Sandor got Obama nod on seed money for Chicago-type climate law
A Brooklyn-born economist who gave up teaching at the University of California at Berkeley in 1973 to trade the first Treasury-bond futures is getting his way with the biggest change in U.S. environmental policy in 20 years. And he has an unwitting ally from Chicago.
Legislation to let polluters buy and sell carbon-dioxide emissions like pork bellies is the outgrowth of that economist, Richard L. Sandor. He founded the Chicago-based network known as Chicago Climate Exchange, which started six years ago with $1.1 million of seed money from the city's Joyce Foundation.
At the time, the foundation's board included a little-known state senator named Barack Obama. Now the 44th president, Obama is determined to enact America's first limits on greenhouse gases.
In a belated recognition that Chicago-style pragmatism may prevail in the battle between business and environmentalists, Sandor, 67, finds himself working with Henry Waxman, the California Democrat who has taken on everyone from drugmakers to the tobacco lobby in three decades in Congress.
The original bill that Waxman sponsored, the cornerstone of Obama's environmental agenda, began "way, way to the left," Sandor said in an interview. It included provisions he said would push U.S. utilities into bankruptcy.
"The Waxman bill, to those of us who are students, was a joke from the inception," said Sandor, who at the Chicago Board of Trade helped develop interest-rate futures such as the Treasury-bond contract, which began trading in 1977.
Waxman, chairman of the House Energy and Commerce Committee, agreed to give free pollution permits to utilities and allow manufacturers and refiners to meet CO2 targets by investing in so-called offset credits championed by Sandor. Companies offset their emissions by paying someone else to reduce greenhouse gases.
American Electric Power Co., Duke Energy Corp. and other carbon emitters are counting on the offsets to help reduce the cost of complying with the new pollution rules. The credits in question involve agricultural projects that reduce CO2 in the atmosphere by planting trees or not tilling cropland.
"We have to make very sure that the statute creates good, strong rules to make sure all offsets are high-quality and really represent actions that wouldn't happen anyway," said David Doniger, policy director of the Natural Resources Defense Council's climate center.
The new legislation would create a mandatory national program to cut greenhouse-gas emissions 17 percent from 2005 levels by 2020. To release each ton, companies will need to own either a government-issued permit or a carbon credit of the kind traded over-the-counter or on the Chicago exchange, or CCX.
The government would allow as many as 2 billion offset credits to circulate, beginning in 2012. Half of those could be generated domestically and the other half from projects in other countries. The number of offsets and permits will decline over time, reducing harmful pollution.
In 2008, Sandor's Chicago platform handled 69 million of the 123 million credits traded worldwide in the voluntary emissions market, a precursor to the government-mandated market Congress plans to create, according to Ecosystem Marketplace.
Sandor launched the climate exchange in 2003 after getting two research grants from the Chicago-based Joyce Foundation. The money went to the Kellogg School of Management at Northwestern University, in Evanston, Illinois, for Sandor's pilot program to trade carbon credits.
"Obama was on the foundation that gave us the grant," Sandor said. "We know him well."
White House spokesman Josh Earnest said Sandor didn't discuss provisions in the climate bill with Obama or other administration officials. The White House "has not weighed in on any specific policy details of the Waxman bill, including offset provisions," Earnest wrote in an e-mail.
Obama has proposed auctioning pollution permits to raise at least $646 billion from 2012 to 2019. Sandor opposed that provision, saying that paying for the permits would wipe out utilities' profits.
"You bankrupt the industry," he said. "So you sit down with senators and say, 'Look, think this through, guys.'"
Waxman's original plan hurt companies such as American Electric, the biggest U.S. producer of electricity from coal, that had purchased credits with the hope of using them in a federal program, said Bruce Braine, a vice president at the Columbus, Ohio-based power company and a board member of the Chicago exchange.
"What this really does is buy a little bit of time to smooth out the rate impacts in the early years," said John Stowell, vice president of environmental policy for Duke Energy, the Charlotte, North Carolina-based owner of utilities in the U.S. Southeast and Midwest. "We need a bridge to get us to the new technology."