[SustainableTompkins] carbon emissions trading

[GayNicholson at aol.com]

July 30, 2006


Capital Pollution Solution?

By JEFF  GOODELL

Richard Sandor, chairman and C.E.O. of the Chicago Climate  Exchange, 
seems to be fond of green. His business card and company  stationery are 
trimmed in green; he wears green neckties. When he is  photographed by 
the news media, there’s lots of green in the frame: green  file folders, 
green paper, anything. For Sandor, it may be a way of  signaling that the 
Chicago Climate Exchange — a commodities market for an  unusual kind of 
commodity, greenhouse gas allowances — is more than just  another 
business venture. It is, as he describes it, the engine of an  
environmental revolution.

But of course, green is also the color of  money. And Sandor, who has 
been called “the father of financial futures” for  his role in creating 
interest-rate futures in the 1970’s and who made a  fortune during the 
boom years of the 80’s at Drexel Burnham Lambert, the  firm of the 
junk-bond king Michael Milken, is also familiar with that  particular 
shade. However high-minded in principle, the Chicago Climate  Exchange is 
also about making a buck off the planet’s looming climate  catastrophe.

Not that there’s anything wrong with that. In fact, the  trading of 
greenhouse gas allowances, also known as carbon trading, may be  
capitalism’s best answer to the problem of global warming. To avoid a  
dangerous degree of climate change, many scientists say, greenhouse gas  
emissions worldwide will have to be cut by 50 to 70 percent over the  
next 50 years. The only hope of achieving that, short of an unforeseen  
technological breakthrough or the passage of draconian environmental  
laws, is to inspire radical change in the economic system. In a  
carbon-trading scheme, you must pay to pollute: price tags are placed on  
greenhouse gas emissions and then the market (not the government)  
essentially figures out the cheapest, most efficient way to reduce them.  
“The beauty of carbon trading,” Dan Dudek, chief economist at  
Environmental Defense, a nonprofit advocacy group, explained to me, “is  
that it takes a primal human impulse — greed — and redirects it toward  
saving the planet rather than destroying it.”

Last year, the European  Union set up a carbon-trading scheme, the E.U. 
E.T.S. (Emission Trading  Scheme), which, despite some recent problems in 
its teething stage, may  reach $30 billion in market activity by the end 
of this year. Many  economists speculate that a global carbon market 
could become the largest  commodities market in the world. If the Chicago 
Climate Exchange were to  become a major trading venue, as Sandor says he 
hopes it will, the  commissions alone could be worth many millions.

For the time being,  Sandor’s operation is somewhat more modest. The 
exchange, also known as CCX,  opened for business in December 2003, after 
raising $25 million in a public  offering on the Alternative Investment 
Market, a part of the London Stock  Exchange. By May of this year, more 
than six million carbon allowances had  been traded on the exchange, and 
the price for the allowances was hovering  between $3 and $5 per metric 
ton of carbon dioxide. CCX now has more than  175 participants, including 
corporations like American Electric Power, Ford,  Motorola, DuPont and 
I.B.M., as well as the state of New Mexico and six  American cities, 
including Portland, Ore., and Oakland and Berkeley, Calif.  Sandor says 
that in 2004, the members of CCX reduced carbon emissions by 30  million 
metric tons, roughly equivalent to the yearly emissions of two big  coal 
plants. “CCX is growing,” the energy trading consultant Peter Fusaro  
told me recently, “but compared with mature exchanges like the New York  
Mercantile Exchange, the volumes are still minuscule.”

What makes CCX  exceptional, despite its small size, is that it’s a 
private, voluntary  endeavor. In Europe, the E.U. E.T.S. is a 
multinational,  government-sanctioned project. The driving force behind 
the E.U. E.T.S. is a  carbon-trading scheme that is built into the Kyoto 
Protocol, the 1997  international agreement on climate change, which 
committed industrialized  nations to cutting greenhouse gas emissions by 
5.2 percent from 1990 levels.  (Kyoto’s emissions oversight is not 
scheduled to kick in until 2008, but  last year the European Union set up 
the E.U. E.T.S. to help its members  prepare for that eventuality.) By 
contrast, in the United States, which has  not ratified Kyoto, there is 
no government-sanctioned carbon  market.

