto.
But critics of CCX, pointing to thin trading volumes, say most US companies will only participate in greenhouse trade when US law requires them to.
Since its inception in 2003, CCX members have traded a total of 3.5 million tonnes of emission credits. That's a far cry from the more than 1 million tonnes per day traded this autumn on its counterpart, the European Climate Exchange, of which CCX owns 51 percent.
Doubters also say prices for CCX emissions credits of about $2 per ton are skimpy compared to Europe's prices of about $22 per tonne.
And CCX has not signed up big oil companies, though it is in talks with several.
"There is a false premise that people are looking at market volume as the sign of the success of the market, and that is the wrong thing to be focusing on," said Sandor.
He focuses on the building of institutional knowledge. Emissions of CCX members are regulated by the National Association of Securities Dealers (NASD). The audited record means companies could prove they took action early if the United States, or the Regional Greenhouse Gas Initiative, a group of nine forward-thinking Northeastern states, ever cap emissions.
David Hayes, a lawyer in Washington, D.C., said some companies avoid early action on greenhouse gases because they fear early efforts may not be rewarded by a national scheme. "Until you know what baseline you are being counted against it's possible that you may be hurting yourself," he said.
FUTURE
Membership of CCX has grown from 14 to 130. Most members are companies, but cities, such as Chicago, and one state, New Mexico, have also signed on. But exactly which CCX members actually trade on the privately held exchange is confidential.
One member is the largest US utility, on whose board Sandor sits, American Electric Power. Others are Ford Motor Co. and Waste Management Inc.
Through 2006, CCX participants have agreed to reduce emissions by a modest 1 percent a year below a 1998-to-2001 baseline. CCX recently extended the cuts to 6 percent below the baseline by the end of 2010.
