Richard Sandor, CEO of Chicago Climate Exchange on Carbon Credit Commerce
Tuesday, March 25, 2008SUSIE GHARIB: More and more large American companies are taking a potential liability, greenhouse gas emissions and turning it into an asset. They're doing it by trading so-called carbon credits as legally-binding futures contracts through the Chicago climate exchange. Recently, Jeff Yastine talked with Richard Sandor, CEO of the exchange and asked him why companies are joining his marketplace, even though U.S. law does not limit carbon emissions.
RICHARD SANDOR, CHAIRMAN & CEO, CHICAGO CLIMATE EXCHANGE: Some of those companies believe ultimately that we are going to have this cap in trade. They want to be prepared. They have their carbon footprint. They have already identified ways to make cuts and they feel they need to get ahead of this. They have to put in the front of their people that carbon is a concern of theirs and that they are focused on it and that they believe they will shed positive light on the company and in some instances be able to monetize an asset, carbon emissions that's already on their balance sheet and they can sell them on the exchange.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Give us a brief tutorial on how your marketplace works. If I'm an electric utility and I'm putting out a certain amount of carbon dioxide every year, am I going in to your marketplace and essentially hedging or selling short my long carbon position?
SANDOR: Let's say there are two cases, a utility could have made reductions already in excess of what we require. So we require at the Chicago climate exchange companies to take their 2000 year emissions and cut them by 6 percent by 2010. That's the more or less overview. If you cut them by more than 6 percent, OK, let's say you cut them by 20 percent. You can sell those 14 percent. Why is this important is it motivates people who can most cost effectively make the reductions to make them. Their incentivized to even cut more than is required because they can make money. Me, if I'm into hedge for two or three years until I get new siting laws, I'm going to build some new plants. It'll take me three, four years just the environmental permitting process now I have a way to buy your reductions, be in compliance until I change my technology.
YASTINE: Dr. Sandor, talk a little bit about how successful the Chicago climate exchange has been in the five years or so that it's been in existence?
SANDOR: The success has been dramatic in growth and trading volumes. We traded 1.5 million tons in '05. We traded 10.3 million tons of carbon in '06. We traded 23 million in '07. And in just the sub-period from January 1 to now, we've traded 17 million tons. So we have been growing 100 to 300 percent. The volumes have been fantastic and the price movement has been fantastic since super Tuesday. Super Tuesday prices were $1.90 for carbon and once it became clear that all three candidates favored cap in trade, they went to $5.60 in three weeks. So it's a raging bull market and volumes are moving up exponentially.
YASTINE: Dr. Sandor, thanks.
SANDOR: It's great to be here with you.