Some analysts, including Sandor, contend that it’s just a matter  of time 
before the United States adopts some sort of national  emissions-trading 
scheme. Pressure is building on several fronts:  environmentalists are 
demanding action on global warming, investment banks  covet the arbitrage 
opportunities that a carbon market affords and  international 
corporations seek long-term regulatory certainty. “I think  it’s all but 
inevitable that a trading program will become the tool of  choice for 
managing emissions in the U.S.,” Christine Todd Whitman, the  former New 
Jersey governor and the administrator of the Environmental  Protection 
Agency early in the Bush administration, told me recently. “It’s  just a 
question of when and how the program will be  designed.”

Several players are taking steps to design and implement  trading schemes 
in the United States. In effect, they are jockeying for what  economists 
call “first-mover status,” hoping to create the prototype for  what might 
become a future national carbon market. A group of seven Eastern  states 
have banded together to create a regional greenhouse gas initiative,  
known as R.G.G.I., which is scheduled to begin in 2009. In the West, a  
number of states, led by California, are considering a similar  initiative.

And then there’s Sandor. No one has done more than he has to  get a 
carbon market up and running in the United States. The World Resources  
Institute, a private environmental research group and an associate  
member of the exchange, has given Sandor an endorsement. “The Chicago  
Climate Exchange is an important experiment in reducing greenhouse gas  
emissions,” the institute’s president, Jonathan Lash, told me. Bill  
Richardson, the governor of New Mexico, whose state is a participant in  
CCX, suggests that Sandor’s project is here to stay. “I think the  
Chicago Climate Exchange is part of America’s future,” he said when I  
spoke with him. “We felt that the sooner we became a part of it, the  
better.”

But some observers are more wary. Mark Trexler, an industry  consultant 
who is an advocate of emissions trading, told me that in Sandor’s  rush 
to gain a foothold in this growing market, he may be undermining the  
integrity and effectiveness of the very system he presumes to advocate.  
It may be true that a market-based system is an indispensable means for  
combating global warming, but does it follow that an entrepreneur, no  
matter how well intentioned, can be trusted to design that system for  
the public good? “My fear is that if we aren’t rigorous enough in how we  
set up a trading system right now,” Trexler said, “we could end up  
discrediting trading as a tool to deal with global warming. If we’re not  
careful, people could get the idea that it’s all a fraud. And that would  
be a disaster, both for us and for the planet.”

On a recent morning,  I visited Sandor in the CCX offices, which are 
housed in a skyscraper  designed by Philip Johnson on LaSalle Street in 
Chicago. Sandor, who is 64,  has a quick, practiced smile that suggests 
no lack of self-confidence. He  speaks plainly and seriously about the 
dangers of global warming, though at  times he can sound as if he’s 
trying to sell you something — which, of  course, he is.

As we talked in his office, I noticed a green silicone  band on his right 
wrist. It was similar to the yellow Live Strong wristband  that Lance 
Armstrong popularized to support his fight against cancer. It  struck me 
as odd, since Sandor didn’t seem to be a wristband sort of guy. I  asked 
him about it.

“It’s a CCX wristband,” he explained. “I never  take it off. Want one?”

He opened a drawer in his desk, took out a  wristband in a plastic bag 
and handed it to me. I opened it and read the  slogan on the band: “CCX — 
To Save the Planet.”

“That’s a big job,” I  said, poking fun at the immodesty of the slogan. 
“You’re serious about this,  aren’t you?”

“Very serious,” he said, stone-faced.

Sandor began  his career as an academic, teaching economics at the 
University of  California at Berkeley in the late 60’s. Inspired in part 
by a credit crunch  that hit California in those years, he came up with 
the idea of  interest-rate futures, a financial instrument that would 
allow banks and  investors to hedge against future changes in interest 
rates. In 1972, he  left academia and joined the Chicago Board of Trade 
as an economist. In  1982, he followed the financial boom to Wall Street, 
taking a job at Drexel,  where he worked developing futures markets in 
insurance and other fields. By  1990, however, Drexel was in bankruptcy, 
and Sandor turned his attention  elsewhere: to environmental problems and 
how market mechanisms might be used  to solve them.

