The (rich) green economist

Introducing one of the world's most influential environmentalists... Only he isn't an environmentalist at all, says Bryan Walsh in Time magazine; "he's an economist. His name is Richard Sandor, and more than anyone else, he invented the idea of emissions trading – a financial technique of capping and trading pollutants – which may be our best hope for beating climate change."

The 66-year-old ex-economics professor made his name pioneering the development of financial futures at the Chicago Board of Trade in the 1970s, "an accomplishment that gave him a reputation for seeing value where others couldn't."

"I was tossed out of banks across America," says Sandor. "They said interest rates wouldn't change, that financial futures were pointless." They were wrong, says Walsh, "financial futures are now a multi-trillion-dollar industry, and Sandor is a very rich man."

Sandor turned his attention to air pollution in the late 80s, when acid rain, caused by pollutants from coal plants, factories and cars, was fast becoming one of the biggest environmental threats facing America.
The need to reduce emissions was obvious, says Walsh, but how to do it, not so much. To Sandor, however, the answer was clear: markets. He wrote a paper arguing for the creation of a cap-and-trade system that would put a government-mandated limit on the level of pollutants power plants and factories could emit, but allow companies that came in under the limit to trade their excess capacity to companies that exceeded their caps.

"You commoditise the air," says Sandor. "Once you place a price, you move industry and innovation." And move them it did; emissions of SO2 and NO have dropped drastically, as has acid rain, says Walsh.

Sandor's idea was so successful, in fact, that he was asked to the Earth Summit in Rio de Janeiro in 1992 to help design a program to finance reductions in carbon emissions.

His thoughts on this helped shape the Kyoto Protocol, which requires developed nations to reduce their emissions and created a carbon trading and offset market to speed that process along.

And by the late 1990s, he had began formulating the Chicago Climate Exchange (CCX), a private emissions trading market, to take advantage of the changes he assumed would come when the US ratified Kyoto. Obviously, the latter never happened, but Sandor still launched the CCX in 2003.

And while CCX is entirely voluntary – companies that participate aren't forced to make emissions cuts – it has been a success, says Walsh. Today, it has more than 400 corporate members, who last year traded 23 million tons worth of carbon emissions, up from 10.3 million in 2006.

Sandor also has opened a European Climate Exchange, where companies labour under Kyoto-mandatory carbon caps. There, trading has been strong and the company itself is worth over $US1 billion.

"Carbon cap and trade is not a thing of tomorrow or a thing of today, but a thing of yesterday," says Sandor. "It's been working and going on now for five years without a hitch."

But to achieve the massive global carbon emissions cuts needed to avert dangerous climate change, a voluntary market like CCX will never be enough, says Walsh.

"What's needed is a mandatory carbon cap in the biggest carbon market of all – the US." If and when that happens, he says, we may see results as rapidly as with Sandor's acid rain market, without emptying America's national wallet.

"I'm optimistic," says Sandor. "The potential [cap-and-trade] legislation is moving in the right direction. If we design the building right, it won't punish the economy."

How to save the planet and make money doing it, Bryan Wash, Time magazine