It’s not often that you get to see one person change the world. I’ve had the pleasure, recently, to witness and be a small part of just such an accomplishment.
When it became clear that the U.S. Senate would refuse to ratify the Kyoto Protocol, many of us who favor market based solutions to environmental problems felt gloomy. Critics claimed that it would cost hundreds of dollars per ton to abate emissions of carbon. President Bush said that doing this would bankrupt the economy. A man named Richard Sandor, who describes himself as “just a humble economist,” disagreed. And he refused to give in to the despair. He said, “Governments don’t make markets, traders do. I’m a trader, let’s make a market.”
And he’s done it. On December 12, 2003, the Chicago Climate Exchange (CCX) started to trade carbon. It is now trading at 95¢ a ton, hardly the sort of cost to bankrupt anyone. There is no mandate, no government requirement that anyone be a part of this. But that didn’t stop the original 14 companies who joined. And the founders were hardly a bunch of woolly-minded environmentalists. They included such companies as American Electric Power, Ford Motor Company, STMicroelectronics, Dupont, Motorola, and the City of Chicago, significant economic players, all. They joined for a diversity of reasons, but all felt, with Richard, that this was an opportunity to use the market to help solve what is now being called the most challenging problem facing the planet.
Last week, the Exchange held its first annual meeting of members, now 57 strong with seven about to join. My company, Natural Capitalism Inc, is a member of the Exchange, so I went. In truth, I would not have missed this opportunity to watch history being made. This is as much about proving the concept that greenhouse gases can be cut effectively and economically as it is creating a whole new institution in society. And both are happening. Members, on average are reducing their emissions of greenhouse gases (GHGs) by 8% (the Exchange only asks a 1% reduction per year), and the institution is so robust that the Europeans, who are just now setting up their own mandated exchange, came to the meeting to use CCX as a model.
What does it mean to “trade carbon”? (Actually CCX trades reductions in all of the gases that are changing our climate, of which carbon is only one. Others include methane, nitrous oxides and CFC’s -- the same gases that are being phased out because they destroy the ozone layer. But it works like this: I fly around a lot. So my company bought carbon reduction credits from a company that reduced its emissions by an equal or greater amount. They make money, I pay money. My office recently signed on to get all of our electricity from wind power. Were I a big enough player to be a trader on the exchange, I could sell my reduction of coal fired power to someone else, who hasn’t yet figured out how to reduce their emissions.
Ultimately, this will be a very big business, not only because we have to do it, but because reducing our use of energy can be done very profitably. DuPont, a member of the exchange, has set itself a goal of reducing its emissions of GHGs by 65% by 2010, and by then getting 10% of its energy and 25% of its feedstocks from renewables. Has DuPont joined Greenpeace? They made this announcement on CCX in the name of increasing shareholder value. STMicroelectronics went them even better, announcing a goal of zero net CO2 emissions by 2010 with a 40-fold increase in production. By the time that they are done, they reckon that they will have saved almost $1 billion. And one of the first players in this game, BP, announced a 10% reduction by 2010. Is that ambitious? Well, they actually achieved it by 2002. Doing it is saving them $650 million, and senior officials are now saying that even if doing it cost them money, it would be worth while because it makes them the kind of company that the best talent wants to work for.
Meanwhile such companies as Swiss RE, the major European re-insurer, is starting to say that if your company does not take its carbon footprint seriously, maybe our company does not want to insure you. Or your officers or directors.
There’s a business case here, folks. Has your company joined? Check it out the opportunities at the CCX
Web site.
Clearly it would be better if all emitters of GHGs were required to begin to reduce their assault on the stability of this critical ecosystem service. But even if Russia does not sign Kyoto, even if the U.S. continues its stance that solving this problem will hurt the economy, Richard Sandor has moved the game. He and his colleagues at the Chicago Climate Exchange have not only set up the underlying mechanisms, and established a third party verification process, they showed their members that the process of reducing their use of energy and thus their emissions confers such very real competitive business advantages as enhancement of brand, reduction of costs, and encouragement of innovation.
The twinkle that you always see in Richard’s eyes is a reflection of a man who is not only making the market work, he’s making the world a better place for all living things. Not bad for a humble economist.
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L. Hunter Lovins is president and founder of Natural Capitalism, Inc.