Sandor’s interest was sparked by the Environmental  Protection Agency’s 
1990 Acid Rain Program, which sought to reduce sulfur  dioxide emissions 
from coal-burning power plants in the United States. The  design of the 
program was ingenious but simple. Instead of trying to  regulate sulfur 
dioxide emissions the usual way, by dictating a certain kind  of 
emissions-control technology on each power plant, the E.P.A. employed  
what is known as a cap-and-trade program. The agency set an overall  
limit, or cap, on the amount of emissions permitted from all power  
plants combined. Then it allotted a certain number of pollution  
allowances to each emitter and let the operators of individual plants  
figure out how they wanted to proceed. A company might install scrubbers  
or switch to lower sulfur coal in order not to exceed its quota, but if  
the company determined that polluting beyond its quota was necessary, it  
could buy additional allowances from companies that had not used up  
their allotments. Companies that reduced their emissions could bank  
their credits for later use or sell them for a profit.

Fascinated,  Sandor joined the E.P.A.’s Acid Rain Advisory Committee, 
which was charged  with helping to implement the new law. Among other 
things, Sandor persuaded  the E.P.A. to hold the annual auction for 
sulfur dioxide allowances on the  exchange run by his former employer, 
the Chicago Board of Trade. In the end,  the cap-and-trade program 
reduced pollutants more quickly, and far more  cheaply, than anyone 
anticipated and became the model for market-based  environmental success. 
Best of all, it helped transform the problem of  reducing pollution from 
a moral issue into a pragmatic one.

Not long  after the acid-rain program began, Sandor and other economists 
began  thinking about how to apply the same market-based strategies to an 
even  bigger problem, with an even bigger potential market: global 
warming.  Whereas sulfur dioxide is a pollutant emitted from a measurable 
number of  specific smokestacks, greenhouse gases, which are commonly 
measured in  metric tons of carbon dioxide equivalent, are emitted from 
millions of  diverse sources, including cars, jets, farm animal waste, 
factories and  power plants. And unlike sulfur dioxide, which is a 
regional pollutant,  greenhouse gases are a global problem: a metric ton 
of carbon dioxide  emitted in Russia has the same impact on the 
atmosphere as a metric ton  emitted in Ohio.

Despite these critical differences, in principle the  same market-based 
approach could be used. First, set the overall limit of  greenhouse gases 
that countries are collectively permitted to emit, then  distribute (or 
auction off) allowances among various pollution sources  within each 
country and sit back and watch the emitters trade those  allowances as 
their needs and market strategies dictate. There would even be  room for 
speculators to join in the market: if you think next summer is  going to 
be a scorcher, you might buy up allowances on the theory that in  hot 
weather, coal plants often run at maximum capacity to meet the power  
demand, dumping more carbon dioxide into the atmosphere and thus raising  
the demand (and the price) for carbon allowances.

A key innovation in  the design of carbon markets was the idea of 
offsets. The basic concept was  that polluters could earn emissions 
credits not only by cutting their own  carbon emissions but also by 
assisting in efforts to reduce emissions from  other sources elsewhere in 
the world: for instance, by paying farmers to  reduce the emission of 
methane, a potent greenhouse gas, from animal waste.  Another example of 
an offset was the so-called natural carbon sink —  something like a 
forest, which absorbs carbon dioxide through  photosynthesis. If you 
increase the absorption of carbon dioxide with  plants, you create the 
same net effect on the atmosphere as cutting  emissions from your car — 
so why not allow polluters to earn credits for,  say, investing in 
reforestation?

The use of offsets also added the  possibility for greater profits and 
speculation by carbon traders. For  instance, if the price for carbon 
emissions credits is, say, $15 a metric  ton, a company that can buy or 
lease land in Brazil and plant trees that  will sequester carbon for the 
equivalent of $2 a metric ton stands to make a  tidy sum by selling the 
credits it can generate.

