Vision: What Richard Sandor Saw And Still Sees in Carbon Markets

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Richard Sandor has seen just about everything in his career as the “father of financial futures.” From creating the first interest rate futures contract to founding the Chicago Climate Exchange, he tells it all in his latest book, “How I Saw It: Analysis and Commentary on Environmental Finance”. He spoke with John Lothian News about just how far carbon markets have come since 1999.

“It’s amazing to me, where we came from in the last two decades and during the period of this book, from 1997 or 1999 to 2005,” Sandor said. “What became a theoretical construct became a reality today adopted around the world.”

While a US carbon market does not appear to be in the works, US states have picked up and started their own cap-and-trade carbon markets, largely based on the markets Sandor created. California and the northeast group of states called the Regional Greenhouse Gas Initiative have done well in Sandor’s eyes.

“By and large, the markets have worked,” he said. “Very peculiarly, people point to price often and not to emissions reductions. While in corn, when prices get high farmers get happy, consumers don’t. When prices get low, consumers and the public are very happy. This market has it all flipped around. Instead of looking at the size of the crop, we’re looking at the price of the commodity and judging it as not effective if the price is low, whereas we’d applaud it in the ag markets.”

CCX’s contracts, now integrated into the Intercontinental Exchange, make up one of the markets that is beating the big name commodity contracts.

“I think one of the biggest elephants in the room is that the open interest in US environmental markets is approaching 500,000 contracts,” he said. “Which means it’s bigger in open interest than gold and platinum combined.”

China has followed suit as well with a number of pilot carbon markets and plans for a national carbon market this year.

“I think it’s set to become the biggest carbon market in the world – China,” he said. “Twenty years ago, in the context of this book, you would have never thought that China would be miles ahead of the US in terms of implementing market-based solutions to environmental problems. It’s almost surreal.”