Richard L. Sandor doesn't lack ambition. While U.S.
financial exchanges are pushing into new areas like steel
futures, often in the face of industry resistance, the founder
of the world's first exchange to trade climate products clearly
thinks the sky's the limit.
"Why not endangered species?" he said when asked what kinds
of products could be traded on exchanges in the future. "Look
at anything economists have traditionally called public goods
and that seemingly could not be traded. Air, water ... why
shouldn't the commodities that make life possible be
Take a step back. Sandor isn't suggesting that polar bears
and orangutans be listed alongside oil on the New York
Mercantile Exchange. Neither is he envisaging a world in which
consumers would have to line up for a daily allowance of
oxygen. The starting point for Sandor's vision is the idea of
scarcity, and theories about how to put an accurate value on
the essentials of life.
Sandor's main venture, the Chicago Climate Exchange (CCX),
is a case in point. Set up in 2003, the CCX was the world's
first exchange for trading permits for greenhouse gas
emissions. Exchange members, who include some of the leading
corporations in the United States, agree to voluntary but
binding targets for emissions and then buy and sell emissions
permits on the exchange.
In essence, the CCX puts a price on something-the right to
emit carbon dioxide-that previously had been considered free.
Those who believe the world needs to act quickly to reduce
greenhouse gas emissions, and that a market-based system is the
best means of achieving that goal, applaud this kind of
"As a planet, we emit about 30 billion tons" of carbon
dioxide annually, Sandor said at the Steel Success Strategies
XXIII Conference in June co-sponsored by AMM and World
Steel Dynamics Inc. (AMM, July 1). "If we take the
current price of carbon of $40 (per tonne) multiplied by 30
billion to 35 billion tons, we're talking a cash crop of
hundreds of billions of dollars...This will simply be the
biggest commodity in the world."
U.S. metal industries need to get involved in carbon
trading, Sandor said, because-like it or not-it's coming. Both
Sen. Barack Obama and Sen. John McCain support some form of
cap-and-trade system that would place a limit on the amount of
greenhouse gases that companies and industries could emit, and
then allow those who emit less to profit by selling their
savings to companies who overshoot.
"We have an expression in Chicago If you're not at the
table, you're on the menu," Sandor said. "They (steel
companies) have to be part of the debate. Sometimes this debate
is couched in terms of how much this thing is going to cost.
We're couching the debate in terms of lowering greenhouse gases
at the lowest possible cost."
The steel industry, through groups such as the American Iron
and Steel Institute, opposes cap-and-trade programs in the
forms being discussed in Washington. The aluminum industry,
while still expressing reservations about some elements, has
been more welcoming.
"Those companies who don't get involved early are going to
be stuck with high costs," Sandor said. "It's almost a
Despite his enthusiasm-Sandor has the air of someone
continually struggling to contain his excitement at the
repercussions of his ideas-the man once described as the
"father of financial futures" isn't expecting everyone to be
converted overnight to the importance of trading the air we
breathe. Before turning his attention to the climate, Sandor
was one of the most respected figures in U.S. financial
markets, including a stint as chief economist of the Chicago
Board of Trade, where he was credited with helping to create
the interest-rate futures market.
"The development of any new market seems to me to be a
generational issue," he said. "I think of the first two to five
years of a market as a kind of childhood, five to 10 years as a
young adult and 10 to 20 years as the period of maturity. If
you look at 2003 (when the CCX was launched) as the starting
point, we're just getting into the teen years."
Given the hostility of many in the steel industry to cap and
trade and the packaging of core business issues into financial
contracts, a brash adolescent in the room might be the last
thing many companies want. But if this market reaches
adulthood, as Sandor envisages, it could become impossible to