Policy makers in the  United States were excited by the idea of carbon 
trading, and during the  mid-1990’s, American negotiators pushed hard to 
make sure the framework for  a carbon-trading scheme was included in the 
Kyoto Protocol. Sandor, for his  part, was eager to capitalize on a 
global carbon market and began dreaming  up the idea for an 
all-electronic exchange for carbon trading. In 2000, with  a $450,000 
grant from the Joyce Foundation, a private organization with a  history 
of financing environmental initiatives, he enlisted about 100 people  — 
power-industry executives, environmentalists, lawyers — to study the  
feasibility of establishing a voluntary market in advance of what he  
assumed would eventually be a mandatory emissions-trading scheme in the  
United States. In theory, his market would give companies practice  
measuring and managing their greenhouse gas emissions, preparing them  
for life in a carbon-constrained world. It would also put him in a  
position to be the dominant trading platform when the American market  
opened in earnest.

Sandor’s first challenge was to recruit companies  to join the exchange, 
and his ace in the hole was American Electric Power,  or A.E.P. Sandor, 
it so happened, had joined A.E.P.’s board of directors at  about the same 
time as the design process for CCX was getting under way. Not  
surprisingly, in 2000, A.E.P. enlisted in CCX and was joined by a number  
of other blue-chip corporations, including Ford and I.B.M.

In 2001,  the Bush administration threw CCX a curve when it declined to 
ratify Kyoto.  As a result, when CCX opened for business in 2003, it 
became virtually the  only carbon-trading game in town for the 
foreseeable future. As with the  trading scheme regulated by Kyoto, CCX 
brokers trades for credits of the six  main greenhouses gases; its 
transactions are audited by N.A.S.D., a  respected private securities 
industry regulator; and it has links to the  E.U. E.T.S., where Sandor 
also runs an exchange. Unlike Kyoto, however, CCX  has no teeth: it is an 
entirely private effort. In the first full month of  trading on CCX, 
credits for about 82,000 metric tons of greenhouse gases  swapped hands 
at a price of about $1 per metric ton. “It was a little like  the Wright 
brothers at Kitty Hawk,” Sandor told me. “Nobody believed it  would fly. 
But it did. Maybe not elegantly at first, but it flew.”

ot  everyone was so upbeat about CCX. When the exchange first began 
recruiting  companies to join and soliciting environmental groups for 
endorsements,  several of those groups started to have reservations. The 
Natural Resources  Defense Council and Environmental Defense kept their 
distance. The Nature  Conservancy consulted on the rules for CCX’s 
forestry offsets but did not  join the exchange. The concern, several 
members of these groups told me, was  that the initial design of CCX was 
too industry-friendly. Of its  participating emitters, CCX required 
emissions reductions of just 1 percent  a year during the market’s first 
phase, from 2003 to 2006. (This was far  more modest than even the gentle 
cuts mandated under Kyoto.) CCX’s trading  scheme threatened no explicit 
penalties for companies that missed their  targets; in fact, a provision 
was included in the exchange’s rule book  stating that emissions more 
than 4 percent over a company’s baseline (today  it’s 7 percent) would 
not even be counted. Finally, the rules that governed  the use of 
offsets, critics said, were lax. “Clearly, the initial goal was  to make 
it as painless as possible for companies to sign up,” the industry  
consultant Mark Trexler told me. “If you’re designing a voluntary  
system, it’s hard to do it any other way.”

Despite the claim that  industry had a strong influence on the design of 
CCX, many of the biggest  emitters — including companies with solid 
environmental credentials, like  BP, the global oil and gas conglomerate, 
and Cinergy, the Midwestern  electric-power company — declined to sign 
on. There were a variety of  reasons given for this, but one of the most 
important issues very likely  concerned something called the emissions 
baseline. In any trading scheme,  picking a baseline — the point from 
which emissions increases and reductions  are measured — is 
controversial. In the Kyoto Protocol, for instance, all  reductions are 
measured against a baseline of emissions levels in 1990. For  its 
baseline, CCX decided to use an average of emissions from 1998 to 2001.  
As it happened, one of the big nuclear plants of A.E.P. was mostly shut  
down during those years, meaning that A.E.P. had to burn more coal to  
make up for it, presumably inflating its carbon dioxide emissions. Thus,  
the choice of an artificially high 1998-2001 baseline was a benefit to  
A.E.P. (on whose board Sandor sits), since it could more easily remain  
below it.

Bruce Braine, vice president for strategic policy analysis  at A.E.P. and 
a CCX board member, told me that “the question of establishing  baselines 
is always difficult. No matter how you choose to set them, someone  
complains that it’s unfair.” But as I was told by one former executive  
for CCX, who was granted anonymity because the executive was not  
authorized to discuss CCX’s internal matters, “other big emitters had no  
interest in joining a program that seemed designed to help A.E.P. look  
like a good corporate citizen.”

In the three years that CCX has been  in operation, criticisms from 
environmentalists have only grown. This is  particularly the case with 
CCX’s standards for using agricultural offsets,  in which carbon is 
sequestered in farmland soils and then sold for emissions  credits. 
Agricultural offsets are notoriously difficult to measure and  quantify, 
and a less-than-rigorous program is essentially a way of  introducing 
overvalued emissions allowances into the trading system.  Advocates of 
carbon trading like Environmental Defense have worked hard to  develop 
stringent protocols for soil sequestration, while others, like David  
Doniger, the climate policy director at the Natural Resources Defense  
Council, remain skeptical of the whole concept. “The problem with these  
kinds of offsets is that we’ve never found a way to separate the wheat  
from the chaff,” Doniger told me. “There is a constant tension between  
quality control and high participation rate. And it’s usually quality  
that goes in the toilet.”

To check this out for myself, on a rainy  afternoon this spring I drove a 
few hours southwest of Omaha to visit Steve  Wiese, a 51-year-old farmer 
who earns extra money by sequestering carbon on  his 2,500-acre farm and 
selling the carbon allowances on CCX. When I  arrived, Wiese was going 
over some paperwork in his barn. On his desk was a  check for $2,008.94. 
“It just came in the mail the other day,” Wiese said,  waving it happily.

Wiese, like hundreds of other farmers who are getting  paychecks from 
carbon emitters by way of CCX, practices a form of  cultivation known as 
no-till. Instead of tearing up the fields each spring  and releasing the 
carbon stored in the soil (mostly in the form of  decomposing plant 
matter and roots), no-till farmers plant right over the  previous year’s 
crop, leaving the soil undisturbed.

“How long have  you been no-tilling?” I asked him.

“About 14 years,” he said, leaning  back in his chair.

“How long have you been getting paid by  CCX?”

“Just signed up last year,” he said.

Here was an instance of  a major problem that critics of CCX have raised: 
Wiese is getting paid for  storing carbon in his soil, even though he has 
done nothing to increase the  amount of carbon that is being stored on 
his land — he’s just doing exactly  what he’s been doing for the last 14 
years. A polluter like A.E.P. or Ford  can use a credit from Wiese’s farm 
to offset their greenhouse gas emissions,  but the fact is, in cases like 
these the payments from CCX are having no net  effect on the level of 
greenhouse gases in the atmosphere.

And Wiese  is hardly alone. Of the half-dozen farmers I spoke to in 
Nebraska and Iowa,  all had started no-tilling before they ever received 
a check from CCX. When  I asked Sandor about this, he argued that it 
doesn’t matter if these  agricultural reductions are “real” or not, 
because they make up only a small  fraction of CCX’s overall reductions. 
“What’s important,” he told me, “is to  incentivize people who are doing 
the right thing. I think of these payments  as a kind of ‘tickler.’ ” To 
critics like Doniger, though, the problem is  that Sandor doesn’t 
advertise these kinds of offsets as a “tickler” — he  advertises them as 
actual improvements in the  atmosphere.

Environmentalists have also raised questions about another  aspect of 
CCX: how it calculates emissions reductions. Sandor regularly  notes that 
CCX members reduced carbon emissions by 14 million metric tons in  2003 
and 30 million metric tons in 2004. (2005 numbers aren’t available  yet.) 
That is, of course, a good thing. But it’s not clear that CCX should  get 
the credit.

Consider the case of DuPont. Overall, DuPont’s carbon  dioxide emissions 
are down 72 percent since 1990 — an example, according to  Edwin Mongan, 
the director of energy and environment at DuPont, of “what a  company can 
do if it sets its mind to it.” DuPont has beat its CCX baseline  by more 
than 50 percent, cutting emissions by 8 million metric tons more  than 
required. “We’re supportive of CCX because it has given us experience  
trying out selling, working in a carbon market,” Mongan told me. But he  
also suggested that being a member of CCX has not, in itself, led to  
reduced emissions. “I think CCX has been most valuable to us in helping  
to certify and validate the emissions cuts that we’ve already made,” he  
said.

The fact that companies like DuPont are reducing their carbon  emissions 
does not mean that the emissions reductions trumpeted by CCX are  
necessarily unreal. But it may mean that these reductions are mostly the  
result of good corporate citizenship, not the power or efficiency of  
Sandor’s market.

Unfortunately, sorting out the real from the unreal  is not always easy 
with CCX projects. It was precisely this difficulty that  bothered David 
Littell, the commissioner of Maine’s Department of  Environmental 
Protection, when he heard a pitch from CCX in 2004. At the  time, CCX had 
approached a number of states about joining the exchange.  Maine, which 
was among the first states to take progressive action on global  warming, 
was a coveted recruit for CCX. Littell told me that he and other  state 
administrators were “generally supportive” of CCX’s goals but had  
concerns that the exchange “was a system set up by private entities,  
with private transactions, set up to ensure confidentiality.” Why was  
this a problem? “It creates an appearance that the emission reductions  
might not be enforceable and verifiable,” Littell told me. Like several  
other Eastern states that were courted, Maine didn’t sign  up.

Instead, Littell is now concentrating on the creation of R.G.G.I.,  the 
regional greenhouse gas initiative that also involves Connecticut,  
Delaware, New Hampshire, New Jersey, New York and Vermont. Unlike with  
CCX, which was devised essentially behind closed doors by a group of  
corporations, the creation of the rules for R.G.G.I. has been open and  
transparent, with dozens of public meetings and ample time for all  
stakeholders — environmentalists, industrialists, politicians, citizens  
— to comment on the program’s design. As a result, the program is  
proceeding cautiously; for instance, instead of allowing a wide variety  
of offsets, as CCX does, the R.G.G.I. program will begin with a limited  
set of five categories of offsets (including collecting methane from  
landfills) and does not include the controversial agricultural offsets.  
“We believe public confidence in the program is vital,” Franz Litz, of  
the New York State Department of Environmental Conservation, told  me.

If CCX has such troubling flaws, why has it attracted so much  support, 
particularly in corporate America? One explanation, provided by  Sandor 
and others who endorse CCX, is that by joining CCX, companies get  
valuable experience managing emissions in a functioning market. In  
addition, of course, there is the public-relations benefit that goes  
along with being part of an enterprise that is widely viewed as part of  
the solution, not part of the problem.

But what’s going on here may  be more complicated than that, and it has 
to do with that other shade of  green. The logic goes like this: in a few 
years, if a mandatory  carbon-trading system is finally established in 
the United States, one of  the most contentious issues in the design of 
that system will be how  companies that have already made reductions in 
their emissions will be  credited for those reductions — if indeed they 
are credited at all. In other  words, should a company like DuPont or 
I.B.M., both good corporate citizens  that have already made sizable cuts 
in emissions, be required to reduce  greenhouse gas emissions just as 
much as a competitor who has done nothing?  If they do get credit for 
those early reductions, how might that credit be  measured? For DuPont 
and I.B.M., hundreds of millions of dollars could be at  stake in how 
this question is resolved.

With CCX, Sandor has  effectively played this uncertainty to his 
advantage. The bigger CCX gets,  the more cities and states it can get to 
join, the more likely it will be  that carbon credits on the exchange 
will be viewed as the de facto standard  by politicians and others 
responsible for designing a national system — and  the more likely it 
will be that credits on the exchange, which at the moment  are only 
informally recognized among CCX participants, will be grandfathered  into 
a national system and granted full legal status as property rights.  
“This is all about business,” one carbon-market veteran told me. “It has  
nothing to do with the environment.”

To Sandor, these criticisms of  CCX are, if not trivial, then at least 
beside the point. “At a certain  level, all this becomes a debate about 
how many angels can dance on the head  of a pin,” he told me. “In the 
larger scheme of things, they are  meaningless. Global warming is an 
extremely urgent problem. Is CCX perfect?  Of course not. Neither was the 
U.S. Constitution — they forgot the 10  amendments, including freedom of 
the press and freedom of speech. The  important point here is that 
markets work to solve problems. The sooner we  admit that, and the sooner 
we get around to building those markets, the  better.”

Not long ago, at the University of Minnesota campus in  Minneapolis, I 
was part of a standing-room-only crowd gathered in an  auditorium to hear 
Sandor speak. He took the podium and charmed the audience  with a mix of 
business savvy and social conscience. His message was one of  hope and 
confidence and creativity, a response to the people he calls the  Darth 
Vaders of the world — all those environmentalists, politicians and  
businessmen who think that global warming is too difficult an issue to  
tackle, who believe we have to wait longer and study it more before we  
do anything and, most of all, who are determined to make the perfect the  
enemy of the good.

If CCX were simply a giant eBay, there would be  nothing to do but 
celebrate Sandor’s gumption and step back and see if his  vision had 
wings. But creating a market for public goods is different from  creating 
a market for Elvis memorabilia. Sandor is in the business of  
commodifying the air we breathe, and in that regard he is indeed a  
revolutionary, pushing the boundary between public and private and, in  
the process, raising new questions about what capitalism can and cannot  
do. It’s easy to see how a carbon market might be designed to enrich  
traders and investment banks; what is still far from clear is whether  
one can be designed that will significantly reduce greenhouse gas  
emissions. It may seem paradoxical, but the real lesson of CCX could  
turn out to be that markets may be wonderfully efficient systems, but  
they are no substitute for strong government action — both in setting  
the broad social goals of how to deal with global warming and, in the  
case of carbon markets, ensuring that the rules are not inclined in  
favor of private interests.

“Integrity is the linchpin to both public  and investor confidence,” the 
emissions-trading pioneer Dan Dudek told me.  “Without integrity, 
investors won’t commit serious capital either to  generate the supply of 
reductions necessary for trading or to buy the  reductions in the first 
place.”

Sandor doesn’t disagree. “This is  just the beginning of a long journey,” 
he told me as we walked down the  Minnesota campus steps after the 
speech. He was, as usual, in a hurry, his  BlackBerry in hand, heading to 
California and Asia in the coming days. A  black sedan waited at the 
curb. “I don’t pretend to have all the answers,”  he said, reaching for 
the door. “I’m just a humble economist. All I want to  do is solve the 
problem of global warming.”

Jeff Goodell, a frequent  contributor to the magazine, is the author of 
“Big Coal: The Dirty Secret  Behind America’s Energy Future.”



Copyright 2006  
<http://www.nytimes.com/ref/membercenter/help/copyright.html> The New  
York Times Company <http://www.nytco.com/>


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Gay Nicholson, Ph.D.  

Sustainable Tompkins 
Program Coordinator 
_www.sustainabletompkins.org_ (http://www.sustainabletompkins.org/) 

607-533-7312 (home office)
607-279-6618 (cell)

1  Maple Avenue
Lansing, NY 14882
gaynicholson at aol.com

Southern Tier  Energy$mart Communities
Regional Coordinator
Cornell Cooperative Extension  of Tompkins County
615 Willow Ave., Ithaca, NY  14850
agn1 at cornell.edu